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For most of its history, "getting paid" for financial planning has really been about giving away financial planning at little or no cost and making it up from the income generated by implementing the recommendations of the financial plan, first through the sale of insurance and investment products, and more recently by providing ongoing investment management services. While this has allowed for the growth of many successful financial planning firms, it also opens the door to the risk that the plan will lead to the sale of inappropriate products, and limits access for financial planning to those who have assets to manage or need to buy insurance or investment products in the first place.

To address this challenge, this month marks the launch of XY Planning Network, a new Turnkey Financial Planning Platform (TFPP) designed to help younger Gen X and Gen Y advisors who want to deliver financial planning to their Gen X and Gen Y peers, with a monthly retainer fee model that allows them to actually get paid for the advice itself and supports an ongoing financial planning relationship, without the sale of products or requiring AUM. Notably, this provides a path not only for younger consumers to finally have access to a financial planner, but also an important new career path for younger advisors who want to grow and develop a business serving their Gen X and Gen Y peers.

In fact, ultimately the launch of XY Planning Network may just be the next step in a long line of turnkey financial planning platforms that emerge, as advisors increasingly shift away from product- or asset-centric business models, towards ones that seek to get paid for financial planning itself. That doesn't necessarily mean that broker-dealers and custodians, or the associated product-based or AUM-based business models, are going to go away anytime soon. Nonetheless, the slow but inexorable transition towards actually getting paid for financial planning itself means the business models for financial advisors are changing, and so too are their needs for a very different kind of support service and infrastructure to help them be successful.

Getting Paid For Financial Planning

Financial planning has long had a challenge of being paid as such. Despite the labor intensive nature of building financial plans, the median comprehensive planning fee from FPA's Practice Management Solutions survey a few years ago was still only $2,250, despite the fact that 40% of planners reported spending more than 15 hours to construct a plan (and 75% of those surveyed were taking at least two weeks to deliver the plan back to the client). Instead, the long-standing "dirty secret" of financial planning is that the bulk of it is paid "indirectly" through the products or services that are used to implement the plan.

For much of its history, this "payment gap" for financial planning was filled in with the commissions paid on insurance and investment products (and limited partnership as well, in the early years). While this is not inherently bad as long as the costs add up reasonably for the services provided and the recommendations are in the clients' interests, the sad reality is that financial planning can actually be so effective in building trust with clients that it can also be used (or rather, abused) to facilitate the sale of far less appropriate and more costly products as well. In response to both this conflict of interest, and more generally the aging baby boomer demographic and its ongoing accumulation of assets for retirement, the focus has shifted in the past decade or two towards the assets under management model, where again planning is often paid for 'indirectly' through AUM fees, but can be done in a manner that's viable and profitable for the firm, and generally with less potential conflicts of interest regarding planning recommendations than the sale of products for commissions.

Unfortunately, though, this shift towards AUM-centric business models for delivering financial planning has a significant caveat: it doesn't reach those who don't have assets available to manage! Whether it's the "middle class" in general, middle-aged workers who may have some assets but they're "tied up" in retirement accounts, or younger folks who simply haven't accumulated much of any assets at all (or worse, are simply trying to pay down debt and keep their net worth from being negative in the first place!), an AUM-centric model may be fine for those it serves, but there are many it doesn't serve at all.

From this challenge has emerged a new crop of alternative financial planning business models, including income-and-net-worth-based annual retainer models and most notably the rise of the Garrett Planning Network and the hourly fee middle to reach these underserved groups. However, the problem in turn with these models is that their pricing is highly salient - the "write a check to pay all at once" nature of it can result in sticker shock for prospective clients, and makes it difficult for clients to properly compare and keep the cost in context. In other words, one virtue of the AUM fee is that it's automatically  compared to the portfolio from which it comes, which makes even a multi-thousand-dollar fee seem 'reasonable' relative to the good stewardship of a portfolio worth 100x that amount; writing a check for some hourly fees (or in the extreme a full-sized annual retainer fee) from a checking account just accentuates all of the other personal expenditures that might have occurred with the money in the checking account instead. Simply put, if your clients think that their financial planning fee 'costs' them the equivalent of a nice dinner out, a big-screen TV, or even a family vacation, a lot of them aren't going to choose to pay for financial planning over those far more tangibly enjoyable products and experiences!

So what's the solution? As I've written in the past, I believe the next major business model in financial planning will be the monthly retainer model. Although the distinctions between a monthly retainer versus an annual retainer or an hourly fee are nuanced, they are nonetheless significant and have the potential to help financial planners finally get paid for what they actually do, especially for those consumers who don't have the AUM or don't need those financial services products through which financial planning has traditionally been indirectly paid!

Introducing XY Planning Network

XY Planning Network (XYPN) LogoTo help meet this need, this past week witnessed the launch of XY Planning Network - a new network for Gen X and Gen Y advisors who wish to work with their Gen X & Y peers offering this kind of monthly retainer model. XY Planning Network (XYPN) follows in the footsteps of the Garrett Planning Network as another advisor network built to bring financial planning to those who wish to work with advisors on a fee-only basis but do not have assets to invest - especially the middle class and those younger consumers whose advice needs revolve around cash flow, debt management, and for whom the greatest investments they can make may not be in their building portfolios at all, but growing their human capital instead!

Notably, the goal of the XY Planning Network is not "just" to bring financial planning to the underserved Gen X and Gen Y at an affordable cost, but also to support a new career path for entrepreneurial young advisors who want to build an advisory firm by working with their own natural network in the first place: their Gen X and Gen Y peers. Unfortunately, for most new planners entering the industry today, there have only been two paths: taking a job at a firm that requires them to sell insurance and investment products to their peers; or working at a larger firm that serves wealthier clients and has (AUM) minimums that prevent young planners from working with the peers they often wish to serve.

The key distinction of the monthly retainer model for Gen X/Y advisors who want to serve their Gen X/Y peers is not only that the cost can be structured in a convenient manner - as a monthly fee for clients that aligns to the monthly-services manner by which most household expenses are paid, from rent/mortgage costs to gym memberships and cable TV or cell phone data subscriptions - but that it is a recurring revenue model that allows young advisors to serve their peers with an ongoing relationship. Hourly fees are often transactional - when you have a problem, you purchase the professional hours necessary to get help solving the problem - while an ongoing monthly fee is relationship-oriented; advisors are compensated not for coming up with problems to solve, or impressing upon their clients that their problems are 'worth' paying for a one-off solution, but instead are compensated for providing good service and ongoing advice that retains clients (and retains their ongoing monthly fee relationship). Just as with the AUM model, this allows advisors to grow their business and income over time by growing a base of clients who pay an ongoing fee for the relationship service (perhaps even supplemented by AUM in the future as those clients eventually do begin to grow their assets and net worth!).

In turn, given the unique needs for advisors who operate under this monthly retainer business model - from a CRM with the workflows to manage a monthly-fee clientele, to the payment mechanism necessary to collect monthly retainer fees without running afoul of SEC custody rules - the purpose of XY Planning Network is to provide the tools, templates, and access to technology necessary to let advisors operate the model on a near turn-key basis (not to mention being with a community of other advisors going through the same challenges!), similar to how Garrett Planning Network facilitates the same thing for those who wish to do hourly planning.

The Rise of TFPPs And The Evolution Of Broker-Dealers & Custodians

As financial planners continue the slow and steady evolution away from getting paid for financial planning through the implementation of insurance and/or investments and towards being paid for the advice itself, the emergence of new models not only threatens existing advisory firm models, but also the business models of firms that support financial advisors: broker-dealers and custodians.

In fact, arguably much of the challenge facing broker-dealers already can be traced to the evolving business models of financial planners. The first stage was the shift from getting paid for financial planning through the commission-based sale of investment (and insurance) products, and towards the AUM model. This has led to an explosive rise in the growth of custodians and the Turn-key Asset Management Platform (TAMP), and a squeeze on broker-dealers as the pace of growth in commission-based products declined (and also got squeezed), which in turn has put tremendous pressure on broker-dealer profit margins. To some extent, broker-dealers have managed to shift their models to support fee-based investment advisory business to accommodate this shift, but many broker-dealers still struggle with their legacy infrastructure trying to facilitate what ultimately appears to be a leaner and more focused model.

As financial planning continues its evolution towards getting paid for advice - and not 'just' for the sale of insurance/investment products, or the management of investment portfolios - a new type of advisory support structure is emerging: the Turnkey Financial Planning Platform (TFPP). The TFPP will be to building a business getting paid for financial planning advice what the TAMP was to building a business getting paid to manage portfolios: a focused business, with a specific value proposition, to a specific target audience that adopts the needs/philosophy/focus of the TAMP. In the case of the TFPP, though, the focus is - as the name suggests - not just on making the asset managment process turnkey, but the whole financial planning business. The TFPP provides the tools, templates, technology, and other support necessary to deliver a particular type of planning to a particular audience with a particular business model; the more specific it is, the more efficiency there can be, the leaner the support business model is, and the more inexpensively it can be delivered to support the growth of financial advisors.

In point of fact, the TFPP concept is not entirely new; arguably, the first pioneer in this approach was Sheryl Garrett with the Garrett Planning Network, and the Alliance of Cambridge Advisors (ACA) is another (and XY Planning Network will be a third). In a world where broker-dealers try to make a percentage of the "grid" (of Gross Dealer Concessions) and custodians try to profit from revenue-sharing (with advisors or through the 12(b)-1 fees of the funds they use), TFPPs are operating on a drastically lower cost flat fee service; by focusing on a specific business model and/or niche, TFPPs are creating value for their advisors at a fraction of the cost of larger platforms. In fact, arguably the TFPP may itself be a direction and vision towards which many broker-dealers should evolve to survive in the future; just as financial advisors are experiencing a crisis of differentiation, so too are broker-dealers (and even custodians are struggling to avoid commoditization as well), and the solution is the same for all: focus on a niche where the business can be both highly efficient, and highly differentiated!

It's worth noting that this isn't necessarily to suggest that financial planning will eschew its product- and implementation-based roots anytime soon. While the AUM model just "doesn't work" for much of the middle class and younger folks, it's still a remarkably good business model for those who really do have the assets and need for an ongoing financial planning relationship (e.g., retiring baby boomers). Similarly, the reality is that some niches and target clientele really do need certain insurance and investment products for which a broker-dealer is appropriate (i.e., not every TFPP has to be fee-only in its structure, though all of the forerunners have been). Simply put, financial planning does provide advice regarding a wide range of insurance and investment products, and many/most people do need and/or want help and assistance in implementing them; that's not going to end anytime soon (and thus neither will the business models that support them)!

Nonetheless, the bottom line is that as financial planners do continue the slow and steady evolution towards trying to get paid for financial planning advice itself - reducing or total eschewing their reliance on traditional insurance and investment products - an opportunity is emerging to both reach new audiences that the traditional models don't, open the door for young advisors to serve them without a sales/product agenda, and there will be a growing need for TFPP solutions that support advisors as they build such business.

For all those reasons, we're incredibly excited about the launch of the XY Planning Network, and hope that it does at least a little something to help make financial planning more accessible, as both a vital service for consumers, and a viable long-term career for today's young advisors.

(Disclosure: Michael Kitces is a co-founder and partner in XY Planning Network.)

  • James Simos

    While I appreciate a lot of your ideas, I don’t know if your on the right track regarding the monthly retainer. I do agree with the other thoughts around financial planning models for pay-as-you-go planning. Most individuals shouldn’t have to pay a monthly retainer fee and I don’t think that most will. Yes they’ll pay for cable TV but not for planning… Financial planners are just not as interesting as Game of Thrones.

    • Derek Lawson

      James, I disagree that “most will [not pay a monthly retainer fee]”. I know many younger planners that have begun to go out on their own while offering the monthly retainer as a method of payment (if not the only method of payment), and they are successful in doing so. Moreover, I am in the Gen Y demographic (young end of it) and many of my friends wish they could access a planner for a monthly fee as they don’t yet meet the minimums. They say they’d gladly move to the AUM fee if and when they reach such minimums but until then they want planning work done by someone they can trust so that they may reach AUM minimums quicker.
      I still don’t get why so many planners quickly back away from younger people (unless of course you have some sort of niche, which many don’t) looking for financial planning advice. If we, as planners, can provide advice, encouragement, and financial behavioral help to clients at a younger age, perhaps said clients could become outstanding AUM clients later on, and much earlier than one’s fifties or sixties. Furthermore, you then develop an excellent relationship from a much earlier point in time…beneficial to both, the client and you, the planner.

  • Phillip Christenson

    Personally, I love the idea of a monthly fee. Consumers are already trained on this payment model. Once it’s set up and pulled directly from their account every month they will never look back until they have a reason to go through and make budget cuts. With that being said, I have found most gen x and gen y individuals do not need much in the way of planning. Their plan is to save.

    Anyway you can make something more “turn-key” the better. I look forward to hearing about the success of your new network.

  • Jim Stackpool

    You’re onto something here if our experience here in Australia is any
    guide. James your views that consumers won’t pay was common here too,
    but unlike Game of Thrones paying for on-going entertainment, people
    WILL pay for the confidence, peace of mind of having someone provide a
    ‘no surprises’ financial service that one’s financial life is ‘always’
    in order and headed to the sought-after objectives. I’d only recommend
    that the group NOT have limiting beliefs that it is primarily aimed at
    Gen X and Gen Y’s. The GFC was the trust-breaking point for real advice
    world-wide regardless of age, and yes, our experience is that an adviser
    doesn’t have to be 55 to advise 55 year olds. Good luck with the
    initiative, we’re watching closely here in Oz.

  • Coach Maria Marsala

    And the financial industry continues it’s move towards “financial consulting”… with monthly retainers.

  • Rick O. Helbing, CFP, ChFC

    interesting Michael, you and I had this discussion a few months ago when I contacted you about annual flat retainer fees. My firm is in the middle of converting to flat fee, no AUM fees any longer, there are several resins for our conversion which we can discuss later, but I am delighted to see your eyes are somewhat opened to the fact that an investment advisor and financial advisor offering wealth management services should not have the same compensation schedule, and that schedule should not be determined on a market that an advisor has no control.

    • Michael Kitces

      I still stand by my views that the AUM as a BUSINESS model is stronger than annual retainers, per my prior article on this – see

      The point here is simply that when working with younger folks (as well as the middle class and some other ‘categories’ of clients), AUM is simply not an option AT ALL because they don’t have the assets in the first place.

      So the focus here is NOT to advocate for (annual or monthly) retainers in lieu of AUM (as I still believe AUM is a better business model for those who actually have the assets to manage), but to advocate for (monthly) retainers for clients where AUM simply isn’t feasible in the first place (which opens the door for financial planning to many more people).
      – Michael

  • Andrew Ghezzi

    Great post Michael and well within the lines of what you and I discussed at the IMCA meeting in Boston. I can say without a doubt based on my experience with Nestwise that the middle class is more than willing to pay a $39.95 monthly fee instead of an upfront $2,500 planning fee hands down.

    And its not just peace of mind as eluded to earlier. Its having someone objective to talk to for the first time in their lives since nobody would give them the time of day with less than $500,000 in AUM. I’m hearing more and more from Gen XY families that they no longer want to be “afraid” to ask for help and some of them simply say to me, “…Andrew I’ll give you $99 if I can just sit down with my husband and talk to you for an hour.”

    There is a kinder and more inspiring planning process out there and while I think each and every demographic has its ideal planner…..the middle class has yet to find its home. I’m hoping that your venture is a start to finding that home for us and for everyone who wants to make a difference with this group.

  • Ted Jenkin

    We have been doing the monthly model for 6 years in the x & y generations. I can tell you definitively that the monthly retainer model not only works, but it appreciated by these generations.

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