How CPAs bill for financial planning services

CPAs who expand their services to include financial planning often find themselves facing a change in billing methods. However, deciding between different options and finding the right billing method can be a challenge. There are a number of options, each with their own advantages and drawbacks.  

Traditionally, many CPA firms billed tax clients on an hourly basis, while many advisers across the financial services industry use the assets-under-management (AUM) method of billing, in which their fee is based on a percentage of the assets they oversee. Today, however, many CPA financial planners are using other types of billing structures. They may charge clients a fixed or flat fee for a certain service, or use the fee-for-service billing model, in which they charge clients differently depending on the services they require.

Choosing which billing method or methods to use, and how to assess fees, is one of the logistical issues CPA financial planners need to consider as they start offering services. To shed more light on billing methods, we spoke with four CPA financial planners about how they chose to structure their billing, why they chose the method they did, and why it works for their firm.

Paraklete Financial

Paraklete Financial Inc., in Atlanta, uses the fee-for-service billing model. The process begins by providing the client with a two-hour complimentary personal financial planning meeting. During the meeting, advisers assess the amount of work a client will likely require over the next year and come up with an appropriate engagement fee.

Because this method doesn’t require a minimum net worth or minimum investible assets, it enables the firm to work with a broader range of clients, said Susan Tillery, CPA/PFS, president of the firm. This model has been especially attractive to their clients who are business owners, she said. Many of these clients weren’t initially able to meet the minimum AUM required by other advisers, as their net worth was tied up in their business.

Paraklete doesn’t automatically raise fees every year, Tillery said, but instead reassesses and potentially raises its fees every two to three years. This policy gives clients a chance to get to know Paraklete’s advisers and see the value in their services before they raise prices, she said.

L.K. Benson & Co.

L.K. Benson & Co., in Towson, Md., uses both hourly and fixed-fee pricing models. The firm’s fixed-fee work includes planning, investment management, tax work, and tax planning, said Chris Benson, CPA/PFS, principal of the firm. The firm uses hourly pricing but is moving more clients to a fixed fee. It mainly reserves hourly pricing for tax return preparation, family office services, and financial planning engagements that aren’t ongoing.

When setting a fixed fee, Benson said, “the key is to make sure it’s fair for the clients, fair for us, and that we’re able to run our business while providing good service to our clients. We know what our minimum fixed fee is that we can’t go under in order to accomplish these things.” 

While this method is simpler for the firm logistically, Benson does see two drawbacks to fixed-fee billing compared to the AUM model. First, the AUM model can be more lucrative as prices naturally increase as the portfolio size increases. To help counteract this drawback, Benson said, his firm started including an annual cost-of-living increase in fees.

Second, describing the firm’s billing to clients who are used to the AUM model can be challenging. “To someone with investible assets of $1 million, a $10,000 fee sounds like a lot more than a 1% fee,” said Benson. It can take a longer conversation, but they explain to clients that they find a fixed fee more transparent than an AUM fee model. 

Libra Wealth

Libra Wealth, with offices in Silicon Valley in California, offers both financial planning and investment management, which are covered under one fixed, annual fee.

When considering different billing methods, owner Mark Astrinos, CPA/PFS, felt strongly that charging a flat fee would best align his interests with his clients’ interests and would ensure his pricing was transparent — two things that were extremely important to him when structuring his business.

“Say a client with $5 million in investments wanted to take $1 million out of their portfolio to buy a home. Billing using AUM might lead an adviser to be worried about the $8,000–$10,000 in fees they’d lose. Instead, by charging a flat fee, I don’t even have to think about that,” he said.

At the midyear point, Astrinos said, he reviews the amount of work that he’s doing for each client. If there’s been a material change in his client’s situation, he’ll talk with the client to adjust the fee at that point. 

CLW Financial Planning LLC

CLW Financial Planning, in Raleigh, N.C., uses both an hourly and annual fixed-fee billing model. While hourly isn’t the preference of owner Carolyn Larsen-Wieber, CPA/PFS, she uses it strategically with new clients. It allows her to work with new clients while putting less pressure on them.

“When a new client comes to me without being referred by one of my current clients, they might be hesitant to sign on for a full-year engagement,” she said. “Instead, they can opt for an hourly rate. I’ll give them an estimate of how many hours they’ll need, and we’ll go from there.”

Her goal is to ultimately move these clients to an annual fixed-fee model, which most end up doing as they continue to work with her. She prefers the fixed-fee model because it allows her to provide the most value to her clients. It’s also her preference from a business standpoint because it has a more predictable cashflow. 

However, the fixed fee isn’t completely without its drawbacks. She acknowledges that there is a lot of administrative work that comes with setting up a new plan each year, including letters and invoices that need to be sent. But for her, the benefits outweigh these disadvantages.

Finding the right billing method for your practice and your clients can take time, but it’s a process that is well worth the end result.

PFP Section members can learn more about the retainer model by viewing this webcast.

— Erica Gellerman is a freelance writer based in Hawaii. To comment on this article or to suggest an idea for another article, contact Courtney Vien, a JofA senior editor, at Courtney.Vien@aicpa-cima.com.