Choosing to work with a financial planner on a fee-only basis has traditionally meant calculating client fees based on a percentage of assets under management, or AUM. The idea behind fee-only is that what a financial planner recommends to a client is not directly tied to what he earns.
Is there another way to engage with a fee-only financial planner? Yes, there is. A new financial planning philosophy aims to further incentivize growth by aligning client interests more tightly with those of their advisor. Innovative software solutions are making it easier than ever for a new fee structure – net worth pricing – to work for investors.
The net worth concept is really quite simple: The fee paid to a financial planner is based on total net worth, not just a client’s investment accounts. What this means is a financial planner has a great incentive to drive up your net worth; he’ll get paid to make you wealthier rather and to take a more holistic look at your financial plan — which is in stark contrast to the traditional financial planner-client relationship.
To make net worth pricing work, a financial planner needs to be involved in every aspect of clients’ financial lives. It’s important that he’s able to see the broad view of his clients’ finances. He’ll want to weigh in on what kind of home loan they should get, their business exit strategies, their charitable intent, what they should do with their 401(k)s if they leave their jobs, if they should lease or buy a new car and more. Basically, he becomes a personal CFO to his client — a financial quarterback — someone who’s working as hard as they are to achieve their goals.