It always surprises me that the majority of planners don’t charge a fee for financial plans out of fear of losing business to competitors. My experience has been that charging a fee isn’t an issue. In fact, to honour Advisor.ca’s 10th anniversary, here are the Top 10 reasons why charging a fee for plans is actually great for business.
1. It motivates clients
Clients take things more seriously when there is a direct cost. Offering to prepare a plan for free? I wish you good luck in getting all the documents you need any time soon. Show clients a sample of what the end results will look like, charge $1,000 or more for your services, and you’ll receive all the documents right away. Clients will even look forward to hearing your recommendations because they paid for them.
2. Gives us the freedom to give good advice and make a living
Pay down debt or contribute to investments? We’ve all been asked this question and the challenge is if we recommend the first option, we don’t get paid. In some cases paying down debt is the right move and charging a fee for a plan ensures we will get paid for making the best recommendations for our clients, even if some of the recommendations don’t immediately lead to commissions.
3. Differentiates you from the competition
On occasion when it has brought to my attention that the advisor down the street offers “plans” for free, I pull out our sample financial plan binder and show a client what they will receive in exchange for their fee. They quickly realize they are not comparing apples to apples and suddenly we’ve differentiated ourselves from the competition.
4. A source of revenue not tied to markets
When we recommend investments to clients we talk a lot about why low correlation is important. Low correlation is also key for business revenue streams. While revenue from investments was down in 2008, financial planning fees actually increased slightly as laid off workers sought our advice on what to do with their severance packages and group RRSPs.
5. Avoids “What’s the catch?”
Success follows when we can build trusting relationships with our clients. Clients are more educated than ever and their experiences have led them to understand that there’s no such thing as a “free lunch”. The moment you offer one, clients will be on their guard. Charge a fee and clients will understand you are being compensated with a clear and transparent fee.
6. Ensures you never work for free
The last time I gave in and offered free financial advice to someone who said they couldn’t afford my service, the person ended up buying a high performance sports car a few weeks later. If someone says they cannot afford your services, either:
- 1. They aren’t in your target market.
- 2. They haven’t reached a stage in their lives where they are serious about planning.
Either way, creating a plan for free because someone can’t afford your services won’t pay off.
7. Weeds out clients who will always want freebies
There’s a difference between wanting value for your money and wanting something for free. Charging a fee for a plan identifies right from the start of the relationship which clients will always want us to work for free and which clients will appreciate the hours we put into managing their finances.
8. Doesn’t set a precedent
Offering to create a plan for free sets a dangerous precedent. Essentially it tells clients that if we are pressured hard enough we will also be willing to provide other services for free.
9. We want to be considered “professionals”
Lawyers, accountants, doctors and all other “professionals” give clients an itemized invoice after they provide advice. Imagine how doctors would be viewed by the public if they were compensated $5,000 if they recommended surgery and $300 if they recommended physiotherapy. Charging a clear and transparent fee for plans allows our industry to show we are compensated not for recommending a product, but for providing sound financial advice.
10. We provide value
When we create a financial plan, we share years of knowledge and experience with our clients. We save them money on their taxes, make sure their family is protected from unexpected financial risks and help them find the money to accomplish their life goals. We summarize it in plain English and explain step-by-step what to do to make it all happen. That is significant value. When clients understand the value they are receiving, fees for financial plans aren’t an issue.
