Hourly Financial Planning
Who is our “typical” hourly planning client?
Our hourly clients are DIY investors who realize that the complexity of their finances is increasing. However, they don’t want to hand over their investments to an advisory firm or pay an Assets Under Management (AUM) fee. They are typically looking for someone to pull all the financial pieces together for them and come up with a strategy and financial plan that they can execute with updates and check-in meetings annually or as needed and pay an hourly rate for ongoing services.
What is our hourly financial planning fee and process?
We provide financial planning and advice at an hourly rate of $385. We start off every relationship with a new client with a flat fee comprehensive plans so that we are all on the same page with organization and ongoing financial strategy. The price of this plan is based on the complexity of your finances and your goals. Most comprehensive plans cost between $4,000-$15,000 and are delivered within 30 days of project start. You’ll receive a flat fee proposal to complete your project after our initial, no-obligation, introductory meeting.
After the initial plan, all future financial planning services and meetings are billed at our hourly rate much like you would paid an accountant or attorney.
We default to annual meetings with our hourly clients to renew their plan and address any questions or concerns that have come up since our first project. While not mandatory, we believe these annual meetings are critical to staying on track and creating strong, long-term relationships with our clients. Meeting more frequently than once a year is always an option regardless of project size.
Schedule an Introductory Call
Let’s find a time that works best for you to learn more about our tailored financial advisory services.
Our Hourly Fee vs.
AUM Fees
The most common fee type for financial advisors is an AUM fee. AUM or assets under management fees are considered fee-only because the advisor receives no commissions. However there are significant differences between hourly fees and AUM fees.
A fixed fee, such as the project fee we charge, does not change based on assets, but is fixed based on the complexity (hours) of the advice needed. We also never take control of your investments or require you to transfer your assets.
Let’s compare two potential clients who would be well suited for our hourly financial plans:
Bobby
Bobby has $4.5 million invested in a portfolio of index funds. He is single, has no children, a W2 income, and no debt.
Sally
Sally has $750,000 in investments and a high income that includes stock options, bonuses, and some 1099 contract work. She and her husband own two rental properties and have three children that need college savings. Did I mention the mortgage, equity lines, and future vacation home?
We would charge a relatively low fee for Bobby’s plan due to the low complexity despite the high account value. On the other hand, Sally would require a higher project fee due to the complexity of the whole financial picture. In these cases, investment assets are a small piece of a puzzle with a lot of pieces that need to fit together. We believe in providing personalized and comprehensive advice on the entire financial situation and charging accordingly.
Based on an AUM fee of 1%, Bobby would pay $45,000 per year compared to Sally’s $7,500 for investment management despite having a simpler financial situation and this fee may not even include any financial planning. Worse yet, imagine if Sally’s situation actually became simpler (kids out of college, debt repaid, real estate sold). Assuming her account values went up, she will end up paying more per year for a decrease in complexity
AUM Conflicts of Interest
Since the AUM fee is based on assets and not performance, whether the investment choices made by the advisor work out, the client is still on the hook for a fee. It is common for AUM fee proponents to argue that an AUM fee ensures that since their fee is tied to the assets then there is “skin in the game” because the performance of the portfolio affects their income. However, the change in fee is actually quite minimal.
Let’s use this example
You have a $1,000,000 portfolio and your advisor charges an AUM fee of 1%.
If the portfolio earns a 0% return, you still pay a fee of $10,000/year.
If the portfolio earns a 10% return, the portfolio value is $1,100,000 and you pay a fee of $11,000.
If the portfolio loses 10% , the portfolio value is $900,000 and you pay $9,000.
Windfalls
Another issue is with a cash windfall or high savings. If you receive a $100,000 inheritance or save an additional $100,000 from a bonus, you now have to pay an additional $1,000 every year for someone to add this to your portfolio to be managed the same as the rest of the portfolio.
Debt Repayment
If you have the choice of whether to pay off your student loans of $250,000 or add $250,000 to your investment account, what is the best option? An advisor that you compensate with a flat fee can do the analysis and give their opinion without worry of how their compensation is affected. There is no decrease in our income if you withdrawal $250,000 from your investments to pay off the loans. The advisor who charges an AUM fee cannot say the same. This is an unfortunate conflict to such a popular fee model, but one that we avoid with a fixed fee model.
Hourly Advice vs. Commissions
There are many incentives available to financial advisors to push a certain product or service on a client. The commission structure is mostly prevalent in the insurance business where an agent receives a commission on the sale of an insurance contract. The conflict of interest arises with the choice of which insurance or annuity product to recommend or how much insurance to recommend as this advice could be driven by the commission to be received. The same is true for certain investment products and funds.
The first test is to ensure that you are dealing with a registered investment advisor and not a broker. A broker is not required to provide advice in your best interest or put your financial well-being above theirs, also known as fiduciary duty. So if a broker recommends Fund A for your portfolio, you don’t know if Fund A is truly the best option for you or if Fund A is just paying a bigger commission to the broker.
We do not accept any commissions. You only pay a fixed fee for advice based on the complexity of the plan. This ensures that the advice given is not being swayed by some payout from a third party.
Frequently asked questions
Who is the “typical” client for this service?
Our hourly clients are DIY investors who realize that the complexity of their finances is increasing. However, they don’t want to hand over their investments to an advisory firm or pay an Assets Under Management (AUM) fee.
They are typically looking for someone to pull all the financial pieces together for them and come up with a strategy and financial plan that they can execute with updates and check-in meetings annually.
Do you charge an AUM fee?
No.
We are a fee-only advisory firm offering hourly and monthly retainer services. This allows you to maintain control of your accounts and allows us to provide straightforward advice that is in your best interest without being influenced by conflicts of interest inherent in other fee models like AUM.
What does “fiduciary” mean?
Fiduciary Duty of an investment advisor means that the advisor is required to work in the best interest of their clients. Scholar Financial Advising is an independent fee-only financial advisor with a fiduciary duty to all of our clients.
Do you work with clients remotely?
Yes! While we are headquartered in North Carolina, our clients have come from all over the United States. In fact we have worked with clients in over 30 different states by utilizing technology including document storage and sharing, financial planning tools and software, and communication across email, phone, and video conferencing.
While we default to remote meetings and videoconferencing with all of our clients, we also have options to meet in person if you are in the Winston-Salem area.
Can we meet for an hour to answer my questions?
In order for advice to be tailored to your unique financial situation, we cannot support one-off discussions without performing the proper amount of due diligence. Providing accurate advice is paramount to building strong client-advisor relationships, and typically, it’s only given within the context of a comprehensive financial plan so that we have the full picture. Our initial planning fees range from $4,000-$15,000 to provide accurate advice under a comprehensive analysis that supports our standards.
What does the end result look like and will I have access to the materials after we meet?
Our deliverables include the presentation, a written list of recommendations (and a spreadsheet if needed), net worth statement, retirement simulations, live dashboard used within the meeting, and advice on implementation, if needed.
What happens after we meet? Do we meet again?
We check in with our clients throughout the year and are available to answer questions related to the plan or assist with its implementation. We also schedule annual renewal meetings which are a mix of updating previous items, rebalancing portfolios, and adjusting for new information (due to life and/or market changes).
We focus on building the client/advisor relationship so that if and when more complex issues arise you have someone to call who has already been working with you on the bigger picture and can see how all of the moving parts work together.
For clients who have ongoing planning needs, we recommend exploring our Signature Client Program.
How far into the future will the plan be for and how many hours are expected for reviews? Is an annual review required?
The comprehensive plans that we build will cover you for about a year. While annual reviews are not required, we recommend updating the net worth statements, checking in on rebalancing the portfolio, addressing some minor questions that have come up throughout the year, and adjusting for new information (from you or the market).
Once the initial work is done, reviews typically require less time. 70-80% of the initial plan cost is a good estimate for the number of hours. If there have been major changes throughout the year or more complex matters to discuss then the annual review price would increase accordingly.
Will you bill me for follow up questions or emails after our presentation meeting?
We do not bill for questions or follow up calls unless there has been a change to the assumptions used to build the plan (i.e. selling a property, major expense, etc.). It’s when the questions require additional research that is outside the scope of the initial project that we’d need to start and bill for an additional project.
Additional work after the initial plan will be billed at our firm hourly rate and invoiced monthly in arrears.
What’s Next?
Use the link below to schedule an Introductory Meeting. This initial call is completely free allows us to discuss whether our working together is a good fit.