When I launched Serenity Financial Consulting in 2012, I offered financial planning on an hourly basis and investment management on an AUM basis. Those were the only service options, and I succeeded in working with a very specific kind of client who fit this model well.
When advisors work hourly, they can reach a unique segment of the market that is otherwise completely ignored by traditional financial planning models. We’re talking about younger clients with few assets who simply don’t fit with advisors that require a minimum amount of assets.
Hourly work also provides a source of immediate revenue, which is great for planners who’ve just launched their own businesses. There’s a clear understanding of how your business works: You give your time, and in return you receive a fee from the client who benefited from your attention—and that fee is paid immediately.
But eventually, my business ran into a few issues under this kind of fee structure.
- Charging hourly means you need a lot of clients, as revenue from just one can be low. Advisors must constantly hustle for new business, which distracts from serving your current clients and working on your business, instead of in it. The need to acquire more and more clients also feels highly transactional—and I wanted something more relationship-based.
- After the financial planning work was complete for a client, the work I did for them shifted to look more like AUM-only. We’d meet to discuss their investment portfolio … but clients would, naturally, continue to ask financial planning questions. That left me in a tough spot. Was I supposed to start watching the clock at that point in the conversation? Should I just refuse to answer? Neither of those actions would provide what anyone would call a stellar client service experience, so those meetings caused me to do a lot of work for free.
- This issue wasn’t limited to meetings. Clients called or emailed with what they genuinely believed were quick questions. But answering them usually took me enough time to necessitate a bill (which no client was ever particularly pleased about). The other side of this problem? Some clients never felt like they had a question worth $200 per hour, which led them to completely avoiding asking anything—until they had a financial crisis on their hands. By that point, there was little I could do to help.
Eventually, I realized I could better serve my clients by dropping an hourly fee structure and transitioning to a monthly subscription model. I no longer charge my clients for my time. Instead, I charge a flat monthly fee that ranges from $100 to $200 per month.
This model works and allows advisors to succeed with their businesses for several reasons:
- Clients feel comfortable calling or emailing with questions before they get into serious trouble, or waiting until they feel like they have a question that’s worth $200 to them.
- I don’t need to question whether I should bill clients every time we talk, meet, or discuss a financial issue (large or small) in what’s supposed to be an investment management meeting.
- My revenue is more stable because a monthly subscription creates recurring monthly income.
- My focus is on the relationship with my current client—not on the clock. I also don’t feel so much pressure to constantly seek out new clients to make an hourly model profitable.
The monthly subscription model ended up being so successful as a way to run a financial planning practice that could effectively serve Gen X and Gen Y clients that I co-founded the XY Planning Network. XY Planning Network provides a platform to help other financial advisors build a business based on monthly subscriptions or retainers so they can profitably run practices while working with
Can an hourly fee structure work for a financial planning business? In theory and on paper, yes. But few have successfully grown and maintained profitable businesses on an hourly model. Working hourly does seem to make sense for folks doing it part-time, looking to build a “lifestyle” business, or just starting out. In the long run, however, advisors tend to transition to a different fee structure that is more sustainable and more profitable.
Alan Moore is the co-founder of the XY Planning Network and president of Serenity Financial Consulting, a fee-only RIA and location-independent financial planning firm.
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