I must be pretty bad at my job because I have never received such a big reaction to something I have written, or tweeted, as last week’s story about charging young clients a monthly retainer fee.
It was a pleasure speaking to @MichaelKitces last week. What would you pay per month for financial planning? £50, £100, £200? There is a long list of things young people need help with. https://t.co/MqhUKK1Ycs— Will Robins (@Will_Robins) March 18, 2019
Last week I interviewed US financial planning guru Michael Kitces. He is not yet a big name over here, but is well known in some financial planning circles and has spoken at UK events.
This was his message to UK planners: the profession needs to engage younger clients. And it cannot do so while reliant on investable assets or an upfront fee north of £1,500.
His proposed solution, already used by nearly 900 planners in his XY Planning Network, is a monthly retainer. For $100-$200 (£75-£150) per month, Kitces said a planner can deliver a valued service to younger clients. This includes time taken up front with deep financial planning conversations and fact finding. And there is nothing to stop a percentage charge kicking in once a bit of wealth is accumulated.
‘We sometimes forget the actual complexity of real human beings as they go through their lives,’ said Kitces. ‘What advice would you give people through their 20s, 30s and 40s? How about: how to navigate a first job, learn good budgeting and savings habits, ask for their first raise, negotiate their employee benefits...’
The list went on.
A $150 fee, over 100 clients, adds up to $1,800 over the year. It is similar to most upfront planning fees in the UK (from £1,500).
Clients can stop paying ‘as soon as you don’t feel like you’re getting value anymore’. This puts ‘positive pressure’ on advisers, he said.
Save it for later
‘What a load of crap’, said the first comment on the New Model Adviser® website. But others could see the sense in it.
Jonothan McColgan (pictured above), director of Bath-based Combined Financial Strategies, called Kitces proposition an ‘area of opportunity’. ‘Advice is only regulated advice when a financial product is sold or intended to be sold. So there is definitely a market for a money-planning offering for the young on a monthly fee on an unregulated basis.’
Benjamin Fabi, owner of Principled Paraplanning, pointed out a high-earning young couple would not have investable assets because any capital will be tied up in a house.
Financial education, a risk profile, an analysis of their financial situation, the impact of illness, spending and under-saving were areas of added value that could be paid for by the retainer, Fabi said.
A common response suggested saving the £150 per month into an ISA and coming back to advice when you have £100,000.
‘£150 per month to an adviser or an extra £150 per month into a pension? Tough one!’ said Pension Playpen founder Henry Tapper on Twitter.
£150 per month to an adviser of an extra a£150 pm into a pension. Tough one!— Pension Plowman (@henryhtapper) March 18, 2019
‘Almost £2,000 a year – get that into your pension,’ agreed pensions expert Nic Millar. ‘£150 per month is beyond preposterous for an average person,’ said financial journalist Annie Shaw, who likened it to ‘a neurosurgeon giving advice on domestic hygiene’.
But the idea found more support among advisers. Alistair Cunningham (pictured above), chartered financial planner at Caterham-based Wingate Financial Planning, said while it would never be a solution for all ‘millennial financial woes, those who are income rich and asset poor need advice, particularly financial planning and tax planning’.
I saved a chap £8k (younger than me) last week by sending a couple of hours helping him with taper. Paying an extra £150/month into his pension would've made the problem worse not better. Done the same for maybe half a dozen in the last twelve months.— Alistair Cunningham (@Cunningham_UK) March 18, 2019
Nottingham-based Neon Financial Planning said it was already providing a version of Kitces’ offering. Neon, an appointed representative of Balance: Wealth Planning, said it was aimed at 25-to-45 year olds and offers a range of services from a free financial heath check, to ongoing support (£40 per month) to financial forecasting (£750 flat fee). ‘We’ve designed a range of services that people can pick and mix,’ Neon tweeted.
Here are my thoughts. A monthly retainer removes a barrier of an upfront £1,500 (ish) cost. A client can walk away at any time but, if advisers can keep adding value, clients will continue to pay the fee.
Importantly, and Kitces who stressed he saw the sense in traditional ad valorem charging where appropriate, the arrangement does not need to last forever. The monthly fee can be blended or switched into a traditional structure as a client becomes wealthier.