How Much Should a Financial Planner Cost?

Korean restaurant bill
Check, please!

“Not everything that counts can be counted; and not everything that can be counted counts.”
–Albert Einstein

“Spending can be investing – if you spend on the right things and really use them.”
Ramit Sethi

How are financial planners like vacation timeshare salespeople? Read on and you’ll find out plus you’ll learn how to actually calculate how much your planner is truly costing you.

For some reason, financial planners like to be very circumspect about how much their services cost. Part of the obfuscation is understandable – nobody likes to commit to a price until they find out how complicated the project is going to be. I used to face that all the time in the software development company I co-founded. We’d have potential customers want us to do three weeks of investigative work to come up with a price tag for how much a project would be. That would never fly, so we gave them very broad price ranges with lots of wiggle room, and we promised that after three weeks of paid work, we could give them a much better estimate of how much it would cost as well as documentation they could use to go vendor shop if they so desired.

Financial planning has some of that mystery too. People’s situations could be very simple, and they could be very complex, and sometimes, we can’t really say how much a properly executed financial plan should cost until we’ve had some time to get to know you, your family, your situation, and your goals.

Part of the reasoning, too, is competition. One financial planner doesn’t want another financial planner to find out how much he’s charging lest he be undercut and lose out on price.

If you’re looking for the cheapest financial planner you can find, then you’re going to get what you pay for.

There’s a reason, after all, that Yugos were unreliable cars that nobody liked.

In a sense, being led to the cost discussion with a financial planner is very much like being led through a vacation timeshare presentation. If you’ve ever been through one of those, you know how it goes – you’ll go to some really nice location. The salesperson will meet you, offer you drinks, cookies, take you snorkeling, whatever. They walk you through the wonderful sales model and tell you all of the benefits of what you’ll get by buying a timeshare. They’ll address every objection under the sun that anyone in the long history of timeshare presentations has ever come up with.

Once they have you fully and wholly hooked on how owning a timeshare will be better than curing cancer or winning an Emmy, then, and only then, do they pull back the curtain and reveal the price.

I’m pulling back my own curtain before we even have a conversation.

What I’m going to provide you is an 80% solution for how much a financial planner should cost (e.g. how much I’m going to charge you), which means that 80% of the time (give or take a quarter of a percent), your planning engagement will cost…

$1,800 to $2,400

Since I charge $150 an hour (you can request my Form ADV if you’d like and check my numbers), that means the financial planning engagement is going to take between 12 and 16 hours to complete. This includes our initial discussion, gathering up all of the applicable information from you, doing an interim report, getting your buy-in for where I’m going, and presenting you with a final report. It also includes any models I’m going to build to support my recommendations to you.

With that, you shouldn’t need to come back to me unless your circumstances drastically change, because, ideally, I’ll have taught you everything you need to know to maintain course. Doing a checkup with me on some periodic basis will be your decision because you want (hopefully) confirmation and validation.

What is the simplest way to find out how your financial planner gets paid?

Ask him or her for written, itemized documentation.

Then ask that person to sign a fiduciary oath before moving forward.

If a financial planner tells you that it’s twice as complicated to manage a million dollar portfolio as it is to manage a half a million portfolio, and, therefore, they need to charge you twice as much, they’re filling you full of crap so that you’ll line their pockets more. I’m not against profit – after all, I charge money and don’t give planning for free, and you don’t expect to go to work all day and never earn a dime. However, I am against nonsense and taking advantage of people’s fears to make more money off of them.

Furthermore, research from Harvard shows that asset managers (in other words, your commissioned brokers and the people who charge you some percentage of your assets to invest your money for you) actually do more harm than good, and that’s before you account for their fees. They can spew and foam and rant as much as they want about how they’re good for you, but this Harvard study has 22 years of incontrovertible evidence that you’re paying them for the privilege of delivering underperformance.

So, if you’re paying some planner 1% of your assets every year or paying some front loaded mutual fund to support your commissioned broker’s kid’s Harvard fund, check yourself. If you have a planner telling you that it’s going to cost $5,000 or $10,000 to do your plan, then you’d better have some extra special circumstances which justify it.

About 80% of the time, your plan should cost between $1,800 and $2,400.

Published by

Jason Hull, CFP®, is the Managing Member of Broadtree Partners, a firm that acquires $1-5MM EBITDA companies.

9 replies on “How Much Should a Financial Planner Cost?”

  1. Jason, this is excellent. I’ve been reading your tweets and posts for a while now, and I admire your ability to cut through the nonsense and write clearly about topics that other people in our industry like to cloud up with finance-speak. Well done.

  2. Jason good post $1,800 to $2,400 is reasonable range. I try never to do anything hourly and I always quote one-time planning engagements as a flat fee. I would say that 90ish percent of the planning engagements that I’ve done over the course of my career range between $1,500 and $3,000.

    For ongoing services I have been moving to a flat fee model based upon a combination of investment assets and household income. Note I act as my client’s overall financial quarterback so my ongoing services are more than just investment management. The annual range based upon a matrix that I use is $3,500 to $15,000. Even after seeing where they land on the matrix I will apply some judgement and take the fee up or down a bit based upon my view of the complexity of their situation.

    I also charge some older clients and some new ones a percent of assets, but this covers my “full services” ongoing. I have not read the Harvard study but I’m pretty comfortable saying my clients have benefited from my advice well in excess of my fees, as it should be.

    1. Hi Roger! Thanks for pitching in!

      I don’t do just investment management either. People conflate financial planning with investment management, when the reality is that investment management is merely a subset of financial planning. I don’t even think that the topics which our CFP(R) courses teach really cover everything. What’s the point of modeling out how much you’re supposed to save, how much insurance you’re supposed to buy, etc., if you can’t get your deleted by editor together in the first place?

      I think we’re in agreement on about 90% of the range there. I have absolutely no desire to manage assets (managing clearances for the DoD for the company I sold was paperwork/administrivia headache enough for me to not want to fool with the SEC’s requirements), and if someone really wants their hand held that badly, I’m going to refer them to a fee only planner whom I trust.

      I’m glad I’ve started reading your blog; your sense of humor comes through much more than our editor allows in the U.S. News column!

  3. It’s refreshing to read someone actually give a range. Everyone else seems to think we ought to be prepared to give up half our savings.

    1. Hi Shannon – Thanks for commenting! Basically, the way to approach the financial planners who want to charge you an assets under management fee is to ask yourself whether or not, every month, you’d feel comfortable writing a check to that planner for what you received. If not, then you’re falling victim to cost deferral; it’s why ninety something percent of the industry prices that way – it keeps you from actually thinking about the price that you’re paying, which is invariably higher than what you’d pay with someone like me.

  4. Hi Jason,

    Thanks for the insights. I work for a wirehouse and so I’ll have to unfortunately stay somewhat anonomos, but I really like the approach you’ve taken to how you bill your clients for the work that you do.

    I’m a big fan of having clients pay us for the stuff we can control (financial planning, tax planning/prep, estate planning, etc…). That just makes so much sense to me.

    When it comes to actual investment performance/management however, I don’t believe it’s unreasonable for a client to pay a percentage of AUM for that service. I’ve found that most clients are fine with it too because they realize there is a cost for doing business. But you’re right, if all we’re going to do is plug them into index based products to minimize the fees they are charged, then they can do that at etrade for $7 a trade and just buy ETF’s that are dirt cheep and can save themselves the averate 1.5% that advisors charge.

    Tough call.

    1. Hi “Jeff”–

      Thanks for commenting and your kind words!

      I’m not 100% against having a money manager. There are cases where it’s appropriate to use money management services.

      I am, though, firmly against the AUM model. The model is rife with conflicts of interest and disincentives to do what’s in the client’s best interest, as active management reduces portfolio value.

      Plus, as I’ve written before, financial planning isn’t just about investment management, and most people are poorly served by having investing be the lead foot in money discussions.

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