Emous takes a time-based approach to demonstrating value. "Each quarter, clients receive an itemized time and charges statement which shows what we did for them and the time it took. They see that the retainer they are paying is always less than my hourly rate of $175, so they believe they are receiving incredible value. I am very consistent about tracking time in Timeslips (http://www.timeslips.com/) to capture many of the thankless tasks that we all do. The time accounting not only shows the clients value, it educates them as to how much work it would be if they were doing it," says Emous.
Keats, Connolly stays in close contact with its clients throughout the year but, just to be safe, schedules a major planning activity with each client each quarter. Additionally, says Keats, "We update their plans in a regularly scheduled module system. Annually, we summarize via letter to the client what we did in relation to the client's goals and what we have scheduled for the upcoming year. We will even show them the man-hours we expended over the past four quarters." Keats also reminds clients what they would be paying if they tried to duplicate everything Keats, Connolly does for them using "a la carte" services obtained elsewhere.
Through all of this demonstrating of value, our advisors don't tend to dwell too much on investment performance. Says Utley, "Investments are only 5 to 10% of what I talk about with clients. At an earlier stage in my practice, when I put more effort into managing investments instead of financial planning, I didn't feel I was delivering. Now, I've got one client who made no investments during the last two years; he was happy just to pay down his mortgage." Utley sees himself as a financial advisor who works with clients and their assets, but not an "asset-gatherer."
In fact, the nature of the retainer fee makes it possible to work with clients who might have little in the way of investment assets but financial complexity that nevertheless justifies the fee.
Barrett talks about the client she worked with whose primary balance sheet item was her $80,000 in credit card debt. "She said, 'I can either put $5,000 towards improving my financial future, or I can buy more shoes.' She's made great progress and will be out of debt next March," says Barrett, adding, "This client is someone an advisor with an 'AUM minimum' would never meet with, but I want to work with any client who's willing to improve her financial situation, and willing to pay a fair fee to do so."
It should be apparent by now that retainer fees aren't just a different way of charging; they're indicative of a new culture of advice. Retainer fees mean you advise on the whole client (not just his investment assets); you regularly demonstrate a wide range of value (rather than hoping for positive investment performance); and you focus on goals (of which investments are just a means to an end). Could you do this using other fee structures? Perhaps, but retainer fees and the methods they imply lend themselves particularly well to client contact and follow-through. Utley may sum it up best when he says, "With the retainer fee approach, there is every opportunity for the client to get the work done and for the plan to succeed."
David J. Drucker, MBA, CFP ([email protected]), a fee-only financial advisor since 1981, is editor of the Virtual Office News monthly newsletter, and co-author of the book Virtual Office Tools for a High-Margin Practice (Bloomberg Press, 2002.)