Q45 – How to charge for financial planning?

Also available as podcast (Episode #45)

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How to charge for financial planning?

As an RIA it is possible to charge for financial planning services that you provide to your clients.  This is often referred to as “fee for service”.  You provide a financial planning service, in return for a fee.  There is a wide spectrum of topics such services might address including retirement planning, estate planning, 401k analysis, cash flow projections, saving for college, insurance needs, Medicare and Social Security planning, etc.  In turn, how you are paid for such advice can be structured in a number of ways as well.  Some firms charge a reoccurring monthly fee, some charge by the hour, some charge retainers, others charge a one-time flat fee, etc.  Equally important is how to compliantly charge such fees to your clients.  In today’s episode we discuss how to do the latter, and how tools like AdvicePay can assist you with it.

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Show Notes:

AdvicePay (website)

AdvicePay inquiries:  [email protected]

Lucy Robeson (LinkedIn)

Isabelle McGrail (LinkedIn)

Full Transcript:

Brad: How do I incorporate fee-for-service financial planning into my advisory practice? This is the Transition To RIA question and answer series. It is question #45.

Hi, I’m Brad Wales with Transition To RIA. On today’s question, we’re going to be talking about fee-for-service financial planning.

Many of you have probably heard of fee-for-service. It seems to be getting a lot more buzz in the industry, a lot of articles being written about it, firms talking about doing it. And so the question is, first of all, what exactly is fee-for-service financial planning? And why might you want to incorporate this into your practice? And if you do want to incorporate it, how do you go about actually doing that?

I’m excited, for those of you that are watching this in video form, we do have two guests today from AdvicePay. We have Lucy Robeson and Isabelle McGrail. Lucy and Isabelle, thanks for joining me.

Lucy: Hi, Brad. Thanks.

Isabelle:  Hi, Brad.

Brad: I will turn it back over to both of them in a second to give a background on themselves and their firm.

I think this is very timely. This is not a new topic. And part of the intro, you guys can even say how long AdvicePay has been around, not that it (fee-for-service) only came about with AdvicePay. But I think advisors have been doing this for quite some time.

There’s some RIAs that start up solely doing fee-for-service, that is 100% their business model. And we’re seeing more and more – we’ll dive into this – it exists in tenured firms that have never done this at all, that are now starting to incorporate it into their practices for one reason or another.

A lot of great, valuable information to come and I look forward to diving into that here today. If you could, if both of you could give a brief background on yourselves and AdvicePay, that would be helpful.

Lucy: Sure. Happy to do it. Thanks for having us both on. I’m Lucy Robeson, and I’m the managing director at AdvicePay. So, my background is actually as a Certified Financial Planner. I was working directly with clients and found a love for the operations and technology side of working within an RIA and wanting to help advisors find those solutions.

AdvicePay was founded in 2016. I joined the team in 2018. Really providing this payment platform solution for advisors who want to do fee-for-service financial planning, which I know we’ll dig into today.

I’ll let Isabelle talk a little bit more about what our solution is with her introduction.

Isabelle: Thanks, Lucy. My name is Isabelle McGrail. I’ve been with AdvicePay for about two years now. I’m a business development associate here at AdvicePay. I didn’t really have a background in financial planning, but kind of came about AdvicePay sort of randomly. I’ve really enjoyed working with advisors, either who were working with fee-for-service clients or starting to introduce the model for the first time.

It’s been really exciting, especially seeing the growth of fee-for-service throughout the past two years that I’ve been here.

Brad: Fantastic. I think the proper answer would have been you clearly saw the trend ahead of its time and you said that’s a good firm!

Isabelle: That’s very true.

Brad: You need to go work for AdvicePay. That is where the puck is going, as they say. So, however it all came together, I’m glad it did for you guys.

I certainly appreciate you guys jumping on here today. I’ll fire the questions off, feel free to…whichever one of you would like to take a first stab at or pass it off, and we can certainly go that way.

If one of you could start with, what exactly is fee-for-service?  I saw it on the AdvicePay website, that’s how you guys describe it. Others reference it as fee-for-service. What exactly is that, in your opinion, or how do you describe that to advisors?

Lucy: It’s a great question and a great place to start. We’re all talking about and thinking about the same thing. Essentially fee-for-service is another way to get paid, another billing model within the financial services industry.  We often think of selling a product, maybe getting a commission. A lot of advisors charge an assets under management or AUM fee.

As you Brad mentioned, we see this trajectory around fee-for-service, which is charging a fixed amount at set intervals. We typically see that fixed amount being charged on a monthly basis for the services you’re providing, which predominantly are around giving advice.

There are a lot of services financial planners can offer and we can dig into some of those and who you can serve using the model. But the way you pay almost any bill at this point on a flat fee monthly basis, kind of the Netflix approach, if you will, this is allowing more people to get access to financial planning through cash flow. Paying a set amount, again, most often on a monthly basis for the advice, for the relationship to be able to work with a financial planner on an ongoing basis.

Brad: I was going to ask you, what’s the most common? It sounds like the most common approach is the monthly subscription. I think the Netflix is the great example, that we’re all so used to that model.

Are you seeing other approaches? I hear about the retainer, or perhaps one-time fees. Are you seeing much of that, or is it almost exclusively that monthly arrangement?

Lucy: About 90% of our ongoing fees are done on a monthly basis. We also have options for firms to do quarterly and semi-annual billing, but the vast majority, that 90% are doing this on a monthly basis.

We see a lot of firms charging an upfront fee with that. A lot of the heavy lifting with the financial planning relationship happens at the onset of the relationship. So, through AdvicePay, you can charge an upfront fee, and then the ongoing monthly fee kicks in after that.

We also do see some firms using this, whether they – for a client wanting to try, what is financial planning really about – they might charge a one-time fee and work with a client on a project or hourly basis, and engage with the client that way, let the client get to know them. And potentially that moves into a more ongoing relationship.

So, a few ways to structure, but that ongoing monthly, often paired with a one-time upfront fee is most common.

Brad: That’s great with the upfront because there can be more work on that initial engagement. And then on a going-forward basis might look at a different kind of price point kind of thing.

I don’t know if you’d agree – my guess is you would – my opening comments where I said, I’m seeing and hearing about startup RIA firms that do this from the jump, that is their business model, that’s how they enter the business. Perhaps you could confirm or deny that for us.

And then what about – and this is a large part of my audience is working with advisors that have already been in the business a long time. Most likely they’re doing an AUM-type fee, and will most likely want to continue doing that. But they might want to add on to their services with a fee-for-service offering.

Are you seeing that as well of that traditional AUM advisor looking to incorporate it? And if so, how are you seeing that play out, or what’s your experience with that been?

Lucy: I think this is one of the exciting things about the fee-for-service model, there are a lot of ways to do it. And as you said, it kind of took off with firms starting RIAs coming out of the gate offering fee-for-service financial planning.

But we’ve really seen this evolution of firms under other billing models, including AUM, offering this as a solution. A common use case where this makes sense, and where firms are focusing is younger people who might not have the investable assets to make an AUM relationship make sense, but who have the cash flow to be able to pay a fixed monthly amount from that cash flow.

This can come up with high earners, with entrepreneurs, with real estate investors, people who are investing money into other projects they’re working on. Or a common example we’ll use is doctors. Tons of debt, tons of income, probably don’t have much in assets beyond the 401k as they’re just starting to build that coming out of medical school.

On the AUM side and with firms who have been doing AUM for a long time, what we’re finding and seeing is that this presents a great opportunity to start working with clients they maybe had to say no to otherwise because they didn’t have a billing platform and a billing payment solution to allow them to work with people who, again have the cash flow.

We want advisors to be paid for the tremendous value they provide. Now they’re able to offer another model that allows them to work with clients they might have had to say no to before. Or they’re advising some of their AUM clients on accounts, like a 401k where you can’t debit fees from that account.

You can structure some of the services you’re providing or, you know, almost saying in quotes, “giving away for free” because you don’t have a good way to bill for it. And so it’s not really bundled in other fees, and you’re not going to say no to a client who asks a question.

So, it presents the opportunity for advisors to match fees to the services they’re offering more specifically and say, yes, we can advise on this or this portion, or help kids of clients, adult children of clients, with a different model that just didn’t make sense under an AUM model.

Brad: That’s a great point. Are you getting credit for the service you’re providing, and if they don’t realize maybe they’re paying for it. Being able to more line item that financial planning component to it, I think people will appreciate…oh, wow, there is value here in what I’m getting. So, I think that’s important.

You didn’t say it, but I’ve heard the acronym, if I’ve got my acronym right, HENRY.  High Earner, Not Rich Yet. I think that doctor example is perfect. That’s absolutely a potentially great long-term client. But in those initial years out of their schooling, it is what it is, they don’t necessarily have a lot of assets to manage or to work with at that point. So I think a great example, but just one of the examples where I think the HENRY model comes into play.

If we could jump to two logistical parts to this. We’ll get a little technical on this. I’m not the expert on either one, so I’m glad to have you guys on to talk about this. The first is the issue of custody.

For those listening along or watching that aren’t already familiar, as an RIA, there’s a very defined terminology where if you are deemed to have “custody” (as an RIA), it’s not necessarily a problem, it’s not illegal or anything like that, but it does come with a lot of additional responsibilities for the RIA.

Things like a surprise annual exam have to be conducted. Arguably, you have higher regulatory scrutiny because you have custody. And so generally, the overwhelming majority of RIAs try to avoid having custody. And in some ways, you could say, okay, I won’t do certain things because I don’t want to have custody. And then other times, you have be careful to not inadvertently find yourself by definition having custody.

I have heard that with fee-for-service, that is something to be aware of, to make sure you don’t trigger that. So, if you could walk us through, how does custody play into fee-for-service? And then what is something like AdvicePay do to try to avoid that inadvertently happening?

Isabelle: Absolutely. I can touch on that one. A 2013 SEC Risk Alert noted that having online access to client accounts can trigger custody if that access includes the ability to withdraw funds or transfer funds to another account.

As you just mentioned, it’s not illegal for a financial planner to have custody. However, it does kind of create a headache. Planners who do have custody have to arrange for an audit, it costs a lot of time and also a lot of money.

AdvicePay was built specifically with that custody rule in mind. When an advisor is using AdvicePay, they don’t have to worry about triggering custody.

We’re also always adapting to changing regulations. Advisors never see any sensitive credit card information or bank account information. And then any changes to client billing always require approval from the client.

So, for example, I have my client set up on a $100 monthly subscription, and I go and edit that to $200. My client has to go into AdvicePay and manually approve that fee increase.

Other payment processors are kind of problematic because they’re not compliant with the industry regulations. And then a lot of those platforms also ban billing for financial services, which a lot of advisors don’t really know about, but it’s against their acceptable use policy. That includes, QuickBooks, PayPal, Venmo.

Advisors using those platforms are at risk of getting removed or kicked off for violating those terms of service. And then they can also raise some red flags with auditors.

Brad: That’s a great point. And thank you for bringing up the credit card thing, because I have heard that too, where – and quite frankly, I think I myself would think I can just go to whatever…you know, a PayPal or whatever the case may be. And so to your point, that’s not the case. And if I’m hearing you correct, AdvicePay was specifically set up with that in mind.

I should mention you guys are not lawyers, so we won’t hold you to any legal advice. But it’s my understanding AdvicePay was set up to try to, I don’t want to say solve for both those issues, but try to manage both that custody and how you must work with credit card merchants. So, that’s good to hear on that front as well.

Could we walk through – and you referenced a little, the scenario of maybe changing a fee, but let’s say I’m an advisor, I like this, I’m already signed up with you guys, I’ll come back to kind of how that works, so, let’s say I’m already up and going, and I have a new client today, comes in, they like my value proposition, we seem to be a good fit for each other. So, I want to sign them up for – and we’ll use a monthly subscription fee, it seems to be one of the most often used – what is the actual process of doing that? Both for me as the advisor and the client on the other side of that table? What are the steps in that?

Isabelle: Good question. The very first step is to get that client added into AdvicePay, which is just as simple as adding their first and last name and email address. AdvicePay also integrates with Wealthbox, Redtail, and then Salesforce, so advisors can also use those systems to add clients over.

Once the client has been added, the advisor will create that invoice by selecting the type, so whether it’s like a one-time invoice, maybe for like a project-based fee, or hourly fee, or if the advisor is setting them up on a subscription. And then from there, the advisor will choose the amount, the due date, and then the frequency, so if it is a subscription.

Advisors can also elect to attach a financial planning document or an agreement to the invoice during that process. AdvicePay integrates with HelloSign and DocuSign, as well to support that.

Then from there, they’ll send an email to that client directly through AdvicePay notifying them that they have that new invoice and/or document. And then from the client side, they’ll open up that email and be able to pay their invoice or if there’s a document, they can sign that document and then pay by entering either a credit card or bank account information.

Clients only have to enter that payment information once for subscription, and then going forward, it’s automated. Clients also have an option, they can create an account and pay or they can enter that payment information without creating an account and go on with their day. So, it’s really easy for both the advisor and the client.

Brad: And you mentioned sign something. I’m familiar with the idea that you have to enter an advisory agreement with, whether you have a…managing someone’s assets, or you’re doing a one time service, wherever the case may be.

And again, with a disclaimer, you guys are not providing legal advice, but what must the advisor do from an advisory agreement standpoint with the client? Do you typically see advisors have that agreement, and they have the client sign that individually? And then they shift over to an AdvicePay to facilitate the actual payment? Am I correct in that, that is a part of the process?

Isabelle: AdvicePay does not require that advisors send an agreement to the client. However, we definitely find that it is a best practice to do so.

Most advisors will have their client, as you mentioned, sign a financial planning agreement that outlines the types of services that they’ll be offering and the fees that the client will be paying. The integrations we have with HelloSign and DocuSign make it really easy for the advisor to get that agreement signed and that invoice paid in one simple workflow.

They’re not working out of multiple systems. They can make sure that document is signed, and the client won’t have the ability to pay their invoice until they sign that financial planning document.

Brad: That’s fantastic. I didn’t realize you guys had that incorporated. That’s a huge workflow positive there because otherwise you have to ask a client to do two separate processes, which can slow things down. So, kudos to you guys for building that into it, for sure. So, how…

Lucy: Brad, I can jump in with an example. I’m working as an advisor – I’m sure other advisors can relate to this – clients are eager to get started. It’s a lot more fun to start diving into the financial plan than it is to sign the paperwork. So, the system being designed to force them to sign the paperwork and it’s automated, it’s online, it’s easy before they can pay the fee, helps clients have a seamless process for getting started, makes it a lot easier.

And on the advisor side importantly, ensures that that documentation is in place before they start making the recommendations and building out that financial plan.

Brad: Yeah, it will go a long way during the inevitable regulatory exam to be able to say, hey, that’s our process. The system will not even let us do it until we’ve got that step done. I think that’s very helpful for audit purposes.

So, how do you guys price this out? Not to put you on the spot, but is it a per-account charge or per advisor charge, or per revenue charge? How do you price out the offering?

Lucy: Essentially there are two components to our fee structure. There is both a monthly fee to use the service and then there is a small percentage being charged on the transaction volume that is run through AdvicePay.

We’re happy to have our sales team – and we’ll provide some contact information – talk through those specifics, what that looks like, how it works.

Right now I can say most of our professional users who have RIAs and are getting signed up, that monthly fee starts at $50. And then we’re taking that small percentage. It varies, whether they’re using a credit card or ACH to process those transactions. But those are the two fees to be thinking about when signing up.

Brad: That’s a great point. I didn’t even think to ask. So, ACH is another option. So, they can charge a credit card or just have it debited out of a checking account type thing?

Lucy: Correct.

Brad: Okay.

Lucy: So, credit cards, debit cards, ACH, those are all available. And what we have heard from some advisors is that they want to limit it to one or the other, some want to give their clients the option. So, we actually have settings built in around that. If you only want your clients to be able to charge via ACH, which does have lower transaction costs, that is an option.

I’ve talked to some firms, their niche is around maximizing credit card points, and they work with people who travel a ton. And so they want all of their clients to pay via credit card. Some don’t care, they just want to give their client the choice. So, we’ve built that flexibility into the system as well.

Brad: Yeah, I guess it’s hard to promote the use of travel or airline credit cards and then not accept them for your service! So, fair enough on that one.

What about minimums? If I’m an advisor – perhaps this is not what I’ve historically done, I’m not going to instantly make it 50% of my practice, even if I wanted to – do you have minimums? Is there minimum commitment of revenue spend per month, per quarter, or how’s that look?

Lucy: Isabelle, do you want to talk about the Essential offering?

Isabelle: Yeah. There are no minimums on AdvicePay. An advisor could sign up and have one client and that’s why we have the tier below our Professional platform, which is the Essential plan. That one is just $10 a month. That is a great place to start for an advisor who might just be getting started with their business.

That has a 10 client cap, so you can’t add more than 10 clients. But again, if an advisor only has one client and they don’t feel comfortable paying $50 a month yet on the Professional platform, they can start on that Essential platform. And then if they do eventually get more than 10 clients, it’s really easy to upgrade directly within AdvicePay and go to the Professional platform from there.

Brad: So, they can kind of dip a toe, get a feel for it, see if it resonates with their clients.

Isabelle: Exactly.

Brad: If I’m an advisor, this sounds good, this is something I should incorporate both to generate more revenue for my practice, be able to service more clients, increase my service offering, all of those things. If someone’s listening to this, and they say… AdvicePay seems to have this all figured out…what’s that process if someone wants to sign up with you?

Is it simply going to the website and everything’s done digitally? Is it reaching out and talking to someone on the team? What’s that process if an advisor wants to get started with this?

Isabelle: AdvicePay is a month-to-month service and advisors can sign up directly on our website at any time. They can also reach out to [email protected] if they want any more information or a more thorough demo before getting started.

The signup process itself takes about 5, 10 minutes to get onto AdvicePay and most firms are up and running fairly quickly. Of course, it depends on the amount of clients that they’re onboarding. That being said, our team is always happy to help with onboarding and setup as advisors are getting started.

And then advisors always have access directly to our support team through their advisor portal. We have a really fantastic support team. If questions arise, it is really fairly easy to get started and a really good experience for clients as well. Even people who are less tech-savvy, I have heard say, it’s really easy and an intuitive system to use.

Brad: Good to know. And if I’ve got my math right, (AdvicePay is) five years in, so I assume it’s been polished up pretty well.

I was going to finish by asking what’s the best way for folks to get a hold of you?

You just touched on it, but to repeat it, I’ll give you guys a plug. Advicepay.com is where you can check it out. And Isabelle, correct me if I have it wrong, but [email protected] is where folks can reach out with questions. And if need be, begin a dialogue with the team.

Any final thoughts on advisors that perhaps this is the first time or only time they’ve been exposed to this topic, of what you suggest they would do to maybe take next steps with it?

Lucy: I think it’s helpful for advisors to think about times they’ve had to say no to a client who wanted to work with them, because they didn’t have the right solution or payment method in place to be able to work with them. Or to think about those services they might be giving away for free that they could be charging.

One of the small hiccups we’ve heard from some advisors starting this is they say, “Oh, but I don’t want to give a client, even if I’m starting on Essential with one client who wants to do this, I don’t want them to have to have one more login,” we even have a way around that. When they get that email, they can pay without even creating an account. So, there’s flexibility there.

And as Isabelle said, our sales team is happy to talk to advisors and answer those questions. Think about how this might be the best solution for them. But really thinking about, advisors love to help people, that’s what they want to do. Who are those clients that you’re maybe not helping to the fullest potential or haven’t been able to help because you just didn’t have or weren’t familiar with the fee-for-service model?

Brad: Great way to wrap it up. Hopefully, for those folks listening or watching in, this has given you a good introduction to it. Obviously, there’s more details and more conversations that can be had, but I am seeing this being used quite a bit in the marketplace. You guys are obviously seeing it on your side.

I would encourage advisors that this resonates with to consider implementing it into their practices and you will need a compliant way to go about doing it. I certainly suggest taking a look at AdvicePay.

Glad to have you guys on. Thanks for coming on and educating us, teaching us a little something today.

If you’re not already there, if you’re listening in on this, if you go to TransitionToRIA.com, I will, in the show notes, have the email address, the website, and anything else that I end up putting in here will be in the show notes so you can find that.

I certainly appreciate everyone for joining in. And thank you guys for jumping on the video and podcast today.

Lucy: Thanks, Brad.

Isabelle: Thank you so much, Brad.

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