One of the most important things a client should understand is how their advisor is paid. Professionally speaking, advisors, like any human, will spend the most time on activities that are the most financially rewarding to them. Currently, there are basically 2 types of compensation models for advisors, those that receive commissions (fee- based and commission-based) and those that do not (fee-only).
An advisor who accepts commissions means they get paid on certain types of financial products, usually various types of insurance and mutual funds. Commission-based advisors may not directly charge their clients a fee, but instead are compensated by the commissions received from the financial products sold to clients. Fee-based advisors will usually charge their clients a fee of some sort, possibly related to the amount of assets under advisor management (AUM) and/or a fee for service on top of the commissions they receive for the financial products being sold. This creates something of a conflict of interest as the advisor is financially incentivized to place their clients in higher commissioned products which may not be in their clients best interest even though it may be considered suitable (good enough) for them. Additionally, not all commission-based advisors are held to a fiduciary standard of having to place the needs of the client first.
A typical fee-only advisor charges their clients by a percentage of their assets under management (AUM) by the advisor, usually around 1%. This gives the advisor a financial incentive to see those assets grow. This means that the larger the AUM, the more the advisor gets paid. This is not necessarily a bad thing, but note that other important financial variables for the client such as budgeting and cash flow planning, insurance needs, estate planning, income tax planning, real estate, and most importantly net worth, may get overlooked because the advisor has no direct financial incentive to get involved. Additionally, the advisor is financially incentivized to see any client accounts not under advisor management get rolled into the advisor accounts. This could trigger unnecessary transaction costs and having to liquidate perfectly good investments which may not be in the clients best interest. Lastly, a significant number of people may not qualify for an advisors minimum account size. While, this number is variable it can rage from $100,000 to over $1 million.
Since I do not manage client money, I cannot base my fees on assets under management. Instead, I charge my clients a tiered percentage of their net worth. In this way I am financially incentivized to see my clients net worth increase and, more importantly, remain NEUTRAL on where their investments are kept or what specific investments the client would like to hold. Sometimes the best course of action for a client’s portfolio is to do nothing with their accounts and simply stay the course. Moreover, this allows me to take a more comprehensive and holistic view of clients financial lives that are outside of their investable assets such as: owned real estate, major upcoming purchases (cars, homes, college, wedding, etc), estate planning documents, insurance needs, tax planning, getting out of debt, and cash flow and budget planning. This fee model allows me the highest level of independence in order to stay away of any financial conflicts of interest so I am best able to offer truly independent financial advice on your ENTIRE financial situation.
Financial Plan Cost
Client Net Worth*
Up to $499,999
$500,000 – $999,999
$1,000,000 – $1,499,999
$1,500,000 – $1,999,999
$2,000,000 and over
0.12% of Net Worth
Year 2 and on**
25% discount off Year 1 cost
*Net Worth excluding value of business and intellectual property assets.
** Financial Plan Cost is billed to the client in two equal charges.
Financial Plan Implementation Service is billed to the client at $225 per month.