by Rebecca King
Financial planning is still a young profession with unanswered questions and emerging best practices. One challenging area can be how to appropriately charge for financial planning services. By exploring the fees commonly charged by your peers, you can compare your practice and also provide an objective source of information for your clients who may be curious how your fees compare to other planners. FPA's 2011 Financial Plan Development & Fees study, conducted in October 2011 with 527 completed responses (4.3 percent margin of error) provides some data to accomplish this.
Setting the Stage
When comparing your practice to those of peers or providing industry information to clients, it is important to understand key differences or similarities between your practice and the average practice represented by the data. Setting the stage in this way can help explain to clients why your fees may be significantly higher or lower than average and also help you evaluate if your fees should be altered. Here are some factors about the 2011 FPA study data to consider:
Client services: Study respondents are providing financial services to 90 client households on average. Of those clients, 51.7 percent receive comprehensive financial planning, 28.9 percent receive modular financial planning and 19.4 percent receive no financial planning.
Time spent: The bulk of planners' time is spent developing financial plans/financial planning (25.7 percent) and client maintenance (24.8 percent). Additional areas include trading and asset management (10.2 percent), business development/marketing (10 percent), operations/back office/practice management (9.8 percent), investment research (9.1 percent), training/professional development (6.9 percent) and other (3 percent).
When it comes to the specific development of a financial plan, planners typically spend one to three hours on the initial discovery meeting with the client, then three to 14 hours developing the financial plan.
Only one-quarter of planners deliver the written financial plan less than two weeks after the initial discovery meeting, with the remainder taking longer to deliver the written financial plan to the client.
Fee method: Assets under management (AUM) fees still reign supreme, with nearly twice as many advisers reporting that their practices use an AUM fee to generate revenue compared with any other revenue method. Although not as popular, many practices use a variety of flat fees including retainer, hourly or a fee per plan.
Of those advisers who charge an AUM fee and outsource investment management for their clients, 81 percent include the outsourced AUM in their calculations when charging clients an AUM fee.
Typical Fee Amounts
When it comes to actual fees charged, the most consistent fee across various characteristics is the AUM fee. As you can see in Exhibit 3, half of advisers who charge an AUM fee keep the fee between 1 percent and 1.25 percent. The various flat fee options show more variance with the annual retainer fee demonstrating the widest range.
Somewhat surprisingly, advisers with increased years of experience in financial services do not necessarily charge more (with the exception of a flat fee for a modular plan, which averages $550 for planners with fewer than five years of experience and increases to $1,000 for advisers with 20 or more years of experience). The AUM fee averages 1 percent across all experience levels, and the remaining fees vary, showing no consistent increase or decrease with years of experience.
When we look at the fee amounts charged according to planners' designations and certifications, there is some variance, the most notable that planners without a certification or designation are typically charging lower fees.
Leveraging the Data
As you start a new year, you may be preparing to review and update your annual business plan. Perhaps you're focused on bringing in new clients or you simply have an interest in reviewing select aspects of your practice. If pricing is one of those areas, use this information as a starting point to give you insights into typical fees being charged by planners across the country.
Rebecca King is assistant director of research and business development at FPA. Contact her at Rebecca.King@FPAnet.org.
For an at-a-glance overview of typical fees charged, download our quick 2012 Fee Fact Sheet at: www.FPAnet.org/Professionals/Learn/ResearchCenter/ResearchPublications/BusinessPlanning.