Welcome to part 1 of a 3 part series on FEES.
Upfront financial planning fees are not those ridiculous commissions slapped onto a particular product which you as the client never actually see and enticed me as the planner to SELL, SELL, SELL. Neither are they the upfront percentages deducted off of your investment before being placed. Gone are the days of non disclosure and miss-selling products to get paid, Welcome to the world of TRANSPARENCY.
Before going through the HOW of Upfront Financial Planning Fees, lets start with the WHY.
By agreeing to work with a lifestyle financial planner, you have subconsciously decided that you want/ need an actual plan, something concrete which gives you clarity on your current situation and will outline the path to your desires. You probably have an idea of what this is, but are not 100% sure. You have probably already assumed/ identified a problem which you want to address. By agreeing to pay an upfront fee for this, you are looking for independence, you want to separate the planning from the product, you want to be sure that the plan is indicative of what you need and not what the planner needs, in doing this the emphasis shifts to the accuracy and integrity of the plan away from a tool used to sell. When paying for the plan you are automatically assigning value to it, if you are willing to pay for it, it must be important to you, if something is free its generally not worth much, and is easily pushed aside and neglected. The plan becomes a co creation of your financial world, and by clearly defining each of the roles you and the planner will take in this new found relationship, we create accountability and commitment. Just like any relationship in life, if its built on trust and honesty it will in all likely hood thrive, it will meet expectations and hopefully excel, if its built on untruths and apprehensiveness it will reflect this, there will be no clarity and very short lived. Simply put your plan is based on the GIGO principal, Garbage In, Garbage Out.
When dealing with me, a lifestyle financial planner you can expect to pay an initial upfront financial planning fee. This is in the form of an actual invoice billed directly to you and needs to be paid to me, in exchange for the number of hours of work that I am going to undertake, this is not a thumb suck of a number, I have calculated what it costs to do the work (all my fixed expenses and time included) and derived an hourly fee. Based on our initial conversation and information obtained, I am then able to give you an idea of the number of hours it will take from the initial meeting through to the final recommendations stage. Number of hours multiplied by Rand per hour gives us the Initial Financial Planning Fee. After the initial meeting you will receive amongst other things an invoice, of which 25% is payable, upon payment of this 25% we commence with the discussed Financial Planning.
At meeting 2, I will present to you a picture of your current financial planning world and the REAL conversations start taking place (more on this in another Blog Post). Meeting 2 could actually turn into meeting 3 or 4. This is where the buy in happens, if you as the client feel like this is a waste of your time and that the Financial Planning process we have gone through and will continue going through, can not/ will not/ does not, add any value to you, we both walk away, you having lost 25% of the invoice paid and me having lost my time and effort thus far. More importantly we haven’t been forced into a relationship neither of us see a future in, you haven’t been persuaded to buy a product you don’t feel you need, I haven’t been forced to sell you a product to get paid for my time and plan.
HOWEVER, if you realise there is true value in what we have created and believe as I do, that this process will give you clarity on your present life, and can outline the path to YOUR desired future, then the remaining 75% of the invoice becomes payable. We are now both in a committed lifestyle financial planing relationship, and this leads us to multiple scenario modeling and recommendations.(Post this in the second part of the series).
I realise the above seems very transactional and to be frank the Billing process is. Similar to that of going to see a Doctor the only difference is that I am offering you a get out of this relationship card before you pay the full fee. A doctor doesn’t offer that. You cant call up your GP, book an appointment and after this diagnosis tell him, ” sorry I don’t agree with you, I’m only paying you 25%.” He Bills you for his time, and we pay, we fulfill the prescription and believe the medicine will work and if it doesn’t, we go back, not for a refund, but for another diagnosis and another prescription. To be fair, they are usually right the first time. Now I’m not saying I am a doctor, but I am saying that I am a professional, a CFP professional and a professional needs to act like one in order to be treated like one.