The question facing financial advisors today is not “to plan or not to plan,” according to two LPL Financial leaders, but “to charge or not to charge” fees for financial planning. Those who don't could be making a major mistake.

Advisors should consider explicitly charging for  their planning services, said LPL’s Andy Kalbaugh, managing director and division president for national sales and consulting, and Matt Enyedi, managing director for national sales and consulting, during "Financial Planning: How Much?", a Wednesday a video session at LPL's virtual Focus conference.

“We used to talk about this topic in terms of ‘to plan or not to plan, that was the question,’” said Kalbaugh. “It’s really not anymore: you’re all planners now.”

But there’s been a “slight misalignment between the value that advisors deliver and how they’re compensated,” said Enyedi.

While almost all advisors serve clients with financial planning at some level, the LPL executives noted that most advisors still consider the cost of a financial plan to be part of their advisory fees, or perhaps something that they waive if the prospective client hires them to manage investments.

“My concern is that advisory fees, as we’re seeing, are beginning to come under pressure, and asset management fees are becoming increasingly difficult to differentiate with,” said Enyedi. “The advice you provide with planning is what’s really driving the value of the client relationship, but you don’t charge for it.”

Over a longer term, that creates a client base that doesn’t understand the value that advisors are bringing with a financial plan, said Enyedi. As of yet, Enyedi said he hasn’t seen much evidence of a mass movement away from advisory fees and towards flat, retainer-like fees – but advisors may want to consider making such a move anyway.

“What has materialized over (the last) decade is algorithmic advice platforms charging sometimes less than 25 basis points for asset management,” he said. “If advisory fees continue to be under pressure, incorporating a planning fee along with an advisory fee allows the client to better understand the disctinction between what you do for them and potentially protects and diversifies your revenue going forward.”

That diversification of revenue could become the driving force to shift advisors to planning-based fees using a retainer or subscription model, and LPL’s integration with AdvicePay – the flat-fee based digital payments platform for advisors developed by Michael Kitces and Alan Moore – is intended to accommodate that shift, said Kalbaugh. “You can now charge planning through a subscription model, and unlike in the past, when the client had to write a check, they can now pay through ACH or a credit card, simplifying their life.”

Enyedi also said there are behavioral advantages to charging a subscription fee. It clearly illustrates to the client that a financial plan is not a one-time process, but an ongoing relationship between advisor and client that adjusts to changes in the client’s life.

But the advantage to flat-fee planning that really excites Kalbaugh and Enyedi is it’s potential to greatly broaden advisors’ pool  of prospective clients.

“We know a lot of times that the next generation doesn’t have the asset that meet an advisor’s minimum, but the reality is that these folks are high earners and, most importantly, they need the help of our advisors,” said Enyedi. “Offering services through a monthly fee allows you to serve them profitably while they grow their assets over time.”

The next-generation opportunity makes flat planning fees a “game changer,” said Kalbaugh, as Americans have become comfortable paying for services on a monthly basis from companies like Netflix, Apple and Peleton.

“It’s becoming a subscription economy,” he said. “Why shouldn’t we look at providing financial advice in the same way and meet the next generation where they are?”