By Myra Salzer
More and more financial planning firms are combining financial planning with coaching – a trend we’re watching with interest. Just as fee-only planning was cutting edge in the ’90s, wealth coaching is today’s innovation. We at The Wealth Conservancy are committed to advancing both.
In fact, recently I became aware of a grassroots group of fiduciary financial planners who charge flat fees or hourly rates rather than a percentage of assets under management. I plan to attend their annual conference this spring and share my findings with you.
In order to realize the next evolution in financial planning services, such as integrating coaching, the fee structure needs to change with it. Let’s break down the different fee structures to illustrate how this can be done successfully:
Fee-Only Planning
At its core, fee-only means the advisor’s only revenue comes directly from client payments, eliminating the conflicts of interest inherent in commission-based models. With commission-based advisors, there’s always the risk they might recommend products that generate higher commissions rather than those best suited for the client. The only way I know of to be a true fiduciary planner/coach is to be fee-only.
Percentage of Assets Under Management (AUM)
While technically fee-only (as payment comes directly from the client), this structure can harbor subtle conflicts. Advisors might be incentivized to recommend riskier investments to potentially increase assets and, consequently, their fees. They might also encourage clients to leverage their investments through mortgages or margin loans to maximize assets under management.
So, if an investment manager is charging AUM fees, their incentive is to manage assets, and not necessarily provide coaching services.
Flat Fee Structure
This model involves a pre-agreed-upon rate (typically quarterly) covering all services under the agreement. Its advantages include:
- No incentive to unnecessarily bring assets under management
- Comprehensive planning and coaching services are “prepaid” included
- Elimination of surprise costs
- Enhanced client comfort in utilizing advisor time
Hourly Fee Structure
This straightforward approach charges clients for the advisor’s time. While it allows clients to minimize costs when needs are limited, it has potential drawbacks:
- May discourage necessary follow-up consultations
- Clients might miss important planning opportunities due to cost concerns
- Limited ongoing oversight of changing circumstances
Choosing What’s Right for You
At The Wealth Conservancy, we’ve been practicing fiduciary financial planning and coaching for years because we believe this approach is the most respectful and compassionate way to serve clients. Understanding these compensation methods helps you align your choice with your needs and preferences. At The Wealth Conservancy, we’re always available to help you evaluate your options and understand proposals from other advisors.