Advisers typically are compensated from the trails, commissions, or fees generated by plan assets. From a profitability standpoint, this makes sense when you are offering services directly to the plan sponsor or, in general, managing the plan as a whole. When you begin working with plan participants, however, I would argue that this compensation is not enough to remain profitable. Offering services at the participant level goes above and beyond the scope of managing a typical retirement plan relationship; at this level, you can end up spending more time servicing those participants than you originally anticipated. So, if you’re going to incorporate financial planning services into your plan, charge for them!

Establishing fees up-front

Of course, you first need to define the services you will offer to the plan and plan participants. There are many avenues to consider; however, your choice will likely be heavily influenced by the local marketplace and the sophistication level of the business and its employees. For our purposes, we’ll focus on defining the scope of services to be offered.

Let’s say you offer graded versions of financial planning to employees. Your services may look something like this:

• Level 1: Basic retirement education planning, with a focus on accumulation, targeting younger employees
• Level 2: Retirement check-up for middle-aged employees in the prime of their earning careers
• Level 3: Retirement income planning services for those near or at retirement
• Level 4: Full financial planning for participants interested in working through their entire financial situations

With a structure like this, the key is to set proper expectations up-front. Obviously, because of the relative sophistication of services at each level, the time you spend on each task, and the fee you charge, will vary. Taking this a step further, you might bill for the following:

• Level 1: Retirement education
  o Expected time spent with individual: 0.50–2 hours
  o Hourly rate: $60–$100
• Level 2: Retirement check-up
  o Expected time spent with individual: 1–2 hours
  o Hourly rate: $100–$125
• Level 3: Retirement income planning
  o Expected time spent with individual: 2–5 hours
  o Hourly rate: $100–$300
• Level 4: Financial planning services
  o Expected time spent with individual: 4–10+ hours
  o Hourly rate: $250–$500

While you may or may not agree with the hours or pricing in this example, it’s meant to serve a point. When you offer financial planning as a differentiating factor, your success is contingent upon setting the clients’ expectations up-front. That way, they’ll know exactly what to expect—and how much it will cost.

Profitability

In the previous example, I used some basic metrics for determining the scope of services to bring to the table. The services you actually offer, however, will be determined by your expertise, the sophistication of the tools and resources available to you, and your strengths and weaknesses. That being said, it makes sense to define the following:

1. Sophistication level of plan and plan participants, as well as of clients in local market
   a. How knowledgeable are they?
   b. What is their average household income?
   c. What are competitive fees for these services?
   d. What are individuals willing to pay?
2. Time you expect to spend servicing plan participants
3. Scalability of your practice and staff
4. Bottom line: profit margins
   a. How much do you need to make to cover base expenses?
   b. What is a reasonable profit margin?
   c. Can you actually achieve this profit margin?

Conclusion

It’s vital that you plan carefully as you establish fees for your financial planning services in the qualified plan market. To ensure profitability, these services shouldn’t be lumped under the fees you receive for managing the plan; instead, they should be offered and paid for as services outside the normal scope of plan management.

Successful advisory practices who offer these services will take the time to conduct a full analysis of their offerings, their practice, their profit margins, and other factors and will use them as a differentiating factor to not only generate additional plan opportunities, but also to create a new revenue stream to help improve their practice’s profitability.

The previous article in this series is available at Perspective: Incorporating Financial Planning Services into Qualified Plans.Don’t miss the next article in our series, where we’ll look at how you can articulate your role to plan sponsors.

Timothy Nihill is the manager of retirement products at Commonwealth Financial Network in Waltham, Massachusetts.