When advisor nor-bert Schlenker left a bank-owned brokerage firm in 2003 to hang out his own shingle, his decision to work on a fee-only basis was instinctive.

“If you consider yourself an advisor, you need to start charging people for what you provide, which is advice,” says the president of Libra Investment Management Inc. on Salt Spring Island, B.C. What wasn’t immediately clear was how he would get paid.

“I don’t spend more time on a $5-million portfolio than on a $1-million portfolio. So, people who have $5-million portfolios shouldn’t have to pay five times as much,” says Schlenker, explaining his choice to charge an hourly rate rather than a percentage of assets. Next came a less straightforward decision: what was the right price-tag for his expertise?

The answer came from comparing his services with those of other professionals, such as lawyers and accountants. “I think I am providing similarly valuable advice,” he says. As a result, Schlenker has decided on a rate of $250 an hour, which he describes as a compromise. “For a small client, it’s too expensive relative to other advisors who charge commission or a fee as a percentage of assets. And for a big client, it’s probably less than what most other advisors charge,” he says. “But you have to strike a balance.”

Indeed, unlike the cut-and-dried nature of commission sales, offering fee-only advice is an inexact science. Determining a fair rate for services rendered involves answering the following questions:

> What do you think you’re worth? “The factors that come into play are your experience and your knowledge base,” says Doug Macdonald, co-founder of Macdonald Shymko & Co. in Vancouver. The 35-year industry veteran commands an hourly rate of $280, while an assistant under his supervision charges $50 an hour. “When the bill goes out the door, you have to know there is value there.”

> What is the competition charging? “When I worked at a larger firm, my rate was about $300 an hour by the time I left,” says Barbara Garbens of B.L. Garbens Associates Inc. in Toronto. “But I knew the majority of independent fee-only planners were charging $150 an hour, so I started charging that rate as well.” She raised her hourly rate to $175 this past January, after four years at $150.

> What are the hourly rates of similar professionals in your area? Like Schlenker, Macdonald looked to other professionals when establishing his rate. “I asked lawyers and accountants in my area what their hourly rates were and how long they’d been in the business,” Macdonald says. “On that basis, I came up with a figure.”

What constitutes a fair price can vary from region to region. “Certain markets are more sensitive to fees than others, not that the work is any different,” says Kostas Andrikopoulos, Toronto-based president and CEO of T.E. Wealth, which operates T.E. Financial Consultants Ltd. and T.E Investment Counsel Inc.

Macdonald adds: “A planner in Toronto may be able to charge more than one in Red Deer, Alta.”

> How many clients can you handle, and how many do you need to be profitable? “You need to figure out how many hours a day you think you can bill, and the hourly rate you need to charge to break even,” says Macdonald. “If you’ll break even at $150 an hour, perhaps $175 is a reasonable rate.”

Schlenker admits he could make more money if he reduced his rate, but says it’s on par with what’s being charged across the country.

T.E. Financial Consultants’ network of 20 fee-only advisors in Quebec City, Montreal, Toronto, Oakville, Ont., Calgary and Van-couver charge what amounts to an hourly rate of $250, on average, Andrikopoulos says. However, unlike Schlenker, T.E.’s advisors bill clients by the service rendered.

“In the past, we charged an hourly rate but found some consultants were not recovering the amount of time that was going into a financial plan,” Andrikopoulos says. “They may have completed $10,000 of work, but were worried that clients would object to receiving a bill for that amount.” Instead, these advisors would low-ball their fees to avoid sticker shock.

T.E. advisors now charge a flat rate for their services. The going rate for a comprehensive financial plan, for example is between $3,000 and $5,000.

@page_break@“You cannot do a financial plan for less than $3,000; you’re going to lose your shirt if you try,” Andrikopoulos says. He estimates it takes an advisor between 14 hours and 36 hours to create a plan, and clients pay $1,000-$1,500 a year for review and upkeep.

Despite transparent pricing, both Andrikopoulos and Macdonald admit they must occasionally justify their prices to clients. “I try to give them some appreciation,” says Macdonald. Most clients underestimate how much time advisors tthmust invest in performing their services. Clients also need to know it’s time well spent.

“Our consultants spend a lot of time explaining what the benefits will be at the end of the day,” says Andrikopoulos. “We tell them they are not going to get the same level of service or the comprehensive type of plan if they go elsewhere.”

Detailed billing records also help T.E. advisors explain what clients may perceive to be hefty prices. “Our billing records detail the time spent on a task and what was done during that time,” Andrikopoulos says. “It’s imperative to keep these records, because people want to know that a fee is justifiable.”

Schlenker and Garbens say they’ve never had to justify a fee to a client, although both have had prospects walk away after an initial conversation. “Some people say, ‘I don’t want to pay $2,000 for a financial plan,’ and that’s their choice,” says Schlenker. “But I know I’m providing valuable advice.” IE