Financial Planning

Don’t Knock Hourly Planning

My biggest beef with my industry is the underlying theme that only families with wealth need financial advisors; I’m talking real financial advisors–fiduciaries, not salespeople disguised as financial advisors. No financial advisor will admit to this, and they don’t have to, just look at the way the majority of financial advisory firms are structured–an annual management fee based on the amount of assets managed, often combined with a minimum asset level, or fee to be met. By setting minimum levels, individuals looking to get started with their financial planning are excluded and left to fend for themselves.

How are these individuals ever to accumulate the wealth to meet minimum levels if they cannot get the help they need to make good financial decisions? It’s like the old saying, what came first, the chicken, or the egg…except it’s what came first, the wealth, or the advice?

As a business owner, I understand why advisors set minimum asset levels and fees. It takes time to meet with clients, develop and present a plan, and help get the plan set into motion. It takes even more time to properly manage investments, meet with clients for multiple meetings a year, and answer questions between the meetings. For these types of relationships, I think the AUM fee is appropriate–a large portion of my business is structured this way.

But what if this level of service is not needed? Should individuals and families who don’t quite need a comprehensive financial planning relationship be ignored? No. In fact, they may need the financial advice more than those with greater wealth. If you find yourself in this situation, keep reading. If you are not, keep reading because surely someone you know might be.

Let’s take a look at a few scenarios where the full comprehensive AUM relationship is not what you need:

  1. You are a do-it-yourselfer. You may not have the tools and background to analyze your financial planning, but given the proper direction you can carry out the implementation of your financial plan. You have the interest, discipline, and time to carrying out the recommendations–you just need someone to tell you what to do. Why pay for something you can do yourself?
  2. Your investable assets are tied up in employer sponsored retirement plan. You’re a good saver and have always taken advantage of your employer sponsored retirement plan, like a 401(k)/403(b). Unfortunately, since your assets are tied up in your 401(k), they cannot be managed by a financial advisors. You can always rely on the “advice” of the 401(k) company, but that’s sketchy at best; I can say that because I come from that world. It might be better than no advice at all, but it’s most likely going to be full of conflicts of interests. Having your nest egg in your employer’s retirement plan does not exclude you from needing financial advice.
  3. You are just getting started with financial planning. You’re finally seeing your income rise, your students loans are gone, and you’ve gotten yourself in position to start working on your long term planning. Unfortunately, you only have a little bit of savings in your 401(k) (see #2), and the Roth IRA you’ve started is not enough to receive the attention of financial advisors. How do you begin to plan for the your future?

There are infinite number of scenarios that could be included in this list, but for the sake of time I’ll stop at three. Plus, these are the most common scenarios I see in my practice. Regardless of the details of the scenario you may find yourself, or a loved one, in what are you to do to get the financial advice you need and deserve?

Well, I have good news for you! There is an increasing number of financial advisors providing alternatives to the traditional advisory relationship– the AUM relationship. These alternative advisory relationships include monthly subscriptions, flat fees, and hourly planning.

Today, I’d like to focus on the most basic of the examples, hourly planning, because it can help the greatest number of individuals currently being neglected by the financial planning industry.

If you have ever worked with an attorney, or CPA you most likely paid them for their time at an hourly rate. You probably didn’t even think twice about doing so–this is the way we expect to pay for their services. Meeting with an attorney, or CPA is pretty cut and dry, which allows for a simple compensation structure. This straightforward method can be applied to financial planning, especially for individual looking for some general advice, or to just get started.

What to expect with hourly planning.

Every financial advisor is going to be different, but in general with an hourly planning relationship you should expect:

  • Spending an hour or two discussing your planning goals, reviewing your financial statements, and discussing any other information important to your plan.
  • Depending on the complexity of the plan, anywhere between 2-5 hours of planning work by the advisor.
  • Again depending on the complexity of the plan, an hour or two to review the plan and recommendations developed by the advisor.
  • Most often, implementation and carrying out the plan will be your responsibility.
  • Rinse and repeat whenever updating the plan, which can be every year or two depending on if there have been major changes that need to be updated.

If you find yourself in one of the situations mentioned above, or one similar, consider looking for a financial advisor offering planning services on an hourly basis. And, if you’re not sure where to find one of these advisors the XY Planning Network is a good place to start. Full disclosure: I am a proud member of the XY Planning Network and am excited to be a part of the movement bring financial planning to not only Millennials, but those who have been neglected by financial advisors in the past. You can access the XYPN advisor search here.

You can also access financial advisor searches through the National Association of Personal Financial Advisors (NAPFA), the Financial Planning Association (FPA) and the CFP® Board . Each of these will point you in the direction of fiduciary financial advisors–focus on fiduciary financial advisors.

Personally, I hope the trend of financial advisors offering alternative advisory relationships continues because financial planning is becoming increasingly important and complicated at the same time. Not everyone needs the same type of financial planning, but everyone needs a financial plan.


Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.

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