It’s only natural for a financial advisor to want to help a friend or family member with some investing tips or a nudge toward an estate plan. But how far should that go?
Some general advice around the Thanksgiving Day table is one thing, but should advisors offer discounts on their actual services? On the one hand, it might feel strange to charge full price to a parent, sibling or close friend. On the other, those services take time, and not collecting a fee can put pressure on a firm that needs to pay the bills.
Keith Beverly, managing partner and chief investment officer for Re-Envision Wealth in Washington, D.C., said his firm doesn’t offer any discounts. That’s partly because the firm has no asset minimums and uses a fee structure that makes its services more accessible to potential clients, but also because a fee incentivizes clients to pay more attention to their investments.
“We also believe that clients are more likely to follow through on financial advice when they have some skin in the game,” Beverly said. “Studies show people tend to value and commit more to services when they have earned them, and that holds true in financial planning, too.”
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Conversely, many firms are willing to be creative in offering some sort of discount for their services.
“I do not actively sell my services to friends and family, but if someone comes to me with general questions then I will help them free of charge and, in some cases, I will do some pro bono work for them even if it requires a deeper dive,” said Ben S. Lies, president and chief investment officer of Delphi Advisers in Vancouver, Washington. “This includes friends and family of my employees.”
With so many options for potential discounts, we asked advisors what they do, and their answers offer a variety of strategies. Scroll down to see how your colleagues are handling the question.
For more Ask an Advisor questions and answers, go here.
Free, but only to a point
Frank Austin, founder and president of Sustainable Financial Planning in Philadelphia, said he generally will answer questions to anyone who asks, no matter their connection — or nonconnection — to him.
“I work in this business to help people, so I am happy to help people free of charge with simple questions that they may have,” he said.
But Austin will start charging in specific situations: if he has to open an account to manage money, if he has to make calculations or if he is provided with confidential information that requires a contract to protect both parties. In those cases, friends and family get a 20% to 50% break.
“I want my friends and family to work with me because I know that they will be well served and receive good advice,” Austin said. “Discounting my fees strengthens the likelihood that I will work with friends and family.”
Pro bono vs. paying clients
Kyle Harper, founder of Harper Financial Planning in West Columbia, South Carolina, said it simply makes sense for an advisor to prioritize paying clients. It’s just human nature.
“If it is a pro bono client, it is difficult to approach their financial plan or accounts with the same sense of diligence or urgency as you would with a paying client,” Harper said. “The only times I would be open to providing discounted or free advice is when there is an immediate vested interest, like managing the finances of a parent.
“Outside of that, I don’t see it as being the best case scenario for the advisor financially or for the client in terms of level of service,” he said.
No discount because the level of service is different
Jessica McNamee, founder of Sirius Wealth Strategies in Bellefontaine, Ohio, does not offer discounts to friends and family — they already have greater access to her than other clients and therefore more opportunities to ask questions and get advice.
“Given that they are generally benefiting by getting more of my time for the same standard costs, they are already getting a ‘deal’ when we consider my fee/hour ratio,” McNamee said. “I also want all my clients to work with me because I am the best, not because I am the cheapest option. This leads to the highest level of long-term satisfaction for everyone involved.”
Jump in the pool
Just imagine finding out that you’re paying more than another client for the same service. That’s a scenario Lance Lehman, vice president and senior wealth advisor at Compound Planning in New York, wants to avoid.
“An advisor trying to explain to two clients who discovered that they benefit from the same services and advice yet pay different fees would be akin to discussing politics or religion over Thanksgiving dinner—incredibly awkward and likely to result in everyone’s disappointment,” Lehman said.
Lehman also has concerns about too many freebies eroding the sustainability of his business. To that end, while he does not offer a discount, he does allow family members to pool their assets “from an accounting standpoint” to allow them to collectively reach different AUM benchmarks and the lower fees associated with them.
Discounts to keep friends close
As Ben S. Lies said above, he offers free advice to friends and family. But once the conversations lead to accounts being opened, fees come into play, with discounts between 10% and 33%, depending on the needs of the client. That, he said, helps keep those friends and family close in a world in which not everyone offering advice is on the level.
“The financial services world is murky and filled with misinformation and bad actors,” Lies said. “I view myself and my firm as a mechanism to help bring clarity in a very grey world, so my policies and willingness to take things on free of charge, or very cheaply, reflect that vision.”
In-kind contributions
Marguerita Cheng, CEO of Blue Ocean Global Wealth of Gaithersburg, Maryland, said she prepares tax returns for several family members. But since she’s not a licensed tax professional, she doesn’t accept payment. Instead, the family members offer charitable donations for causes that she cares about.
“What my family loves to do is direct the reimbursement for the software and a donation to charity on my behalf,” Cheng said. “I ran the Tokyo Marathon as a charity runner, and my family was happy to support me. In our community (my husband is from Indonesia), there’s a learning curve with personal finance. I want to help our community, so I do so on a pro bono basis.”
A few discounts and some referral bonuses
Kimberly Foss, a senior wealth advisor at Mercer Advisors in Schaumburg, Illinois, said the firm offers a few discount programs for employees and their families — around 20% off, as well as referral bonuses.
“At Mercer Advisors, we believe in the value we provide and generally stick to our fee schedule, which is scaled based on a client’s assets under management with us,” Foss said. “We are also rolling out a new program especially for employees who are using advisory services that features a generous 50% reduction in AUM fees and lower account minimums. When you do the math, a ‘normal’ client would need AUM of around $24 million to $65 million to receive the same level of service that we make available to employees at much lower levels of investment.”
