I’ve been in the financial services business for about 15 years. Before I started, I thought that being a financial planner meant providing a client with an overall plan to help them accomplish their goals. What I found out was that most of the industry was just fronting as “planners” or “advisors”, and were actually just sales people.
I pulled back from some opportunities, and steered my way to the firm that did the work the best way I could find. They had a process. A system that was holistic and comprehensive. They could demonstrate real value, greater protectiona dn welath creation through their process. But they RAILED against “fees”.
The system was something called LEAP. Doesn’t matter if it was good or bad, but the hatred and vitriol my trainers had for “fee-based” planners was fierce. “They drain the client of wealth, a little at a time, forever!”. “They double dip, charging a fee, and STILL earning a commission on sales of financial products”! I bought in, and believed that I did things “better” than the enemy. LEAPers relied only on commissions and asset management fees to earn a living. It was more noble, we believed.
After a number of years at this firm, I switched to another, ostensibly to teach what I had learned at the first to new advisors at the second. One problem: the founders of this firm were fee-based planners! They had been trained to charge a fee for a plan since they first started in the business. They were taught THEIR way was the best, and the way others did it was bullshit. We had a problem.
We talked, shared and debated, and both realized that we were brainwashed as newbies in the business, and would have to reassess our beliefs and find a common ground of what worked.
Fast forward nearly 10 years later. They learned from me, and I from them. Now I am a believer in the value of charging a fee for a financial plan. Let me tell you why.
Positioning: It might hellp to describe the clients I usually work with. They are high income executives, doctors, lawyers and business owners. They have bought financial products before, and have interacted with advisors, insurance agents, lawyers, etc. for years. What are they missing? An objective, overall assessment and guidance on their trajectory towards the goals they have. They don’t have the time or interest to become experts in every area, and are either not inclined to try, or admit (this is most common), that they could never really become expert anyway. They need a partner, a personal Chief Financial Officer who has a system and process to pull it all together. That’s what I offer.
Now, how do you pay for such a service? With a fee. Just like you pay a general contractor, accountant, architect or attorney. A contract; a deliverable; a fee. Period.
They are paying for the time, expertise, tools and ultimately road-map I create to put them on track and identify exactly what they need to do.
Comfort: People aren’t stupid. When an advisor offers to meet with them 1, 2 or more times, and the specifics of their compensation have not been revealed, prospects get uneasy. I would argue the advisor does too, wondering if he’s wasting his time, or if it will be worth it, or if this is the one that will get her to the sales goal she’s been pushing for. That concern on the part of the advisor and the prospect gets in the way, stunting communication, connection and openness; all essential ingredients to a good immediate result, and more importantly, to serve as the grounding for a good long-term relationship.
Quality and time: When I’ve been paid for a plan, I’m not worried about the amount of time, number of meetings, phone calls, texts or emails I must deal with. I can take my time with my planning team and the client, to refine, review and improve the plans I create. I know that worst case, I won’t lose money on the exchange.
Differentiation: As a practitioner in the financial industry, competing with thousands of others, websites, free services, apps, etc. you might think it’s counter-intuitive to go the other way. When everyone seems to be fighting to do it cheaper, easier, faster, you are deliberately putting a potential roadblock in the way: the need to create a professional relationship, before a product or advice is given, for a fee. In actual practice, though, it becomes a key ingredient to why a client hires me. I’m offering something different, and I engage with them in a different way. They get it.
About the “double dipping” critique: So my clients usually pay me a fee for a written plan, and they usually do at least some of their financial and insurance products with me. So yes, I may get paid for both. But I also advise them on asset allocation on their 401k (for which I can not get compensated), help them find ways to save more every year, and design their wills and any trusts for them (the savings on the lawyer fee alone makes up for the one they paid me), among other things. I don’t think there’s any doubt they get far more than what they pay for.
In the world of financial planning today, you have a decision to make. Will you stay the same, competing with technology, apps and Vanguard to offer things cheaper, faster, simpler; or will you step aside, train yourself to offer a value that puts price out of the question? I recently had a doctor prospect say to me “let me know if I have this right. I get this plan, and YOU for as long as it takes to get the plan set up and implemented, for (in this case) $3150? That sounds like a no-brainer. Am I missing something?” I said “no”, and we got to work. He also popped a bottle of wine for us to celebrate 🙂
That’s what I call a client relationship that you want to have, and the fee-based approach is key to it.
What do you think? Let me know.