Many individuals with average means face challenges in finding affordable and accessible financial planners. However, recent trends are bringing about changes in the industry. Michael Kitces, president of Kitces.com, shared his insights at Schwab Impact 2024. He highlighted the emergence of alternative payment models for financial advice, expanding the options available to a wider range of consumers.
Traditional vs. Alternative Fee Models
The assets under management (AUM) fee model has long dominated the financial advising industry. Typically around 1%, it covers both investment management and financial planning services. This works well for those with sizable portfolios who prefer to delegate investment management. But for others, it may not be the most suitable.There are now alternative fee models emerging. Monthly subscription plans offer ongoing financial advice for a recurring monthly fee, making services more accessible. Retainer fees are fixed annual or quarterly payments for ongoing access to financial advisory services. Income-based pricing calculates fees as a percentage of the client's income, broadening the reach. And flat-fee structures charge a fixed amount for a set of services.Some advisers are also adopting advice-only models, explicitly stating they do not manage portfolios. Instead, they focus solely on providing advice. Additionally, some employers are offering workers access to services similar to prepaid legal plans for financial advice.Monthly Subscription Plans
Monthly subscription plans provide a convenient way for individuals to access ongoing financial advice. It encourages regular client engagement and makes services more affordable on a monthly basis. For example, a client might pay $50 or $100 per month for regular consultations and advice. This allows them to address financial questions as they arise and get the guidance they need without the burden of a large upfront fee.These plans can be especially beneficial for those with smaller portfolios or those who want to test the waters of financial advice before committing to a more comprehensive package. It gives them the flexibility to adjust their level of engagement and access to advice based on their changing needs.Retainer Fees
Retainer fees offer a fixed payment for ongoing access to financial advisory services. This provides clients with a sense of security and predictability. They know that they have a dedicated financial advisor available to them on an ongoing basis.For instance, a client might pay an annual retainer fee of $5,000 or $10,000. This allows them to have regular meetings with their advisor, discuss their financial goals, and receive personalized advice. It can be particularly useful for businesses or high-net-worth individuals who require ongoing financial guidance.Income-Based Pricing
Income-based pricing takes into account the client's income when determining the fee for financial advice. This makes the services more accessible to a wider range of earners. For example, a client with a lower income might pay a lower percentage of their income for advice compared to someone with a higher income.This model recognizes that everyone's financial situation is different and that a one-size-fits-all fee structure may not be appropriate. It allows clients to pay based on their ability to afford the service, ensuring that financial advice is available to a broader segment of the population.Advice-Only Advisers
The rise of advice-only advisers is an interesting trend. These advisers focus solely on providing financial advice and do not manage portfolios. They offer a different level of service for those who prefer to manage their own investments but need guidance on other aspects of their financial lives.For example, an advice-only adviser might help a client with retirement planning, tax strategies, or estate planning. They provide expert advice in these areas without the added cost of portfolio management. This can be a cost-effective option for clients who have the knowledge and confidence to manage their own investments.Financial Wellness Benefits
Some financial planning firms are experimenting with offerings under the label of "financial wellness" benefits. This expands the reach of financial advice to a broader range of consumers. It includes services such as financial education, budgeting tools, and access to financial advisors for one-on-one consultations.For instance, a company might offer its employees access to a financial wellness program as part of their benefits package. This can help employees improve their financial literacy and make better financial decisions. It also shows that the company cares about its employees' financial well-being and is willing to invest in their future.Each Tuesday, retirement expert and financial educator Robert Powell provides tools for planning your future on Decoding Retirement. You can find more episodes on our video hub or watch on your preferred streaming service.Click here for the latest personal finance news to help you with investing, paying off debt, buying a home, retirement, and more.Read the latest financial and business news from Yahoo Finance.
