How Much Should You Spend on a Financial Plan?
Like many businesses these days, we track website activity, and some of the most common queries involve the cost of a financial plan.
It's a good question because there is a wide range of costs and many advisors base their fee upon time required versus offering a set price.
The first thing you should understand in determining the cost of a plan is whether or not the planner sells commissionable products.
If he or she does, then the plan may be just a few hundred dollars, or if it's a very rudimentary plan, it might even be free.
While this might seem like a great deal up front, because of higher ongoing fees it may end up costing a good bit more in the long run.
As an example, let's say you had $100,000 to invest, and a commission-based planner charged $300 for the planning but also sold commissionable mutual funds that charged a 1.
5% fee year-after-year.
The first year, your total cost would be $1800 - the $300 fee for the plan, plus $1,500 for the mutual fund expenses.
The next year - assuming no growth in the value of your investments, which hopefully isn't the case - you'd continue to pay the $1,500 in mutual fund expenses.
On the other hand, let's assume you work with a fee-only planner who does not sell commissionable mutual funds, but does charge $1,500 for the plan.
Because the mutual funds recommended don't pay a commission, the fee to you tends to be lower.
In this case, let's assume ongoing mutual fund fees are 0.
9%.
So, the first year, your expense would be $2,400 - the $1,500 planning fee plus $900 in fund fees.
The second year, the expense drops to $900, and remains lower in subsequent years as well.
Because ongoing fees are lower, you'll break even on your total costs by the end of year two.
If you decide to work with a fee-only planner, what can you expect to pay? Typically, the answer is that it will depend on the complexity of your needs, as planners tend to base their fees on the time spent on the plan.
Hourly rates cover a wide range, but in our experience most planners charge between $150 and $235 an hour.
Some planners offer hourly consults to discuss specific financial topics, but if you want a comprehensive plan, at a minimum the planner will likely spend at least five hours on your plan.
Many planners provide free initial consultations, and if the planner does offer this, take them up on the offer.
It's a good way to determine if the planner can meet your needs and it's also a chance to get a rough cost for the planning.
If you decide to move forward, make sure to get a written proposal that clearly outlines what the plan will include and what the cost will be.
A comprehensive plan not subsidized by the sale of commissionable products likely won't cost much less than $1,000 and may cost more, but a written proposal will help you avoid sticker shock and make clear what will be covered in the plan.
It's a good question because there is a wide range of costs and many advisors base their fee upon time required versus offering a set price.
The first thing you should understand in determining the cost of a plan is whether or not the planner sells commissionable products.
If he or she does, then the plan may be just a few hundred dollars, or if it's a very rudimentary plan, it might even be free.
While this might seem like a great deal up front, because of higher ongoing fees it may end up costing a good bit more in the long run.
As an example, let's say you had $100,000 to invest, and a commission-based planner charged $300 for the planning but also sold commissionable mutual funds that charged a 1.
5% fee year-after-year.
The first year, your total cost would be $1800 - the $300 fee for the plan, plus $1,500 for the mutual fund expenses.
The next year - assuming no growth in the value of your investments, which hopefully isn't the case - you'd continue to pay the $1,500 in mutual fund expenses.
On the other hand, let's assume you work with a fee-only planner who does not sell commissionable mutual funds, but does charge $1,500 for the plan.
Because the mutual funds recommended don't pay a commission, the fee to you tends to be lower.
In this case, let's assume ongoing mutual fund fees are 0.
9%.
So, the first year, your expense would be $2,400 - the $1,500 planning fee plus $900 in fund fees.
The second year, the expense drops to $900, and remains lower in subsequent years as well.
Because ongoing fees are lower, you'll break even on your total costs by the end of year two.
If you decide to work with a fee-only planner, what can you expect to pay? Typically, the answer is that it will depend on the complexity of your needs, as planners tend to base their fees on the time spent on the plan.
Hourly rates cover a wide range, but in our experience most planners charge between $150 and $235 an hour.
Some planners offer hourly consults to discuss specific financial topics, but if you want a comprehensive plan, at a minimum the planner will likely spend at least five hours on your plan.
Many planners provide free initial consultations, and if the planner does offer this, take them up on the offer.
It's a good way to determine if the planner can meet your needs and it's also a chance to get a rough cost for the planning.
If you decide to move forward, make sure to get a written proposal that clearly outlines what the plan will include and what the cost will be.
A comprehensive plan not subsidized by the sale of commissionable products likely won't cost much less than $1,000 and may cost more, but a written proposal will help you avoid sticker shock and make clear what will be covered in the plan.
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