Financial planners who are compensated for the sale of insurance products cannot call themselves fee-only even if they do not receive commissions for any investment products. At Peterkin Financial, our financial planning recommendations typically include insurance recommendations for protection, income, tax management, and estate planning goals. When this is the case, our clients have the option to implement these recommendations with us. We aren’t affiliated with any one insurance company and have no obligation to recommend one company or policy over another. Instead, we work with independent insurance brokers to help facilitate the implementation of our clients insurance strategies in order to streamline the process of securing coverage for our clients.
Many of the clients who hire us are high earners who don’t have a ton of cash in the bank or in non-retirement investments- that’s why they hire us. They’re looking for strategies to help optimize their savings and investments so that they’re keeping more of what they’re earning and aligning those savings with their goals. Our clients are able to pay for that advice independently of purchasing any products or investing any as-sets and they have the option to do so monthly so that their financial planning can be worked into their monthly budgets just like their cellphone or gym membership.
We don’t do investment management outside of implementing recommendations that are part of a comprehensive plan that offers our clients a roadmap to achieving their goals. We also don’t stock pick or actively manage any client portfolios- it just doesn’t align with our long-term, planning focused philosophy. Our perspective is that in this environment if a client is simply looking for efficient investment management of a portfolio rather than holistic planning advice, robo advisors and other low-cost investment management platforms can more than do the job.
If an advisor is willing to give away financial planning for free and they are not working for a non-profit it is because they are going to be paid some other way- typically through commissions from product sales or a fee from your investment portfolio. Under a purely commission-based model, the more time the advisor spends helping to advise and implement recommendations that don’t result in commissions or fees, the less money they make per hour for selling the actual product. This can create an adverse dynamic and result in little ongoing advice and planning service because ongoing compensation to the advisor is often limited or non-existent unless they can continue selling you additional products.
In a fee for investments under management model- you may not be paying an up front fee for advice, but you are absolutely paying an annual fee for service to the advisor above and beyond what the costs of investing are. Often, when we look at the fees clients with assets are paying for investment management only, those fees are on-par with or higher than what we charge for comprehensive planning. Clients who don’t have assets that can be invested with an advisor typically aren’t served well under a fee for assets under management model because the low balance in their portfolio means the advisor is likely making very little on their account.
We charge an up front fee for planning separate from assets under management because we believe we should be paid a transparent fee for the work we do for clients in creating and delivering their plan, and for the ongoing advice we give that goes beyond investment management.
We believe there is significant value in having an expert put together a comprehensive financial plan that is customized to your specific situation. That being said, we strongly believe there is no information an advisor will include in your plan that you couldn’t have Googled or otherwise researched to find yourself. The problem is time, not complexity. All of our clients are smart enough to learn about planning and could to it themselves, but the amount of time it would take to distill all of the information and then effectively apply it is not only not available given the demands of their jobs and personal lives- for many of them it would not be enjoyable time spent. Beyond the ability to give you the specific financial information and advice you need when you need it, the value of an advisor is in holding you accountable to regularly updating your planning as life changes and in implementing necessary recommendations so you stay on track to achieve your goals.
No, we use a subscription model for our planning service because we believe that is the best way to give our clients the most value out of the planning relationship and to ensure we are there when they need us. The predictability of the cost allows our clients to better budget their planning fees and removes the inclination to be reactive about planning rather than proactive. Most people make financial decisions every day and we encourage clients to give us a heads up or consult with us as life happens so that we can weigh in and make recommendations that can save them money and often headache or provide alternative recommendations. We offered an hourly bill model in the past and terminated it because we realized that costs associated with picking up the phone, shooting an email, or scheduling an appointment often acted as a deterrent to proactive financial conversations that provided significant value to clients.
We believe that a significant amount of the value in a planning relationship comes from action and accountability- not just information. In the early years of Peterkin Financial, we offered alternative relationship options including hourly billing and the availability of a fee for just a plan with little or no implementation. When clients re-hired us, we’d notice that their plans had been derailed and/or implementation of the recommendations they’d paid for hadn’t been completed. In some cases, because clients chose to implement in one area of the plan but not others, they were actually worse off because of the partial implementation. We’ve found that a one-year commitment gives enough time for clients to fully implement the advice they’ve received, acclimate to any changes, and experience the ability to have their plans tweaked when both minor and major changes happen that impact their finances so this is the only option we now offer clients.
In order to be able to deliver the level of comprehensive planning we believe is necessary for all of our clients, we need to limit the number of clients we serve. If a financial planner has 100 clients and works 2000 hours per year (50 weeks with 2 weeks vacation), they can spend 20 hours on your planning if they do nothing else. In a perfect world, an advisor would be able to spend all of those hours seeing clients or doing planning for them, but in practice this is unrealistic. The minimum is designed to ensure that each client we serve gets the service and attention we commit to them. Lower per client fees would mean less time spent on you and your plan throughout the year because we’d need to take on more clients in order to cover salaries and expenses.
In year 1 there is a significant amount of work that gets done to get your financial house in good order. In future years there may be many significant life changes or things may be generally status quo. In either case, we believe the benefit of working with a financial planner on an ongoing basis is to stay on track and keep your finances in order. A good analogy is cleaning out your basement or garage. When the area is a complete mess, it takes a significant amount of time and sometimes financial investment to get everything organized and functional. Maintaining the organization takes much less time and effort than having to do a big re-organization if you let the mess creep in. The cost of failing to maintain it is another significant investment of time to get things back in order. When your basement is disorganized, you might spend money buying something you already have but can’t find. The costs associated with financial disorganization are often much higher and ongoing maintenance significantly increases the likelihood of more efficiently and actually achieving your goals.
Your annual financial planning fee is determined based on plan complexity and anticipated deliverables and coordination needed to execute it. If you want to leave your investments where they currently are, you just pay your annual planning fee either monthly or annually by bank withdrawal or credit card and we would incorporate those investments into your overall plan, making recommendations where appropriate. However, if you have an advisor who is charging an advisory/investment management fee it is likely that in moving your money under our management you will save money by eliminating that fee.