Moving Beyond “Fee-Only” by Building an “Advice-Only” Firm

As the business of financial advice continues to evolve, so too do the service models and compensation structures that advisors offer. With regulatory changes driving advisors to rein in their fees along with clients yearning for more holistic fiduciary advice, it’s becoming increasingly imperative that entrepreneurial-minded advisors are focused on building firms that ensure their interests align with their clients’.

We’ve also witnessed over the years the evolution of fee structures, with “advice-only” now emerging as an increasingly viable advisor offering. The advice-only fee model was designed to support clients who prefer to be hands-on while virtually eliminating all of the conflicts of interest found in previous fee models. But what really makes a firm “advice only?” How can one profitably structure an advice-only model? How should you determine whether advice-only is ultimately the right path for your firm?

So, what exactly is “advice-only?”

Advice-only is precisely what it sounds like—it’s a business model that simply entails providing advice to a client without selling products or directly managing their assets. In the same way a doctor or health care provider charges a patient a flat fee for medical advice or for rendering a service, the client pays the advisor only for their advice on a particular topic or pain point. This means the responsibility typically falls on the client to follow and implement the advice. Now, once the initial engagement has concluded, the advisor does have the option to check in with the client periodically to see how the implementation is going or when a significant change has occurred that requires additional guidance. this is the essence of fee-based advice.

Advice-only is quickly becoming an attractive business model for advisors who seek to hold themselves to a high fiduciary standard because:

1. It eliminates the potential conflicts of interest apparent when investment recommendations are motivated by the hidden, embedded AUM fees within the investments.
2. It can reduce overall fees for the client and help them keep more of their market returns since the advisor is not charging an ongoing investment management fee in addition to a financial planning fee, nor are they receiving trailing commissions for allocating client money into certain mutual funds.
3. It increases fee transparency as an advice-only fee arrangement between the client and the advisor is elucidated, not obscured in any of their investments. Advice-only is also great for clients who consider themselves “do-it-yourselfers” who are comfortable and capable of implementing their own financial planning and may only need a roadmap to set them up on the right path.  

How are advisors profitably structuring their advice-only business model?

In the Network, we have quite a few members who have successfully incorporated the advice-only business model. Cody Garrett, XYPN member and founder of an advice-only firm called Measure Twice Financial, was featured on Michael Kitces’ Nerds Eye View blog last year to discuss his firm and the various ways advice-only advisors are compensated. According to the Kitces article, the three most common ways to charge advice-only fees are:

• Hourly

• Ongoing retainer

• Project-based

Per Cody, hourly fees can be excellent for clients who want a limited-scope or a “pay as you go” type of engagement, with median hourly fees ranging from $150–$300/hr. Ongoing retainer fees can be appropriate for clients who need the ongoing accountability and coaching an advisor can provide along with the implementation of the advice with an annual fee range of $1,200/yr–$8,000/yr. A project-based fee structure can be excellent for clients looking for one-time engagements or second opinions, but who also want a full comprehensive financial plan with an engagement fee range of $1,000–$5,000.

Notably, Cody’s own fee-based advice structure is simple and straightforward. His firm offers three-month comprehensive financial planning engagements for a flat fee of $6,400, with half of the fee due upfront and the other half due after financial plan delivery. For clients who decide they need an ongoing engagement, his firm charges an additional annual fee of $4,800.

Another XYPN member, Ronnie Calvin, founder of French Press Financial Services, also offers advice-only financial planning, including short-term projects like retirement plan projections, employee benefits reviews, estate planning reviews, and planning for other major “life” decisions, but no direct investment management. His firm’s project work is billed on an hourly basis at $250/hr with a 3-hour minimum. An hourly fee structure can be a great fit for clients who don’t necessarily need full comprehensive financial planning. Additionally, his firm offers ongoing financial planning with a $750 onboarding fee and an annual retainer fee between $3,000–$4,800 based on income and billed monthly.

Is advice-only right for your firm?

The advice-only business can be an excellent fit for your firm if your service model explicitly prohibits selling products or earning commissions, as XYPN’s members do. It can be ideal for advisors who consider their bread and butter to be high-level financial planning and have no desire to offer discretionary investment management services to clients. Advice-only is also great for advisors who enjoy working with DIY clients who are self-motivated and who may or may not need their ongoing hand holding. Last but certainly not least, incorporating an advice-only business model can be ideal for advisors looking to hold themselves to the highest fiduciary standards, who seek to avoid the conflicts of interest common with other fee models, and ultimately desire to have their advice influenced on nothing but their clients best interests.

P.S. Looking for more 1:1 guidance on your firm's service model fee structure? Aside from working directly with our expert coaches through XYPN membership, you can grab your pass to #XYPNLIVE 2022 and get access to a free 1:1 session with the XYPN coach of your choice! (Grab your pass early, as Coaches' Corner sessions are first come, first served.)

About the Author

Kathleen Boyd, CFP®, is XYPN's Financial Planning and Process Coach. In her role, she works closely with XYPN members to guide them in refining their planning process, resulting in stronger ties with clients and a more fulfilling planning experience for all involved.