Charging Hourly

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Nov 19, 2008 11:38 am

I received a lead of a guy with a $2MM portfolio that wants to be billed hourly.

 
I don't do this, so I am kind of curious how billing hourly actually works.  Is this something that can only be supported as an RIA, because I can't charge 0% on my platform?
 
I can understand creating a plan that takes like 3 hours to put together, but that's about it.
 
Anyone come across these types or do you just run away?
Nov 19, 2008 12:46 pm

I have a good friend that's RIA. He charges hourly for financial plans (though I think it's mostly a flat fee), but typically waives it if they become asset management clients. To me, it seems like a great way to bring on new clients....here's a "plan". It costs $1500. YOU will have to implement it. If you want ME to implement it (i.e. manage the assets and give ongoing advice), it will cost 1% on an ongoing basis. I have brought on a few clients that had a "plan" done, but the planner had no interest in implementing it (probably because at the time, it appeared that these clients didn't have much in investable assets - but didn't realize that they could do an in-service rollover from their 401K). So I ended up scrapping the plan (which was fine) and doing my own. The problem with the plan, especially all of the asset management piece, was that it broke down investments by style box on the efficient frontier, etc., but it did not give any direction on how to actually FIND those investments, BUY those investments, or MONITOR those investments. So this couple comes to me like, "OK, so now what do we do?" The "plan" was just under 350 pages. It included financial statements, retirement, insurance, education, estate planning, etc. it was fine, but just damn overwhelming for the average person. I typically only use the Financial Statemnt and Retireent modules unless they really need the others formalized. But most of the time, we can do back-of-the-napkin calcs for life insurance, and education usually ends up being "whatever is left over" money that gets put into 529's. Most of my clients are not interested in funding $150K worth of education.

Nov 19, 2008 12:52 pm

An RIA can certainly charge by the hour, or project, or whatever, so long as it's properly disclosed on his ADV.

As to whether or not you would choose to do this, and how many hours you might require to make it worth your while, that is a separate issue.  This type of comment seems to come from those who are essentially DIY'ers anyways, or too cheap to pay a reasonable cost for advice, so are often not what I would consider ideal clients anyway, regardless of their assets. 

But at least it is possible, and your decision to make based on your criteria, whereas I don't know of any wires who allow hourly billing. 

And as B24 mentions, it is not uncommon for RIAs to charge for a plan, but I took this question to be directed more at the occasional prospect who just wants to pay by the hour and then implement themselves.  There is a whole network of "planners" who charge only by the hour, who belong to a group formed by a planner named Sherry Garret (if I recall crrectly).  Few of them make a decent living doing this, but to each his own.

Nov 19, 2008 1:50 pm
snaggletooth:

I received a lead of a guy with a $2MM portfolio that wants to be billed hourly.

 
I don't do this, so I am kind of curious how billing hourly actually works.  Is this something that can only be supported as an RIA, because I can't charge 0% on my platform?
 
I can understand creating a plan that takes like 3 hours to put together, but that's about it.
 
Anyone come across these types or do you just run away?



He wants to be billed hourly because he is a cheap SOB. Tell him that if he wants to work with you that he needs to do things the way that YOU do them, not him. Just because someone has money doesn't mean that they would make a good client.

Nov 20, 2008 2:47 pm

I billed by the hour several years ago. I will never do it again!

 
Nov 20, 2008 3:14 pm

Wants to be billed hourly for what is my question?  If he wants to seek advice and let you be a consultant to him for it, why not charge him an hourly fee for your time?  But, if he wants to be charged an hourly fee for you to manage his assets...come on?  I don't get that.  Typically, as already stated on the thread, hourly billing happens for planning or consulting; not asset management.

Nov 20, 2008 9:42 pm

At LPL you can charge by the hour, or you can charge a flat fee for a plan (up to $15K).  You need a 66 or 65, and you will be using LPL's RIA.  Also, to charge by the hour, LPL requires an advanced designation (CFP, MBA, CHFC, etc.), or over 8 years in the biz.

 
There are some LPL guys who charge a separate fee to develop the plan, and then an asset fee to implement it, IF the client wants to use the planner for the management. Not bad work if you can get it.
Nov 27, 2008 1:56 am

Why you're at it, tell him your wife sells Mary Kay

Nov 27, 2008 2:27 am
Greenbacks:

I billed by the hour several years ago. I will never do it again!

 



Why?  Please share....

Nov 27, 2008 4:54 pm
Hank Moody:
snaggletooth:

I received a lead of a guy with a $2MM portfolio that wants to be billed hourly.

 
I don't do this, so I am kind of curious how billing hourly actually works.  Is this something that can only be supported as an RIA, because I can't charge 0% on my platform?
 
I can understand creating a plan that takes like 3 hours to put together, but that's about it.
 
Anyone come across these types or do you just run away?



He wants to be billed hourly because he is a cheap SOB. Tell him that if he wants to work with you that he needs to do things the way that YOU do them, not him. Just because someone has money doesn't mean that they would make a good client.

 
Not necessarily. He's probably just interested in only paying for actual work performed.
 
I still have a hard time understanding why people would pay an advisor 1%+ in "management fees" every year when they're more than likely just going to send the money to a third-party manager who will do the actual asset management and also charge additional fees.
 
I believe this recent meltdown will cause folks to step back and take another look at how they're compensating their advisors. I don't have a penny in fee-based business, and I agree it would be nice to be paid well for doing very little (i.e., just gathering assets), but I think the hourly model, although not even a fraction as lucrative as other avenues, will soon be how clients demand to be charged for our services in the future.
Nov 27, 2008 9:49 pm
Not necessarily. He's probably just interested in only paying for acutal work performed.
 
I still have a hard time understanding why people would pay an advisor 1%+ in "management fees" every year when they're more than likely just going to send the money to a third-party manager who will do the actual asset management and also charge additional fees.
 
I believe this recent meltdown will cause folks to step back and take another look at how they're compensating their advisors. I don't have a penny in fee-based business, and I agree it would be nice to be paid well for doing very little (i.e., just gathering assets), but I think the hourly model, although not even a fraction as lucrative as other avenues, will soon be how clients demand to be charged for our services in the future.

[/quote]

I would pay 1 percent to somebody like Ice, if he made the case to me that his philosophy and his models were unique and made sense for me. I would pay 1 percent to somebody if they convinced me their system of actively trading options or securities was a value. I would pay 1 percent to somebody if they had been in the business for 20 years and handled my tax work, my insurance, my estate planning, etc.
I would not pay 1.35 percent for somebody to put me in a family of funds. I would not pay 1.35 percent to somebody who was spending 90 percent of his time looking for the next prospect to put into a fee acount.


Nov 28, 2008 10:39 am

I'm with Hank on this one...he sounds like a cheap SOB to me.  Feel free to explore further exactly what he's after, but if he wants you to manage his portfolio by the hour, I'd tell him that's OK, but my minimum annual fee is $X.  My guess is, he thinks you should do everything for a couple hundred bucks a year.  I just fired a client like that and it felt really good...I still smile everytime I think of firing that cheap SOB.

Dec 5, 2008 7:23 pm

So I talked to this cheap asshole and got him to think about annuities, which he said he liked.  He then went to another advisor who he asked his opinion about annuities, and the advisor basically said if he wanted to do an annuity, he should do one through Vanguard.

 
Knowing nothing about Vanguard annuities, I had nothing to say.  How do Vanguard annuities compare to others like ING or Pru or others?  Is it apples to apples?
Dec 6, 2008 8:56 am

I typically "audit" the amount of time I spend on a client case the first year.  I am fee based, and charge additional flat fees for analytical work.  At the end, I back out any time spent on the client that is based on the thoughts, research or discussions of any investments held within a wrap fee program (cannot charge twice for same service).

 
What I have found, and giving as much benefit of the doubt to the client, is that  I under charge for services.  i.e., a flat fee retainer of $1,200 typically turned out to be an hourly rate charge totaling $2,800 - $4,500.  So I think it is appropriate to charge for the assets you help manage, factor in the value of your time, telephone calls, emails CPA, attorney, mileage etc.
 
I actually provided a detailed accounting of what I did the first year to a whiner.  They wrote me a check for the difference without batting an eye.  I turned the check down of course so they instead invested it.  It was a symbolic thing, not a superiority thing.
 
I guess my point is that the guy is a putz, he just looks at 20k a year on [email protected]% and says why?  Turn him loose, he is not a client.
 
The bigger issue is for you to appropriately value the services that you provide, and how you deliver them consistently accross all segments of your client base.  Get organized and get to fee based service model.  Send all 12b-1 fees back to client accounts and begin to charge annual retainer fees to services provided. (12b-1 fees back to clients eliminate the double payment for service)  Be sure to provide written account to client that includes tasks or assets or evaluations of issues outside that of assets held within a wrap program.
 
I suspect that a quasi-fee for service / wrap fee combination will help build loyal clients, leveling out revenue stream inspite of market performance and you will work with higher relationship (quality) folks.  Less clients with more assets means easier work, better esteem for you and your family and ultimately more quality of life.  Clients can never know the value if you cannot articulate that value.
Dec 6, 2008 4:31 pm
"Knowing nothing about Vanguard annuities, I had nothing to say.  How do Vanguard annuities compare to others like ING or Pru or others?  Is it apples to apples?"
 
They're cheap.  For someone who is a DIY and is looking for an annuity without guarantees, Vanguard is good.    They have no living benefit riders.
Dec 6, 2008 6:03 pm
Amp2Indy2006:

I typically "audit" the amount of time I spend on a client case the first year.  I am fee based, and charge additional flat fees for analytical work.  At the end, I back out any time spent on the client that is based on the thoughts, research or discussions of any investments held within a wrap fee program (cannot charge twice for same service).

 
What I have found, and giving as much benefit of the doubt to the client, is that  I under charge for services.  i.e., a flat fee retainer of $1,200 typically turned out to be an hourly rate charge totaling $2,800 - $4,500.  So I think it is appropriate to charge for the assets you help manage, factor in the value of your time, telephone calls, emails CPA, attorney, mileage etc.
 
I actually provided a detailed accounting of what I did the first year to a whiner.  They wrote me a check for the difference without batting an eye.  I turned the check down of course so they instead invested it.  It was a symbolic thing, not a superiority thing.
 
I guess my point is that the guy is a putz, he just looks at 20k a year on [email protected]% and says why?  Turn him loose, he is not a client.
 
The bigger issue is for you to appropriately value the services that you provide, and how you deliver them consistently accross all segments of your client base.  Get organized and get to fee based service model.  Send all 12b-1 fees back to client accounts and begin to charge annual retainer fees to services provided. (12b-1 fees back to clients eliminate the double payment for service)  Be sure to provide written account to client that includes tasks or assets or evaluations of issues outside that of assets held within a wrap program.
 
I suspect that a quasi-fee for service / wrap fee combination will help build loyal clients, leveling out revenue stream inspite of market performance and you will work with higher relationship (quality) folks.  Less clients with more assets means easier work, better esteem for you and your family and ultimately more quality of life.  Clients can never know the value if you cannot articulate that value.



Sounds like you spend a lot of time figuring out how to make less money.

Dec 8, 2008 9:50 am
Borker Boy:
Hank Moody:
snaggletooth:

I received a lead of a guy with a $2MM portfolio that wants to be billed hourly.

 
I don't do this, so I am kind of curious how billing hourly actually works.  Is this something that can only be supported as an RIA, because I can't charge 0% on my platform?
 
I can understand creating a plan that takes like 3 hours to put together, but that's about it.
 
Anyone come across these types or do you just run away?



He wants to be billed hourly because he is a cheap SOB. Tell him that if he wants to work with you that he needs to do things the way that YOU do them, not him. Just because someone has money doesn't mean that they would make a good client.

 
Not necessarily. He's probably just interested in only paying for acutal work performed.
 
I still have a hard time understanding why people would pay an advisor 1%+ in "management fees" every year when they're more than likely just going to send the money to a third-party manager who will do the actual asset management and also charge additional fees.
 
I believe this recent meltdown will cause folks to step back and take another look at how they're compensating their advisors. I don't have a penny in fee-based business, and I agree it would be nice to be paid well for doing very little (i.e., just gathering assets), but I think the hourly model, although not even a fraction as lucrative as other avenues, will soon be how clients demand to be charged for our services in the future.
 
Borker, I know you have sort of an issue with the industry model in general (not sure why you're still doing it...but that's another topic).  But think about it this way - if you can keep people from doing REALLY stupid things with their money, year-after-year, it is certainly worth the 1%.  It's not that you are out there picking the stocks or whatever.  You are maintaining the plan.  What if a $1mm client decided he wants to cash out at the bottom of this market pit, and you convince him not to.  Then the market rebounds 45% over the next 18 months.  He may have just missed potentially missed out on $250K+ in gains (probably less, as he would have jumped back in at some point).  So, if you can save someone from MISSING OUT on a 15%+ opportunity or more, or avoid LOSING that much, then you have just paid for that 1% for a long, long time.  And what if that $1mm client thought that taking 7% per year out of his fixed-income portfolio was OK?  What if you got him to lighten up a bit on the withdrawal %, and add some equities for growth?  How much longer would his money last?
Borker, I think you, and some others, miss the point of what 1% gets you.  You seem to look at 1% and say (like Money Mag et.al) "well why would I pay someone 1% to manage my money?  I need to beat the indexes by blah, blah, blah....".  You don't NEED to beat any arbitrary index to provide value.  You don't NEED to generate outrageous returns to provide value.  To be honest, from what I have seen some clients do to themselves, giving someone a consistent 6-7% return would be FAR better than the way they have trashed themselves (or some hack advisor has trashed them).  It's hard to see that when you read all the sensationalism about hedge funds and Warren Buffet, and Cramer, and whoever is on MSNBC.  But if someone could get a safe, consistent 6-7% pear year, the average Joe would be much better off.
Dec 8, 2008 10:13 am

B24, great post.  A good advisor brings great value to their clients and it has nothing to do with picking superior investments. 

Dec 8, 2008 10:17 am

Charging annual fees does not appeal to me, but I think that those who do that should be able to charge as much as they can. Conversely, the public should only pay what they want to pay. If you want to get paid 3% and your client agrees to it, more power to you. 

Jan 11, 2009 12:11 am

Sounds like a good candidate for a retainer based relationship.  If you are truly providing advisor services and not just selling products why not?  The legal profession has used this model for years.