Accounting firms that add financial services generate higher revenue from existing clients while also attracting new clients. Stepping in and offering more value to your clients is what you should be doing already, and adding financial services is one way you can do so.
Providing financial services can be many things, such as offering:
- Financial planning
- Retirement planning
- Tax planning
- Etc.
In fact, 54% of CPAs have expanded their practice to include retirement planning because it boosts their revenue while also helping meet client needs. It is a win-win for all parties involved.
But firms often have a great internal debate when they begin to offer these services: what do we charge? What compensation model should we follow?
How to Charge Clients for Financial Planning Services
When you are used to offering tax services or bookkeeping, it can be difficult to know what to charge for other services, such as financial planning. Since you are not accustomed to these services or how much work they entail, it can be difficult to know exactly what to charge.
A few issues exist:
- You do not know how much work is involved
- Pricing must be competitive enough that it is worth it for clients
- You must charge enough to make the service viable for your firm
Many factors must be considered in pricing. Let’s assume that you’re offering retirement planning services. You will need to factor the following into the overall charge(s):
- Cost to devise the plan
- Cost to execute the plan
- Ongoing maintenance costs and reviews
As a one-stop shop, it is crucial that you disclose all fees, commission and investment costs to the client. It should be your goal to be 100% transparent with pricing to your clients. The main reason is that client trust demands that you’re transparent.
For example, if you are offering investments or insurance and you are paid through commission, be sure to let the client know. In fact, you may have a fiduciary requirement to disclose commissions you receive from insurance or investments.
Being transparent about your costs can also help you attract more clients and convert more prospects. An estimated 86% of consumers believe that transparency in business is more important than ever.
Two Main Compensation Models
You are free to devise a compensation model that fits best into your business, but the two models below are very common:
- Fee-based
- Commission-based
Depending on the service, some professionals may mix fee and commission-based pricing together. For example, you may charge a fee for setting up a plan and then receive a commission for the implementation of the investments.
Fee-based Compensation
Fees for services rendered is a common compensation model. You will find that when you charge fees, the upfront costs at the start of the service may be higher.
Why?
There is a lot of work involved in setting up financial services. Fees typically are broken down into the following:
- Flat fees — A fee that you charge for a specific service that is accepted by the client before you begin.
- Hourly fees — Some financial services are charged hourly so that if you have any overages or a task takes longer than expected, you are properly compensated.
- Retainer fees — Clients on a stricter budget may prefer a retainer fee model. Retainers allow you to work up until the retainer is depleted. The work done will fit into the client's budget, and if more work needs to be conducted, the retainer will need to be renewed.
Some services may also be based on a percentage. For example, you may request a 1% fee on all assets or money that you’re managing. Often, professionals choose to mix and match their compensation models to find the right fit for them and their clients.
Commission-based Compensation
Another way to approach compensation is the commission-based approach, where fees are based on the number of products sold or accounts opened. These products can include a variety of financial instruments, such as mutual funds and insurance packages. In these cases, transparency matters most. Clients should know if a certain product earns you a commission or not because it could influence your recommendations.
When you are used to offering tax services or bookkeeping, it can be difficult to know what to charge for other services, such as financial planning.
If you are offering commission-based pricing, it may have a higher fee upfront, but lower ongoing cost to the client. There often is a lot of work for you when getting started with a new client. That being said, clients are often attracted to the higher costs initially, as they will likely save more over time.
One way to handle this is to charge an upfront fee for devising the retirement plan and a commission-based fee for executing and managing the investments.
Wrapping Up
Financial services are an asset to your clients and your business. Once you determine which services you want to offer, finalizing your pricing is crucial. Whichever compensation model you choose, just be sure that it is profitable for your business while being 100% transparent.
Joseph Graziano, CFP® is VP and Wealth Management Partner at FFP Wealth Management. He and the team at FFP help manage more than $2.4 billion in assets. For the past 28-plus years, FFP Wealth Management has partnered with accountants and financial planners to provide premium services to clients. If you have questions about adding financial planning services to your firm or the challenges above, you can contact Joe here.
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