Fee Structure – Project-Based

What is a Project-Based fee?

The project-based plan fee structure is a cost structure that covers larger planning needs.  The project-based plan can focus on specific goals such as retirement planning, retirement distribution, estate planning, and the like.  Project-based planning can go beyond specific goals to include multiple goals as well as comprehensive plans that cover all aspects of your finances.

How does Project-Based Planning Work?

A client will first need to work with their client to determine the scope of the overall planning needs. This may take a meeting or two in order to properly assess the goals the project will focus on. Once an understanding has been reached, the financial advisor will be able to estimate the amount of effort needed to undertake the project. Project based fees take into consideration factors such as the complexity of your financial profile, the depth of services to be provided through the engagement, assets that comprise your overall portfolio, number of accounts in the portfolio, as well as the estimated time involved in the planning process.

The fees at Phoenician Financial Planning, LLC,  range from $500 – $5,000, depending on the factors involved. The benefit to working under a project based fee structure is that the cost of the plan is lower than what an hourly fee structure would provide. An advisor will typically estimate the amount of hours needed for the project and calculate the fee based on a discounted hourly rate. Half of the project based fee is due prior to beginning work on the plan, with the remainder due at the completion of the plan.

Pros and Cons

Pros:

  • Discounted approach for more complex planning needs
  • Provides a comprehensive look at financial situation
  • Limits any potential conflict of interest between an advisor and the client

Cons:

  • Does not provide ongoing advice and guidance
  • Costs are out of pocket
  • Client must make future investment allocation changes

Who should use a Project-Based fee?

The project-based fee structure is appropriate for many different kinds of clients. Most clients should consider starting with a project based fee structure, though it may be more cost effective in some situations to choose paying for a percentage of assets under management with the advisor. The project based fee is the most affordable approach to starting a financial plan. You pay a one-time fee for the plan, with no need to commit to any future costs for planning.

Just starting out

This approach works well for people looking to start out with savings toward a goal, those with few assets that need to be managed, as well as those without the need for ongoing advice or guidance. One of the misconceptions that people have regarding financial advisors is that we’re simply investment managers. While a comprehensive plan will recommend investment strategies, investing is not the main component of the planning process. You need to know how much to save. Saving should be done in the most tax efficient way possible. You’ll also want to protect your saving strategy from risks, most often through the use of insurance. This part of your plan is just as important as any investment strategy.

For those people who are just starting to save, or those who’s investments are held in their employee retirement plan, there may not be investments that need management. If your comfortable managing your assets and have the time available to make sure you maintain a properly diversified asset allocation, why pay someone? These are the kind of people that project-based fee structures work best for.

Under the project-based fee structure, you need to understand that, once the plan has been delivered, the contract with your advisor is at an end. For many, this works well. Financial plans are long term plans based on the information available at the time. You can go years without needed to review the plan. However, it is recommended that you review you plan when any major life event takes place. These life events include marriage, divorce, a child’s birth, a new job, retirement, or the passing of a loved one. These reviews can either take place in an hourly basis, or under a new project based structure.

Conclusion

The choice of how to proceed is your alone. In my next post, I will discuss the final payment structure available to you; a percentage of assets under management.  The majority of fee-only financial planners will recommend either paying a project based fee or a percentage fee. If your advisor is a fiduciary, they will recommend the payment structure that makes the most sense for the client. You do not have to agree with them, nor are you required to stick with the cost structure you started with. Keep in mind though, you are paying for the advisor’s experience.  We usually have a good idea what works best for the folks we help.