On this episode of You’re a Financial Planner, Now What? we’re breaking our normal guest/host interview style for a “Roundtable Event.” Our hosts, Hannah, Matt, and Ian, got together to talk about something they know can be frustrating for new planners: compensation models.

While normal conversations around compensation models are usually focused on “fee-only” or “fee-based” decisions, the reality is that there are so many more models to choose from. And how you choose your compensation model depends on your clients. Whether you work for a firm, own your own, or are part of a succession plan, this compensation model discussion covers a lot of ground. The hosts talk about how to decide on a fee model, how that model guides your client base and business, and why innovation in the profession should be at top-of-mind.

4 things to think about with compensation models

One thing Hannah, Ian, and Matt all drove home in this episode: compensation models shouldn’t just be about what the planner wants to make. It should be about the clients and how the planners wants to serve them. As Ian put it, we as financial planners should make sure we are providing enough value for our clients and that we charge for that value in a way that feels best to us. 

Of course, there are other factors that go into picking your compensation model, like:

  • Revenue. How much do you want your firm to make, or how much do you need to bring in per year as a partner or associate in a firm? 
  • Cost. How much does it cost to provide services to your clients (software, overhead, employees, etc.)
  • Profitability. At the end of the day, you need to make money on your services. Which model allows you to make your preferred profit margin?


And for those who want to own their own firm or reach partner level within a firm, you also need to consider how you want to run your own business and be compensated as a business owner.

If you want to own (or partner in) a firm

Often, for your first job in the profession, you learn the compensation model of the firm that employs you. And if you want to continue working in an established firm, you may not have much flexibility in the compensation model you choose.

But if you want to own or partner in your own firm, you’ll need to explore compensation models that fit your business model and how you want to serve clients. In essence, you need to be business-minded, not just planning-minded. To do this, you’ll need to know who your clients are, how to serve them, and build a business and compensation model around that. 

Hannah added that, for many who are new to building a firm, the compensation model falls strictly on “How much will I take home?” As a business owner, you’ll of course need to consider your take-home salary and the costs of doing business, but you’ll also need to discuss how you want your firm to grow: do you want it to be a lifestyle practice? A firm with partners? That will all guide your compensation model and how you structure your services. 

However, for new planners, especially those in the younger generations, the choice of compensation model extends far beyond the technical side of revenue, profits, and services offered. Instead, it has to do with making the profession more accessible and adapting to new ways of doing business within the profession.

The “changing of the guard”

While there is a place in the profession for every type of compensation model, Hannah, Ian, and Matt definitely drove home the point that times are changing. If you want to serve a certain demographic of people (say, Millennials who make less than $100,000 a year), you may not be able to charge thousands of dollars a year for investment advice. You may not have AUM, or charge a yearly financial planning fee. 

With new technology, you may be able to serve multiple hundreds of clients, where before that may have not been possible. In each of these instances (and countless others that will come up), planners will have to adapt to a new model that fits their particular clients — and not the public at large. They’ll also need to “forge your own path” compared to how financial planning has always been done.

But there’s something that makes this harder than most of us realize: we aren’t really exposed to new ideas, nor are we told that it’s OK to try on a new compensation model. If you’re employed within a firm, you can’t even really talk about disruption and how a new compensation model may better serve clients. This means, to some extent, that there needs to be a “changing of the guard” as Matt put it. New planners should think about the future, about the changes that are coming, and keep that in mind as they build their experience and firms (if they choose that path).

Because the question at the end of the day isn’t “How much money do I want to make?” It should really be: “Am I willing to adapt to change to give my clients the best service and the best products?”


What You’ll Learn:

  • Why it’s important to continue the conversation beyond “fee-only” and “fee-based”
  • The four things you should consider when choosing a compensation model
  • The line between being a good planner and a good business owner
  • Why you should think about how clients pay you, rather than what you charge
  • What Millennials bring to the table that planners of other generations haven’t
  • The future of financial planning (and the opportunities it brings) 
  • The value of meeting other planners and constantly learning about different ways to do the work
  • Why conferences are a great asset to planners of any experience level


Show Notes:

In this episode, Hannah, Matt, and Ian talk about compensation models. There are a few YAFPNW episodes that help continue the conversation so you can decide which model is right for you:

We also have more compensation model discussions coming up on YAFPNW, so make sure to subscribe wherever you listen to podcasts! If you’re loving what you’re hearing, we’d also appreciate a review on whichever platform you’re using. It helps other next gen planners find us!