One of the many reasons I launched Empowering Finance was to challenge all of the industry norms that I was told were the only way to “make it/be successful” in the wild world of finance. One of these industry norms is how a majority of RIA (registered investment advisory) firms charge their clients for their services which are typically based on AUM (assets under management). Most financial firms have both a required minimum of assets that you must have in order to work with them and a majority of them charge a percentage of these assets, usually around 1%.
If a firm has a requirement of $1 million of investable assets to become their client, the minimum fee charged would be $10k, but this changes due to market fluctuations. If the market has a fabulous year and gains 20%, guess what? Their fee also increases by 20%😲! Firms that charge in this manner may also point out that the same happens if there is a market decrease, that their fee decreases, which is true, but with some huge caveats. They are banking on the fact that three out of every four years there is a positive stock market return, with the average return being 10%! You can see how quickly your fee will increase year after year😑.
Also, as financial planners our job is to know your entire financial picture, including your spending. We find it ludicrous that financial planners who bill in the AUM manner can’t tell you what your fee will be until after the quarter-end return and they calculate what happened in the previous quarter. That doesn’t seem consistent with the rest of the work we do and how important knowing your numbers and spending numbers are month-by-month.
One last thing to point out with the AUM model, these firms are incentivized to both get more money into your accounts (via 401k or other retirement plan rollovers) and keep as much money in your accounts as possible (so they may discourage you to take withdrawals).
How to fix these issues and reduce conflicts of interest to provide you with transparent and unbiased advice? We believe our two different service models, the hourly financial planning option and our flat-fee annual comprehensive option, are both in your best interest and do just that. Read on to learn more about both options and which one may be a better fit for your needs and personal financial situation💫.
Hourly Financial Planning
What is it?
Hourly financial planning means you are just charged the hourly rate of the financial planner to do the work you are asking for, much like how attorneys or CPAs charge.
Who is it for?
Hourly financial planning is an excellent option for many and may include:
- You are just starting out on your financial journey
- You take direction well and will implement all suggestions (the onus is on you to take care of all of the tasks from meeting with your financial planner)
- You enjoy managing your own investments and want a helping hand once or twice a year
- You want to make sure you’re saving enough for retirement or that you are utilizing the right benefits your employer offers (what benefits to choose from or how to allocate your 401k)
- You just have one or two questions about saving, investing, making a big purchase, starting a new job, relocating, etc.
- Most of your investments are in your company-sponsored retirement plan (401k, 403b, and various others)
- There are a few other reasons you might hire an hourly planner, and you can learn more in this article by the Garrett Planning Network.
How much does it cost?
Many people think their questions can quickly be answered in one or two hours, but this is not the case. As CFP® professionals, we are bound by a Code of Ethics and Standards of Conduct, must follow a 7-Step Financial Planning Process, and are regulated either by our home state or the SEC on how we must operate to stay in compliance. Due to these regulations, standards, and compliance requirements, it takes time to fully understand your entire personal financial situation.
At Empowering Finance, a typical hourly engagement in the first year of working together is 10 hours at a minimum and can vary depending on your personal situation. There is meeting preparation time, your actual face-to-face meeting time, and follow-up from the meeting time. If you send an email or need assistance outside of an actual meeting, the billable clock turns on only if the time is greater than 15-minutes (this is different from most attorneys and CPAs as we do want to help and be in contact and don’t want you afraid to get a bill for a quick question).
After the first year of engagement, the time needed varies client by client. Some clients only need to check in once or twice a year for updates and some need/want to check in more regularly. We are here to support you with whatever may pop up in your life. Our hourly clients really appreciate that they can send a question and know a CFP® professional is at their service to help with whatever happens in their life.
What are the benefits of hourly financial planning?
No commitment! If you are commitment-phobic, this is the perfect plan for you😂. All jokes aside, this is one of the many benefits of the hourly fee model. Paying hourly for your financial planning needs means that you can get help with a specific area of your finances without having to commit to a long-term, comprehensive plan. It also means the pricing can be a bit more flexible (you choose the meeting cadence and when you want to meet). You also have the benefit of having complete transparency over the fees you pay by only being charged for the time your financial planner spends on your work.
What are the downsides?
If you need an accountability partner to make sure you are getting the tasks done, this is not a great option as this is more of a transactional partnership. If you want someone to be placing trades and managing your invested assets, then this also will not work with the hourly model. If you have multiple areas of financial planning that you need help with on a regular basis, the hourly costs can add up quickly.
In addition, it can be very difficult to manage your time well in meetings with a financial planner. There is usually a lot more involved when it comes to financial questions than you might expect and you might feel rushed or limited if you are trying to keep your cost low in an hourly model.
Lastly, there are very few CFP® professionals willing to have an hourly option as it typically is the least profitable method and most challenging way to deliver their services. If you find one that you enjoy working with, celebrate this as they are few and far between😊!
Flat Fee Financial Planning
What is it?
A flat fee financial planning engagement means you are charged a single flat fee for your comprehensive financial needs, which could also include investment management, depending on the firm. At Empowering Finance, our flat fee model DOES include investment management, meaning we are agnostic to how many assets you have (we have zero assets minimum requirement to work with us) and your fee is the same whether you have $750k or $5 million with us.
Who is it for?
If you need an accountability partner, want someone to be managing your investment accounts, and want to meet on a consistent basis, then you will probably benefit most from a flat fee financial engagement. This model is best for those who:
- Have been saving and investing for years and want a professional to take over the management of your accounts so you can focus on other things that bring you joy
- You don’t tend to follow through with financial tasks (we call this option our friendly-stalker option as you will be hearing from us to make sure the work is getting done)
- You don’t enjoy managing your own investments
- You want a CFP® professional at your disposal and don’t want to worry about getting invoiced whenever you need their services
- You have multiple investment accounts outside of your company retirement plan
- You have a big liquidity event coming up (inheritance, stock options, selling a business, litigation proceeds) and want help with what to do with these incoming dollars
How much does it cost?
Flat fee financial planning can range quite a bit depending on skill level, specialties, and areas served. Once you decide you want to create an ongoing, long-term relationship with a financial planner you will want to interview several planners to make sure they provide the services you need and you enjoy their company. At Empowering Finance, our flat fee for an individual is $6k/year and $8k/year for a couple. In the first year of engagement, there is a one-time setup fee that ranges from $2k-$5k, depending on the complexity of your situation and your client service needs.
What are the benefits of flat fee comprehensive financial planning?
Flat fee financial planning means having a fixed, predictable, agreed-upon fee. No surprises, easier to budget for their services, and they are agnostic as to how many assets you may (or may not) have. You also get comprehensive financial planning and an ongoing relationship with a financial planner that can provide guidance, support, and monitoring of your financial situation that is unbiased and conflict-free✨.
What are the downsides?
Engaging in an annual flat fee financial plan means that there is a commitment between you and your financial planner to meet regularly throughout the year. Typically, firms that charge via AUM meet with their clients once every 9-12 months, but most flat fee firms meet more throughout the year. If you want less engagement with a firm, this may not be a good fit for you. A common fear around a flat fee planner is that their fee can be expensive. However, this is a big misconception. When you compare the flat fee to the usual model of charging for financial planning services (the AUM model), most of the time it’s a much cheaper rate as your fee does not change based on the amount of assets that you have.
When you choose to hire a flat fee financial planner, like Empowering Finance, you know exactly what you are paying every year and you are always getting quality service, regardless of how much money you have invested.
Where can I find flat fee or hourly financial planners?
You can start here at Empowering Finance. We offer flat fee and hourly financial planning services and you can learn more on our Services and Fee page.
You can also check out the Garrett Planning Network, the Fee-Only Network, and the XY Planning Network to find both hourly and flat fee financial planners (note that all of the referenced networks have financial planners that charge in various manners, so make sure you confirm the ones you are contacting have the options you prefer)🌈.