Mark Berg of Timothy Financial has a great story about how he scaled his hourly financial planning firm, grow it to a multiple-advisor company. Check it out!
For those of you who are new to my blog, my name is Sara. I am a CFA® charterholder and financial advisor marketing consultant. I have a newsletter in which I talk about financial advisor lead generation topics which is best described as “fun and irreverent.”
He started as the “Gracious Out”
Mark found that only two out of 10 calls he received actually fit the model of the traditional financial advisor firm he used to work for. For the sake of conversation, let’s assume that by “traditional” we mean assets under management or commission style firms.
How did he start his hourly finanical planning firm?
- He read an article about how Sheryl Garrett had started an hourly firm in the late 80’s.
- He went to other planners and said, “Hey you may be getting calls from clients who don’t fit your model. I could be a gracious out for you.”
- He talked to people from NAPFA
They now have over 20 employees, only three of which are admin staff. They were expected to do $5 million in revenues in 2024 and the firm is very profitable, according to Mark.
How does the service model work, though?
Not all hourly financial planning firms are one person shops! Here are some details about how his practice works.
- Most of the planners write about 100 hours a month.
- He gets 10 calls a week, unsolicited, and feels that hourly finanical planning is the best kept secret out there. In Mark’s view, hourly planners are rare and in high demand. They have a waitlist with 150 families on it.
- They first evalute the level of complexity that the work will entail, and that complexity translates into time and cost. Their hourly rate is $350/hour and partners charge $450/hour.
- About 2/3 of their income results from long-term relationships.
- He tracks his time by the minute.
- They bill once a month.
- They have grown 25% a year on average, he estimates, in revenues over the last 5 years
They don’t manage investments for clients.
Clients retain custody and control over their investments. They advise the client but do not manage assets for them; in addition to being an hourly financial planning firm, they are also categorized as an advice-only planning firm.
Clients either self-implement the recommendations or seek help from Timothy Financial’s client service team about how to do it themselves. Although the firm helps, the client is the one who clicks “buy” or “sell.” The client service team doesn’t actually make the trades.
Getting the complexity assessment right
Complexit is a huge thing. Flat fee advisors often say, “I worry about charging somebody $5,000 a year and what if they blow up. What if there is a divorce, what if they get a huge inheritance, etc. and now I am getting paid for half of my time?”
If you are charging for financial advice on an hourly basis and you estimate the complexity wrong, you have misled the client. How does Berg get the complexity assessment right?
He says the emphasis has always been in tying the cost with the value. He says that when they are first getting to know the client’s situation and sifting through the “basement clutter”, it takes quite a bit of time. However, as time goes on, it’s a lot easier to maintain. They’ve already done the data entry and it’s just a matter of doing an update after the initial basement cleaning.
By the way, Kevin Estes said something similar on a podcast we did together about how he runs his hourly planning practice.
How do you justify charging for only financial planning?
A lot of times, the financial advisor gets away with providing little value by just parking the assets in a TAMP and charging 1%. Yet because the client never has to write the bill from their checkbook (fees are debited out of the assets at the custodian), they don’t even realize what they are really paying.
Timothy Financial asks over 1,000 people a year to write such a check, and they do it.
How do they justify the value of their finanical planning services?
Berg feels that as an hourly advisor, you have to deliver value all the time. There is no moat. The client can leave anytime. The assets are not custodied with them, and the clients are not tied in with proprietary investments that they can only get through Berg’s firm.
Berg says he wants this; he says this is what develops good, trusting relationships. He doesn’t agree with the myth that hourly financial planning is a “poverty business.”
What would he say to someone starting out?
As an hourly financial advice firm, you will be rare and people will demand your services for that reason alone. You don’t have to know as much as someone who has been a financial advisor for 30 years, you just have to know more than your clients.
He doesn’t recommend mixing practice types – doing hourly planning at the same time as offering AUM. This is because, according to Berg, you make your decisions on what software to use, what time tracking software to use, how you design your day, etc., based on your revenue. If your revenue is coming more from AUM, more of your resources and time are going to go to supporting the AUM component of your practice.
His costs have gone DOWN?
Berg says that as a percentage of the firm’s revenue, costs have shrunk every year. In other words, more of the revenue growth is going to salaries and to profit. When he talks to his industry colleagues, the cost of doing for them is growing while at the same time they are experiencing fee compression. So for those who say that it’s not scalable to run an hourly financial planning firm – you’re WRONG!
Myth: you’ll spend half your life time tracking
Berg’s exact words: “I spend maybe 10 minutes.”
Why?
They have all of their clients in their Quickbooks, and it syncs with their time software. The technology has made it pretty much a non-factor for them.
It’s pretty elucidating when you can look back at what you spent time on. It allows you to grow more efficient when you look back and say, “Wow, I spent that amount of time on THAT? I can outsource that to someone else and free up my time to do something that is more my unique value proposition.”
Tracking time is a great way to see where you are gaining and losing profits, and even if you are not on the hourly model when it comes to financial advice, you should try tracking your time for this purpose.
The invoicing process is simple. Berg types a summary of the meeting. Clients receive an invoice that states the time and one of two categories, “financial planning advice” or “financial planning meeting.” There is no question as to what they did and they have very few disputes. They don’t itemize out what the specifics were like a law firm would.
What about the concern, “My client won’t ask me important questions because they’ll be worried I’ll charge them.”
Your client has a question about how many years to keep their tax returns. Worried you’ll bill them for the time, they don’t ask you. And then they throw out the tax returns, creating problems for your planing work.
Berg says they tell clients upfront that they will bill for anything they are contacted about. Berg says they will put it through their mind and ask themselves if the cost is worth the value. He says that when clients are new it is sometimes a barrier but as the relationship goes on and the trust grows it usually disappears.
Sara’s upshot on scaling an hourly financial planning firm
Thanks for reading my blog about a successful hourly financial advice RIA firm.
- I am an outsourced CMO for companies who need regular, full service marketing – blogging, social media posts, newsletters, etc.
- I am an hourly consultant for those who just need one-time or recurring guidance
- People hire me as a ghostwriter to write content for a project fee
- I have a social media training program
- I have a book about what to say on LinkedIn messenger
Join the Transparency Advisor Movement
The Transparent Advisor Movement’s mission is to promote ideals of clarity, modesty, integrity, dignity, and client advocacy in all aspects of financial advice, with a special focus on Advice Only, Flat Fee, and Hourly service models. There is a special emphasis on clear disclosure of services and their related fees.
The Transparency Movement is the future of the industry – we welcome anyone who believes in our values to join us.
Join our next Transparent Advisor virtual meetup.
These meetups are free and the goal is to learn from each other about how to grow and manage a transparent practice for the benefit of clients.
Even if you can not make the meetup, or even attend in its entirety, please register for the replay and to be notified of the next one. We meet on the second Wednesday of the month at 1 PM ET.
Disclaimer
Grillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use, or the success of any program.
Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. There is no guarantee that the information contained herein is accurate. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor.
Rates may vary as a function of geographic location due to exchange rate differences, fees, surcharges, and other factors. These offers are limited to the services advertised in the promotions contained on this page. Additional services may be provided at an additional cost at rates that are subject to negotiation.
