Is hourly-based financial planning right for you?

If you’ve been following this blog for sometime then you may know that I earned my CFP® designation in 2010 and have begun working on a limited basis with clients providing financial planning services.  At this point I do not offer any financial products or services aside from my mortgage practice and am charging for my time.  This planning model is not very common so I am often asked how it works.  Allan Roth wrote THIS PIECE for in which he lays out the pro’s & con’s of hourly-based planning nicely.  Here are some excerpts:


  • “Fewer conflicts – Sheryl noted that the hourly model had less incentive to give a recommendation to benefit the advisor. For example, paying off a mortgage would mean less revenue for other fee models. Converting a 401K to an IRA also has more conflicts in the other models since more assets equals more fees or commissions.”
  • “More flexibility – Sheryl stated hourly advisors can recommend any product, as opposed to other fee models that are limited to being within a certain platform. For example, why would a fiduciary have their client in a money market earning 0.05 percent when there are safe places to stash your cash earning 20 times the amount? Also, certain CDs like Ally Bank and Security Service have great rates that also protect against the bond bubble. The hourly model doesn’t have the incentive to capture assets.”
  • “Works for the little guy – Sheryl says the client doesn’t have to have much money for the planner to be cost effective. The client may just need a couple of hours of advice and can be on their way, much in the same way they may need an attorney for one particular issue.”


  • “Client won’t seek advice – An argument for the percentage of assets model is that the client can call at any time without the clock running. They are not as likely to seek advice they may need if they are going to receive a bill for that call. I’ve also heard the criticism that hourly planners can over-bill their hours, though any fee model is vulnerable to fraud.”
  • “Client won’t implement – The argument here is that the other fee models give the advice and implement it. Hourly planners, including myself, give a written plan, discuss it with the client, but don’t always get involved in the implementation.”
  • “Not conducive to an ongoing relationship – People need ongoing advice from a long-term trusted advisor, rather than a one-time engagement.”

And my favorite quote of the article:

“A rule of thumb for all consumers to follow is that if you can’t explain your investments simply, you don’t understand them. And if you don’t understand them then you are probably transferring your wealth to your advisor.”