What Is A Financial Plan Worth?

Prospective clients will often ask, “How do I know working with you will be worth the money?” This is a really great question, and is one that financial planners have historically struggled to answer. How do you quantify the benefits of being able to sleep better at night, knowing you have a financial plan? Or the extra time you have to spend with your kids because you are spending less time obsessing over your investment portfolio?

Morningstar did a research study that sought to quantify the benefits of having a financial plan. Their focus was strictly on the benefits to retirees. Their results? Retirees on average experience a 1.8% benefit from working with a financial planner. This benefit is equivalent to 29% higher retirement income. This benefit came from strategies such as having a proper asset allocation, tax optimization of their investments, and using an ideal withdrawal strategy.

In my opinion, while the benefit to retirees is substantial, it is much less than the benefit younger clients would receive. The research suggests that a financial planner can give retirees a 1.8% benefit with just their current assets. Imagine if the financial planner had helped the client save more money, had recommended a better asset allocation earlier in their career, and used tax saving strategies over time?

While the research study is far from perfect, it is the first step towards having substantial research showing the benefits (and possible drawbacks) of having a financial plan. We have been able to quantify some benefits, such as reduced investment expenses and tax savings, but haven’t been able to show the benefits from reducing the emotions involved in investing, having proper insurance coverage, having an estate plan, or improving the relationship couples have when communicating about money.

Financial planners have been trying to separate their value from just increased investment returns. For many financial planners, they don’t believe you can ever beat the market so the benefit is in keeping the investor from making poor investment decisions… while difficult to quantify, evidence suggests the benefit is substantial, as investors underperform the market by 5% on average. This means the value must be found in the financial planning process, and isn’t easily quantifiable.

This all leads to the most important question, What do prospective clients want/need to see as the benefits of financial planning? What “evidence” would convince you that it’s worth the money? I would love to hear your answers and feedback!

About the author

Alan Moore, CFP®, MS
Alan Moore, CFP®, MS

Alan is passionate about providing individualized financial advice to individuals and families, regardless of their net worth, income or investable assets. An educator at his core, he strives to serve as his clients’ guide, available to help with the sometimes stressful or exciting financial situations that life inevitably brings.

Alan is the founder of Serenity Financial Consulting, which he started after noticing the lack of hourly, as-needed financial planning advice available to consumers. With experience working in several nationally recognized firms including Kahler Financial Group and Financial Service Group, Alan combines his industry experience and technical knowledge with his entrepreneurial spirit and penchant for teaching others to create a refreshing style of truly personal financial planning.

Alan is a Certified Financial Planner™ professional and Certified Retirement Counselor™. He earned his bachelor’s degrees in Family Financial Planning and Consumer Economics and his Master’s Degree in Family Financial Planning from the University of Georgia. Driven by his desire to educate, Alan also taught undergraduate financial planning courses while in graduate school.

Alan prides himself on being active in his community and feels privileged to have served in the Georgia National Guard for four years before receiving an honorable discharge. Originally from Georgia, Alan now lives in Shorewood with his wife Melissa, and enjoys taking advantage of the abundance of activities that Milwaukee has to offer.

2 Comments

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  • Great article.
    If your fees are reasonable, it will usually be obvious to your clients that the service is well worth the value.

  • Unfortunately investment returns are a major part of quantifying that worth to an investor. I think you hit the nail on the head though, Alan, which is being able to continually show your investors the value of your services, especially when those returns are not up to par or benchmark. This could start as simply as an extra phone call or two each quarter to let your client know that you are keeping an eye on their portfolio.

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