Reasons That a Monthly Retainer Model Works

7 min read
September 05, 2017

Reasons That a Monthly Retainer Model Works

One of our most popular XYPN Radio podcast episodes is Episode #23: The How and Why of Monthly Retainers with Alan & Kitces. I think that this is because, simply put, people like getting paid. And they want to get paid in the easiest, most effective way possible for both themselves and their clients. At XY Planning Network, we require that our members have a monthly retainer or subscription as at least one element of their fee structure. That’s because we believe it’s the easiest way for financial planners to find success – and that it will continue being the “go to” fee structure for how our members charge for their services, and how most other financial planners charge for their services, as well. We feel that way for a couple of different reasons.

Reason #1: It’s Simple

Believe it or not, this is one of the biggest reasons I’m a fan of the monthly retainer fee structure. There are no extra charges or fees, no complicated calculations, and all your clients (or different income levels of your clients – more on this later) are treated the same across the board. It’s a simple once-a-month bill, and you can even help them set it up so that it comes directly from their account or credit card each month. Does it get easier than that?

Reason #2: It’s Client-Friendly

While AUM is the preferred fee structure of old-school financial service firms, monthly retainer or subscription models tend to be more client-friendly these days. Think about it: do you pay any bills that aren’t monthly? Do they? In all likelihood, the answer is no. Communicating the fees for your services as an upfront charge for a financial plan, then a monthly charge after the fact for ongoing services will make sense to clients. If you walk them through a fifteen-minute-long presentation of how your carefully calculated fee structure works based on percentages of their income or portfolio, you’re going to make a lot less sense, and you’re going to start sounding more and more like a scam artist.

That’s because almost every single industry operating in the world today works with a monthly billing cycle. If you choose to deviate from that norm you’re not only making it harder on yourself to keep track of everything, you’re making it harder on your client to pay you. And isn’t that the point of setting up a fee structure? To get paid fairly and, hopefully, well for your valuable services?

Wondering if you're charging enough? You're not alone, and this on-demand  session will help you evaluate if you should be increasing your fees

Reason #3: You Get to Be Creative

When you have a monthly retainer fee structure you have so much creative license. Essentially you now have the power to have one more component of your business that speaks directly to your niche. If, say, you work with physicians, you probably have a good idea about what they make at the different stages in their career. You can create a monthly fee structure that’s completely relevant to where they’re at in their career – because you can easily estimate what their income and assets might look like. Let’s look at this physician-client-base example:

You know that a physician during their residency likely makes X, has a portfolio that looks like Y, and is dealing with Z debt issues. You know the same information for physicians who have been practicing for 5 years, who have been practicing for 15 years, and for those who are currently owning and operating their own practice. You can set up a tiered monthly retainer model that address them based on their estimated financial information.

Even better? If a non-physician comes to your site and sees that you’re charging X for physicians still in residency, Y for physicians who have been practicing for a certain amount of time, and Z for physicians who own and operate their own practice, the non-physician is not going to contact you. On the other hand, a physician who finds that information on your website will feel like you specialize in their situation, and will likely reach out. In the interest of building your niche and staying true to your target client base, this creative pricing method works wonders.

Reason #4: You Can Separate Out Services

The vast majority of United States citizens don’t have a ton of assets to manage, and they’re probably not millionaires. So why do large-scale “financial planning” firms target older, wealthier, more asset-heavy clients even though they’re the minority? Because it’s easier to charge them AUM based fees and focus on the investment management side of planning. However, financial planning and investment management are two very different services. You can absolutely do both, but you also don’t have to.

With a monthly retainer fee structure, you get to separate out your services a bit. Those US citizens who want help planning their retirement and paying off student loans might not have millions of dollars in assets – but will gladly pay you your monthly retainer fee for your financial planning services. If they do have assets that they want you to manage, you can feel free to add that service into your fees.

For most financial service organizations who charge AUM exclusively, they’re looking at 1-2%. However, if you’re providing financial planning and investment management as two separate (but equal) services you might be charging a percentage of their overall income for your monthly retainer fee and 0.5-0.7% AUM for managing their investments.

Now, I’m going to head off a question that Kitces and I get a lot when we discuss this pricing model: No, charging 0.5-0.7% AUM for investment management on top of a monthly service fee is NOT the same as charging 4% AUM and robbing your clients blind. That’s because your financial planning services are unrelated to your investment management services. Yes, you can do both, but they’re priced differently and they each bring a different value to your client.

Reason #5: You Get to Schedule Your Services More Efficiently

Many people hesitate to jump on the monthly retainer fee model bandwagon because they’re worried that they won’t be able to provide services to “earn” their monthly fee. First, I want to address that that’s the wrong way to view your services. Your knowledge, expertise, training, experience, and devotion to your client’s best financial interest more than “earns” your monthly fee. Second, there is a way that you can set up a monthly retainer pricing model and outline what you’re doing for your clients that “earns” that fee each month easily. It’s called a service calendar.

Here’s what I love about service calendars: they address expectations head on and give clients an idea of what to expect from you over the course of the year. For example, you could pick seasonal tasks and fill them in first: In January we rebalance your investments, and take stock of your financial goals, address any additional possibilities, and adjust accordingly. In March, we go over tax information and how to mitigate their impact.

Then, you can assign annual tasks to specific months: In May we check your credit score and make sure that we aren’t missing anything that needs to be addressed.

Then you get to decide when you want to do check-in calls to make sure everyone’s still on track with their budgeting or spending plan: In October, we’re going to have a scheduled check-in call to make sure everything’s still looking good and we’re on track with your budget before the busy holiday season.

Finally, you get to fill in the empty months with marketing tools or educational tasks that will add extra value to the lives of your clients: We won’t be doing much in August, so we don’t have a phone call scheduled. But you will get a newsletter from me about the educational webinar I’m hosting that covers some back-to-school savings tricks for parents of college-aged students.

Not only does this system make your clients feel like they have an organized list of ways you’re planning on interacting with them, it helps you stay organized and on track all year – and possibly even plan some of your “extras” like webinars, eBooks, etc. ahead of time.

A monthly retainer fee model makes your life and the lives of your clients much easier. For an advisor who is just starting out and needs to have consistent revenue, it’s the simplest way to get your business rolling and grow. Of course, nobody’s saying you have to be married to your monthly retainer structure for forever – or even the monthly fees that you set up at the start of your practice. Ultimately, your fee structure will grow and change just as you and your business does over time. While there are pros and cons to each kind of fee structure, monthly retainers tend to be a wise choice for most advisors.

If you’d like to hear Kitces & I discuss the monthly retainer fee model in more depth, you can find the full version of our podcast episode here.

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About the Author

Alan Moore, MS, CFP® is the co-founder of the XY Planning Network, a support network for advisors looking to serve next generation clients. He is also the CEO of AdvicePay, the first and only compliant payment processor for financial advisors. He is passionate about helping financial planners start and grow their own fee-only firms to serve Gen X & Gen Y clients largely ignored by traditional firms. Alan has been recognized by Investment News as a top “40 Under 40″ in financial planning, by Wealth Management as one of a “The 10 to Watch in 2015″, and was the first recipient of the NAPFA Young Professional award in 2015. Alan frequently speaks on topics related to technology, marketing, and business coaching, and has been quoted in publications including The Wall Street Journal, Forbes and The New York Times. He is also the host of XYPN Radio, one of the largest podcasts for independent financial advisors. He currently lives in Bozeman, MT so he can hit the slopes on powder days.

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