by Rebecca King
Although the process of financial planning can be fairly straightforward, the day-to-day execution of that process varies widely among financial planning firms. Some activities, such as initial discovery meetings with clients, demand a fairly universal amount of time whereas other activities, such as the timing of fee collection, do not have a single approach taken by a majority of planners. These are just some of the observations culled from FPA's 2011 Financial Plan Development & Fees study, conducted in October 2011 with 527 completed responses (a 4.3 percent margin of error at a 95 percent confidence level).
Understanding the general approach to financial plan development and how planners allocate their time across the creation and execution of a plan can help you understand how you compare with your peers.
Nearly 20 percent of advisers collect most or all of the plan fee up front when charging specifically for a financial plan. Another 25 percent bill half up front with the remainder invoiced after plan delivery (see Exhibit 1).
An overwhelming majority of planners (80 percent) spend between one and three hours in the initial client discovery meeting. This is true regardless of business model and years of experience, with all groups averaging about two hours.
Delivering the Plan
After the client discovery meeting and receipt of client data, 60 percent of advisers deliver the plan in one to less than three weeks. On average, they spend 11.5 hours developing the plan, with retirement planning and investment planning taking up nearly half of this time. Insurance, estate and cash management planning take another 27 percent of that time, on average. Again, this holds true across business model and years of experience, although advisers in the RIA channel spend slightly more time developing the financial plan than dually registered or independent broker-dealer planners.
After the plan is delivered, many advisers bill for either the remainder of the fee or all of it. And for those advisers who gather and manage assets, about one-third outsources at least some investment management and includes those assets in their ongoing asset management fee calculations.
Plan fees vary somewhat by the amount of time the planner typically spends developing the financial plan. However, AUM fees remain essentially the same across different categories of time spent. Hourly, retainer, comprehensive and modular fees tend to increase with the amount of time spent on a typical plan (see Exhibit 2).
How This Can Help You
Understand how your approach or process makes your firm unique. How your practice differs from other practices can help you identify your unique value proposition so prospective clients understand how you stand out.
Identify areas of opportunity for improvement. If you are spending significantly more time than the average planner developing a financial plan, it is possible you are missing out on leveraging tools or techniques that could help you improve your processes. Of course, it could also be an area in which your practice shines, so carefully evaluate any potential opportunities for improvement you uncover to make sure a change is a good fit for you.
If you are a staff member at a financial planning practice, the data provided here can help you understand how your employer compares with other practices. You may find that a different approach has more appeal to you, or you may discover new ideas for how you can approach your areas of responsibility.
Rebecca King is a consultant for FPA. Contact her at Rebecca.King@FPAnet.org.
Fee-Only vs. Fee-and-Commission
Since writing the article "Fees for Financial Planning Services: What Planners Charge" in the January/February 2012 issue of Practice Management Solutions, a common question I've been asked is: how do typical fees charged vary for fee-only planners compared with planners who also receive product commissions from plan implementation? In general, fee-only advisers charge a larger retainer, comprehensive plan or modular plan fee. Advisers who operate on a fee-and-commission basis generally charge a larger AUM or hourly fee.
The increased retainer, comprehensive plan and modular plan fee charged by fee-only advisers could be because of the lack of commissions received upon plan implementation. And the larger AUM fee charged by those who operate on a fee-and-commission basis could reflect a clientele base with lower asset levels.
-- Rebecca King
Video: How Do Your Clients Want To Be Charged?
For more information on financial planning fees, see Rebecca King's article "Fees for Financial Planning Services: What Planners Charge" in the January/February 2012 issue of Practice Management Solutions.