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Financial Planning > Tax Planning

The Source and Structure of Fees

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We had some good discussions in this space over the past few weeks about the frequency of the advisor fee deduction. This week I’d like to focus on the source and structure of our fees. Where do you derive your fees from and how do you structure them? For instance, if you do financial planning, do you charge a fee for this service or not? If you do charge, what is the range of your fee and if you don’t charge, why not? If you manage client assets, how do you charge for this? Do you charge a percent of assets, commissions, or maybe a flat rate based on the account or relationship size? Here’s how I am doing this.

Comprehensive Financial Planning

I offer comprehensive financial planning and charge a fee ranging from $2,000 to $5,000 for the first year. This covers the initial plan and ongoing advice throughout the year. Here’s a good example of “ongoing advice.” I had a client tell me the other day that he had received a letter from the IRS informing him that he owed additional taxes. It seems he had under-reported some dividends or capital gains from a few years ago and as a result, owed several thousand dollars in additional tax, plus interest and penalties. I offered to look this over and basically reconcile the numbers, to which he agreed. I consider this to be part of our agreement. I want him to think of me whenever he has any financial issue. Going forward, I plan to update the plan annually, check the progress, determine if any changes are required, and charge an annual fee for my service. At this point, I’m thinking the subsequent fees will be as a percentage of the initial fee, say 50% to 80% with some inflation factor built in. So if I charged a client $4,000 for the initial plan and his renewal fee was 60% of this, then the second-year fee would be $2,400.

How are you charging for financial planning?

Asset Management

As an RIA only, I have no relationship with a broker/dealer. Therefore, I charge a fee based on the percent of assets in the relationship. I plan to update my ADV-II because I intend to have two fee schedules: one for financial planning clients, at a reduced rate, and another for clients of which I only manage their assets. Also, like many of you I have a tiered schedule with a maximum 1% fee. Nothing unusual here except perhaps this. Let’s say I charge 1% from $500,000 to $1,000,000, and 0.75% on $1,000,001 to $2,000,000. Assuming client A is a $900,000 relationship, my fee would be $9,000 per year ($900,000 X 1.0%). Assuming client B is a $1.1 million dollar relationship, my fee would be $8,250 ($1,100,000 X 0.75%). I am charging the fee on all dollars, not as a blended rate.

How did you arrive at your fee schedule and how is it structured?

As always, I appreciate your comments.


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