I’m in a similar situation so I don’t have a final answer, but I can give you some thoughts.
First you need to decide if you are going to be a “fee-only” advisor or not. Clearly the FPA and CFP Board are moving in that direction and NAPFA is so exclusively, however it’s still a choice you have to make. If you are planning to make commissions on products, etc. then you might only charge a nominal fee for the plan since your real payment comes from commission.
If you plan to be fee-only then compensation is usually done in one of the following ways.
Flat fee: This approach is probably the simplest as you establish a fee based on the complexity of the plan. I’ve heard of fees ranging from a low of $500 to well over $5,000 for really complex/high-net-worth individuals. Pricing is usually based on the complexity of the client’s financials. I suppose you could price the plan based on a percentage of the clients total assets, but that seems a bit odd and you could have a very high-net-worth client needing a very simple plan. The downside to this pricing approach is once the plan is delivered and paid for, your contract ends (unless you renegotiate).
Retainer Fees: This is usually a negotiated, fixed-quarterly fee that might range from a low of $250 ($1,000/year) to well over $1,000/quarter. The potential downside of this approach is you are likely to do more work up front on the plan than you are getting paid for. However, this should be offset by the advantage which is the fee continues once the plan is developed as a way to pay you for implementation and monitoring. I suppose you could also build in a minimum commitment such as a one year commitment as a way to protect yourself from a client engaging you and dumping you the minute they get their plan.
Hourly: This is another simple approach, but might be tough for those of us who are new and can’t easily anticipate the time needed to produce a plan. You obviously need to price yourself appropriately, but if it ends up taking you 30 hours to create a plan and you told the client you bill at $200/hour you better make sure they expect a $5,000+ bill! Of course, you don’t have to bill for every hour. With hourly billing I’ve heard of everything from $150 to over $400/hour and I’m sure there are those charging more or less. With plans I think this only works if you can pretty much guarantee the number of hours you plan to bill and if so, you might as well make it a flat fee. However, if a client needs you to do extensive research or help with various project, an hourly fee is probably ideal.
Assets under management: The final common approach I know about is charging a percentage of assets under management. Such practitioners often provide the financial plan at minimal cost or even include it under as one part of the deliverables. However, this really doesn’t make sense until you are handling a clients investments directly.
Paul Iannaccone, MBA, CFRE, candidate for CFP Board’s certification
Charitable Funding Advisers