Over the years I’ve heard of several advisors who decided to stop offering financial planning services to their clients. The most common reason was that financial planning was too labor intensive and was not profitable. Is financial planning profitable? Is it worth offering?
Whenever I meet with a prospective client I want to know what they think about financial planning. Have they ever engaged an advisor to create a plan? Who was it? What company? Was it a good experience? Did they find it valuable? These questions will tell me if they are receptive to the idea. If they are I’ll explain what it is and how they’ll benefit.
To determine if it’s profitable, the advisor must keep track of the time it takes to create a financial plan and compare this with the fee they charge. Before we get into the specifics I will admit that planning isn’t as profitable as asset management. However, it is highly beneficial for the client.
The time it takes to create a financial plan hinges on two things: the software you use and the complexity of the client’s situation. A more complex case obviously demands more time and a higher fee.
On average, it takes me between 13 and 20 hours from start to finish. This includes everything from the data-gathering meeting to the presentation of the planning document and recommendations. I also allow a few hours for the additional time it will take to help the client implement the recommendations.
To track the time I spend on a client’s plan, I use ACT. ACT includes a timer which can be turned on and off as needed. For example, I’ll open the client’s record, start the timer, and begin working. If I step away from my desk or if I’m interrupted by a phone call, I’ll pause the timer and start it back when I’m ready to get back to it.
Just prior to the plan presentation meeting I’ll generate a “History Time Spent” report (in ACT that can sorted by date range. This report includes the time I spent creating a client’s plan plus any notes I’ve logged into the client’s record. To determine if planning is profitable, just calculate the total time spent and multiply it by your hourly rate. Then compare this to the fee you charge.
In my practice, approximately 90 percent of my “first-year” planning clients opt to renew their plan annually. Therefore, in addition to a first-year planning fee, these clients also pay a renewal or retainer fee. As a result, all of my income is recurring.
However, when the number of planning clients reaches a certain number, it becomes a challenge to update everyone’s plan while onboarding new clients and managing assets. This is where I find myself. In short, I am searching for ways to streamline the planning process so I can do more in less time. I’ll keep you posted.
For now, however, here’s the bottom line. For my practice, financial planning is (marginally) profitable, but because it does so much to cement the relationship, it’s a must have.