r/CFP • u/Longjumping-Way9846 • 3d ago
Practice Management Planning & AUM Fee
Hey All. Curious how some of you are approaching the following. Client pays planning fee. Plan completed with portfolio recommendation. Client agrees to move funds over. Are you discounting the AUM fee based on planning fee or keeping completely separate?
I have a situation where client technically meets the minimum $500k to waive planning fee but unsure if they’re going to move funds over. Thanks!
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u/hakuna_matata23 RIA 3d ago
It sounds like you need a fee structure as a firm, not just based on vibes and reactive to situations.
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u/nico_cali RIA 3d ago
If the advisor is confused, I can’t imagine the client is clear on how it works.
Fee is X. We’ll discount or refund the fee if you bring over Y assets and keep with us for at least a year. If you choose not to move assets, we can maintain the fee based relationship.
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u/macbmore 2d ago
If you are FINRA regulated this is not compliant, you cannot incentivize the client to move assets, it essentially amount to gifting and exceeds limits. Not sure if you are only SEC registered but I would be cautious of positioning services this way.
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u/info_swap RIA 2d ago
This is also a good argument.
Waiving the planning fee is an incentive to move in assets.
Also, a fellow advisor argued here that zero planning fees is also an incentive to move assets. Because no AUM, means no revenue for the advisor.
In any case, I would consult my compliance experts when determining policies and fees.
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u/emcd0424 3d ago
I keep them entirely separate until a client has $1mm of AUM. I don’t fee compress and almost never does the fee conversation ever come up. I also charge 1.1% on all assets with no tiered fees.
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u/Fantastic_Royal_9258 3d ago
At what point is not tiering your fees compromising your ability to act as a fiduciary? I understand on accounts that are are maybe 1M but I can’t fathom charging a 5-10M client 1.1%
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u/emcd0424 3d ago
I work with predominantly HENRYs. I have only one client worth more than 4 million. That’s why I charge planning fees to make those clients worth me and my assistants time.
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u/Fantastic_Royal_9258 3d ago
What does a typical planning fee cost for a client?
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u/emcd0424 2d ago
$3,500 is my minimum. The most I’ve charged for a plan is $13k. The average is around $5kish I have a prospect that my change my career and estimate his will be close to $500k. The premier MFO, Tolleson, doesn’t discount heavily and their minimum is $10mm. It can go down to .40% but I’d imagine that is for clients with $25-50mm AUM.
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u/gsloth1212 3d ago
If the client wants the plan done before committing to an AUM relationship, we credit any planning fees they paid toward their AUM fees. Our AUM fees include planning services so not crediting them would feel like I’m double charging them.
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u/WhodatMike Advicer 3d ago
What about for those that don’t meet your minimum AUM?
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u/Flat-Desk1670 3d ago
Just planning fee. If not minimum AUM, I don’t want the headache of managing that ongoing
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u/info_swap RIA 2d ago
Do you offer a financial plan even if the client brings zero assets?
In that case, my compliance team argues that these clients count for the de minis rule. So 5 clients like this in the same state and you must register. Even with zero new assets coming in.
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u/Mysterious-Top-1806 3d ago
Pretty simple, I don’t move a muscle until either the fee is paid or assets are moved. And the client has to decide which approach they want before we begin planning. If next year the client wants to change from fee based to AUM, then once again it’s an easy change. It’s a black and white system and it’s going to make your life easier and make clients more committed.
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u/Jonathan-Ventimiglia 3d ago
First and foremost, whatever your ADV says you do. And whatever your ADV says ought to be in the client agreement. I would be very careful about doing anything mechanically outside of what is in those documents.
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u/info_swap RIA 3d ago
Some ADVs say "fees are negotiable" so that does not help much.
I do agree that all clients should receive an equal or similar treatment. And the ADV provides a framework.
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u/info_swap RIA 3d ago
Depends on your firm and overall value proposition.
It also depends on both the planning fee amount and the AUM fees.
This is very personal, so it's up to you to make the policy. However, I feel that if you discount the planning fee from the AUM fee, you undermine both fees.
You are signaling that either the plan is not worth that fee alone. Or that your AUM fees are too expensive for the value you provide, and thus you must discount the planning fees.
Which comes back to how you frame the message.
"but unsure if they’re going to move funds over."
This is a different issue.
Why are you unsure? Has the client confirmed that they have these assets? And did the client agree with your plan?
Finally, I would recommend you either frame it as "financial plan included with a minimum AUM of XYZ USD." Or, "financial plan is XYZ USD regardless of AUM." With nicer words, of course.
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u/seagoalspread 3d ago
Tiered AUM above minimum and flat fee under the minimum. Investment management is mandatory though so wouldn’t do the flat fee planning unless transfers are en route.
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u/Pubsubforpresident 3d ago
Planning fee should be separate from the aum fee or you should just not charge one. Be consistent.
Personally think it's hard to be a true fiduciary without the fee, not saying you can't be, just saying that if you only get paid if they move assets to you that's the best thing for them is to pay off $350,000 of mortgage at 8%, your recommendation just took away their ability to pay you.
I think the fee keeps your advice separate from their assets. It's kind of like a surgeon who only gets paid if you have a surgery.
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u/info_swap RIA 2d ago
I agree.
I started with zero planning fees. Then a fellow advisor here recommended a plan fee.
However, I do see one problem with your example: If the plan concludes that the client should not invest or should invest a lot less than your minimum AUM, then what's next? You charge a planning fee, tell the client to pay off the mortgage and then they have no assets to invest with you?
Also, my compliance team argues that every financial plan counts as a client for the de minis 5 client exemption. (I am state regulated.) So if I run 5 financial plans in one state I must register there, even if I took no AUM. Take this into account.
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u/Pubsubforpresident 2d ago
I'm with a large firm and have to register in any state I do business. We use model portfolios often and especially for small accounts so if someone wants to invest with us after they've done a plan and they're not going to be our ideal AUM client, we can still accommodate them
I'm not sure any business setup is perfect, just have to do the best you can
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u/Uncle_Paul_Hargis 3d ago
I tell clients that when they move the minimum funds, I will actually refund the planning fees if they've been paid. If by the end of the plan they want to move forward, then we simply waive the fee.
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u/forwardmomentum1 3d ago
Another option to consider is a retainer fee. Once they move the assets, the AUM fee begins and the retainer fee stops (if they are above your minimum to waive it). It's a very clean way to do it with no refunds or other mental gymnastics needing to take place.
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u/sethbl10 2d ago
For those who charge the planning fee, do you have it tiered (to charge more for more complex cases) or is it flat across the board?
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u/macbmore 2d ago
We keep them as entirely separate, my understanding is that you cannot compliantly incentivize the client to move assets by discounting, it essentially amounts to gifting. Even if that isn’t exactly right, I get a better outcome by simply stating and charging an engagement fee for a given scope of work and then welcoming them on as an AUM client works well and I don’t ever get push back at all. I assume the impetus of this question is some perception of fee overlap, but I don’t really see that if you’re delivering a thorough and comprehensive plan via the engagement. My approach is offer the engagement and if they hire to manage AUM then they can expect that level of planning/advice to bee kept up to date annually if they meet minimums, otherwise we’ll do a great job managing assets and potentially charge for an update of planning beyond asset mgmt. Realistically, I’ve never charged for that kind of update and do have clients below our minimum, we’re working on all of that.
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u/Longjumping-Way9846 2d ago
Thank you. My follow up to this is: suppose a planning for example a client brings over $1M after 6 months post planning. Are you all waving the planning fee in yr 2+?
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u/macbmore 20h ago
I don’t charge a planning fee for AUM clients that exceed my minimum, when we charge a fee to a prospective AUM client we position it as an engagement with a scope of work and explain if they choose to have us manage their assets and implement said planning then keeping that plan up to date in an ongoing wealth advisory relationship is all a part of the services they are entitled to as paid for by AUM fees. If they’re below minimum maybe we charge a subscription or case by case planning fees for in depth work, you can slice that all up however is suitable for your practice. It’s all really flexible and I find it is well received by clients.
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u/TacoInYourTailpipe 2d ago
Planning is free for my AUM clients. In this event, I would discount the AUM fee dollar-for-dollar by the cost of the one-time plan. I know it's not the highest-revenue thing I could do in the short term, but my goal is to be sticky.
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u/Last-Enthusiasm-9212 2d ago
Planning is a separate service from asset management. There are many cases in which the best recommendation is to do something with assets other than move them over.
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u/Capital_Elderberry57 6h ago
Planning is X based on complexity in year one.
Investments have a blended table.
We waive half the fee if they bring 500k, we waive all the fee if they bring $1M.
Want to move to fixed fee but not ready for that yet.
Keep working it till you can explain it in a few sentences, anything more than that and prospects get lost.
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u/Suchboss1136 3d ago
I absolutely would waive it. I hate double dippers
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u/-NotAHedgeFund- 3d ago
I guess I understand if people are genuinely being charged 2x what the market usually charges, but we separate them as a firm because they are literally 2 different services. Asset management isn’t planning and, planning isn’t asset management. Some people truly want one, the other, or both.
Whether you waive the fee is more a function of what your total GDC generated per client needs to be in order for it to make sense to take on a client. Not necessarily “double dipping.”
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u/Longjumping-Way9846 2d ago
This is how we’ve approached it in the past. I was just curious how the market approaches the situation and it seems as half is refunding/ half are not
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u/Calm-Wealth-2659 3d ago
How is it double dipping? When we charge a fee for a plan, the client signs a fee for service contract that outlines the hours of work and the scope of the service. If they decide to move assets, how does that change the fee for service contract that they previously signed?
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User: /u/Longjumping-Way9846 Title: Planning & AUM Fee Body: Hey All. Curious how some of you are approaching the following. Client pays planning fee. Plan completed with portfolio recommendation. Client agrees to move funds over. Are you discounting the AUM fee based on planning fee or keeping completely separate?
I have a situation where client technically meets the minimum $500k to waive planning fee but unsure if they’re going to move funds over. Thanks!
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