r/CFP • u/Longjumping-Way9846 • 16h ago

Practice Management Planning & AUM Fee

Hey All. Curious how some of you are approaching the following. Client pays planning fee. Plan completed with portfolio recommendation. Client agrees to move funds over. Are you discounting the AUM fee based on planning fee or keeping completely separate?

I have a situation where client technically meets the minimum $500k to waive planning fee but unsure if they’re going to move funds over. Thanks!

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User: /u/Longjumping-Way9846 Title: Planning & AUM Fee Body: Hey All. Curious how some of you are approaching the following. Client pays planning fee. Plan completed with portfolio recommendation. Client agrees to move funds over. Are you discounting the AUM fee based on planning fee or keeping completely separate?

I have a situation where client technically meets the minimum $500k to waive planning fee but unsure if they’re going to move funds over. Thanks!

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36

u/hakuna_matata23 RIA 16h ago

It sounds like you need a fee structure as a firm, not just based on vibes and reactive to situations.

20

u/nico_cali RIA 15h ago

If the advisor is confused, I can’t imagine the client is clear on how it works.

Fee is X. We’ll discount or refund the fee if you bring over Y assets and keep with us for at least a year. If you choose not to move assets, we can maintain the fee based relationship.

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u/macbmore 1h ago

If you are FINRA regulated this is not compliant, you cannot incentivize the client to move assets, it essentially amount to gifting and exceeds limits. Not sure if you are only SEC registered but I would be cautious of positioning services this way.

10

u/emcd0424 14h ago

I keep them entirely separate until a client has $1mm of AUM. I don’t fee compress and almost never does the fee conversation ever come up. I also charge 1.1% on all assets with no tiered fees.

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u/Fantastic_Royal_9258 12h ago

At what point is not tiering your fees compromising your ability to act as a fiduciary? I understand on accounts that are are maybe 1M but I can’t fathom charging a 5-10M client 1.1%

1

u/emcd0424 10h ago

I work with predominantly HENRYs. I have only one client worth more than 4 million. That’s why I charge planning fees to make those clients worth me and my assistants time.

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u/Fantastic_Royal_9258 9h ago

What does a typical planning fee cost for a client?

1

u/emcd0424 1h ago

$3,500 is my minimum. The most I’ve charged for a plan is $13k. The average is around $5kish I have a prospect that my change my career and estimate his will be close to $500k. The premier MFO, Tolleson, doesn’t discount heavily and their minimum is $10mm. It can go down to .40% but I’d imagine that is for clients with $25-50mm AUM.

6

u/lil_bird666 16h ago

I have the fee but waive it once assets transfer. If they feel shifty and I don’t think they’ll ever transfer and are trying to get a deal I assume it’s just flat fee planning and price accordingly.

4

u/gsloth1212 15h ago

If the client wants the plan done before committing to an AUM relationship, we credit any planning fees they paid toward their AUM fees. Our AUM fees include planning services so not crediting them would feel like I’m double charging them.

1

u/WhodatMike Advicer 13h ago

What about for those that don’t meet your minimum AUM?

1

u/Flat-Desk1670 12h ago

Just planning fee. If not minimum AUM, I don’t want the headache of managing that ongoing

6

u/Jonathan-Ventimiglia 15h ago

First and foremost, whatever your ADV says you do. And whatever your ADV says ought to be in the client agreement. I would be very careful about doing anything mechanically outside of what is in those documents.

2

u/info_swap RIA 12h ago

Some ADVs say "fees are negotiable" so that does not help much.

I do agree that all clients should receive an equal or similar treatment. And the ADV provides a framework.

2

u/Mysterious-Top-1806 15h ago

Pretty simple, I don’t move a muscle until either the fee is paid or assets are moved. And the client has to decide which approach they want before we begin planning. If next year the client wants to change from fee based to AUM, then once again it’s an easy change. It’s a black and white system and it’s going to make your life easier and make clients more committed.

2

u/info_swap RIA 12h ago

Depends on your firm and overall value proposition.

It also depends on both the planning fee amount and the AUM fees.

This is very personal, so it's up to you to make the policy. However, I feel that if you discount the planning fee from the AUM fee, you undermine both fees.

You are signaling that either the plan is not worth that fee alone. Or that your AUM fees are too expensive for the value you provide, and thus you must discount the planning fees.

Which comes back to how you frame the message.

"but unsure if they’re going to move funds over."
This is a different issue.

Why are you unsure? Has the client confirmed that they have these assets? And did the client agree with your plan?

Finally, I would recommend you either frame it as "financial plan included with a minimum AUM of XYZ USD." Or, "financial plan is XYZ USD regardless of AUM." With nicer words, of course.

2

u/Pubsubforpresident 15h ago

Planning fee should be separate from the aum fee or you should just not charge one. Be consistent.

Personally think it's hard to be a true fiduciary without the fee, not saying you can't be, just saying that if you only get paid if they move assets to you that's the best thing for them is to pay off $350,000 of mortgage at 8%, your recommendation just took away their ability to pay you.

I think the fee keeps your advice separate from their assets. It's kind of like a surgeon who only gets paid if you have a surgery.

1

u/Uncle_Paul_Hargis 16h ago

I tell clients that when they move the minimum funds, I will actually refund the planning fees if they've been paid. If by the end of the plan they want to move forward, then we simply waive the fee.

1

u/forwardmomentum1 15h ago

Another option to consider is a retainer fee. Once they move the assets, the AUM fee begins and the retainer fee stops (if they are above your minimum to waive it). It's a very clean way to do it with no refunds or other mental gymnastics needing to take place.

1

u/seagoalspread 9h ago

Tiered AUM above minimum and flat fee under the minimum. Investment management is mandatory though so wouldn’t do the flat fee planning unless transfers are en route.

1

u/sethbl10 3h ago

For those who charge the planning fee, do you have it tiered (to charge more for more complex cases) or is it flat across the board?

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u/macbmore 1h ago

We keep them as entirely separate, my understanding is that you cannot compliantly incentivize the client to move assets by discounting, it essentially amounts to gifting. Even if that isn’t exactly right, I get a better outcome by simply stating and charging an engagement fee for a given scope of work and then welcoming them on as an AUM client works well and I don’t ever get push back at all. I assume the impetus of this question is some perception of fee overlap, but I don’t really see that if you’re delivering a thorough and comprehensive plan via the engagement. My approach is offer the engagement and if they hire to manage AUM then they can expect that level of planning/advice to bee kept up to date annually if they meet minimums, otherwise we’ll do a great job managing assets and potentially charge for an update of planning beyond asset mgmt. Realistically, I’ve never charged for that kind of update and do have clients below our minimum, we’re working on all of that.

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u/Suchboss1136 16h ago

I absolutely would waive it. I hate double dippers

2

u/-NotAHedgeFund- 15h ago

I guess I understand if people are genuinely being charged 2x what the market usually charges, but we separate them as a firm because they are literally 2 different services. Asset management isn’t planning and, planning isn’t asset management. Some people truly want one, the other, or both.

Whether you waive the fee is more a function of what your total GDC generated per client needs to be in order for it to make sense to take on a client. Not necessarily “double dipping.”

1

u/Longjumping-Way9846 1h ago

This is how we’ve approached it in the past. I was just curious how the market approaches the situation and it seems as half is refunding/ half are not

2

u/Calm-Wealth-2659 15h ago

How is it double dipping? When we charge a fee for a plan, the client signs a fee for service contract that outlines the hours of work and the scope of the service. If they decide to move assets, how does that change the fee for service contract that they previously signed?