flat-fee Financial Planning
Who is our “typical” flat-fee planning client?
Our clients are independent-minded with assets over $3 million who recognize that their financial lives have become too complex for generic advice. They want depth and expert-level planning without handing over their portfolio or paying an AUM fee. Instead, they’re looking for a specialist who can pull together all the moving parts of their financial picture into a cohesive strategy that they can execute, with updates annually and a long-term relationship with expertise for ongoing advice on an hourly basis.
What is our financial planning fee and process?
All new client relationships begin with a comprehensive initial plan based on your unique financial situation. Plans with mid-range complexity fall between $10,000 and $15,000. Visit our case studies for examples.
After the initial plan is complete, we provide hourly advice at $385 per hour exclusively to current clients with a plan on file presented within the past 12 months.
We default to annual renewals with our clients and address any questions or concerns that have come up since our first project. Annual reviews usually fall between 70 and 80 percent of the initial plan cost. While these are not required, we recommend updating the net worth statements, checking in on rebalancing the portfolio, addressing some minor questions that have come up throughout the year, and adjusting for new information (from you or the market). Meeting more frequently than once a year is always an option regardless of project size.
Our Fees vs. AUM Fees
The most common fee type for financial advisors is an AUM fee. AUM or assets under management fees are considered fee-only because the advisor receives no commissions. However there are significant differences between hourly fees and AUM fees.
A fixed fee, such as the project fee we charge, does not change based on assets, but is fixed based on the complexity of the advice needed. We also never take control of your investments or require you to transfer your assets.
Let’s compare two potential clients who would be well suited for our hourly financial plans:
Bobby
Bobby has $4.5 million invested in a portfolio of index funds. He is single, has no children, a W2 income, and no debt.
Sally
Sally has $750,000 in investments and a high income that includes stock options, bonuses, and some 1099 contract work. She and her husband own two rental properties and have three children that need college savings. Did I mention the mortgage, equity lines, and future vacation home?
We would charge a relatively low fee for Bobby’s plan due to the low complexity despite the high account value. On the other hand, Sally would require a higher project fee due to the complexity of the whole financial picture. In these cases, investment assets are a small piece of a puzzle with a lot of pieces that need to fit together. We believe in providing personalized and comprehensive advice on the entire financial situation and charging accordingly.
Based on an AUM fee of 1%, Bobby would pay $45,000 per year compared to Sally’s $7,500 for investment management despite having a simpler financial situation and this fee may not even include any financial planning. Worse yet, imagine if Sally’s situation actually became simpler (kids out of college, debt repaid, real estate sold). Assuming her account values went up, she will end up paying more per year for a decrease in complexity.
AUM Conflicts of Interest
Since the AUM fee is based on assets and not performance, whether the investment choices made by the advisor work out, the client is still on the hook for a fee. It is common for AUM fee proponents to argue that an AUM fee ensures that since their fee is tied to the assets then there is “skin in the game” because the performance of the portfolio affects their income. However, the change in fee is actually quite minimal.
Let’s use this example
You have a $1,000,000 portfolio and your advisor charges an AUM fee of 1%.
If the portfolio earns a 0% return, you still pay a fee of $10,000/year.
If the portfolio earns a 10% return, the portfolio value is $1,100,000 and you pay a fee of $11,000.
If the portfolio loses 10% , the portfolio value is $900,000 and you pay $9,000.
Windfalls
Another issue is with a cash windfall or high savings. If you receive a $100,000 inheritance or save an additional $100,000 from a bonus, you now have to pay an additional $1,000 every year for someone to add this to your portfolio to be managed the same as the rest of the portfolio.
Fxied Fee vs. Commissions
There are many incentives available to financial advisors to push a certain product or service on a client. The commission structure is mostly prevalent in the insurance business where an agent receives a commission on the sale of an insurance contract. The conflict of interest arises with the choice of which insurance or annuity product to recommend or how much insurance to recommend as this advice could be driven by the commission to be received. The same is true for certain investment products and funds.
The first test is to ensure that you are dealing with a registered investment advisor and not a broker. A broker is not required to provide advice in your best interest or put your financial well-being above theirs, also known as fiduciary duty. So if a broker recommends Fund A for your portfolio, you don’t know if Fund A is truly the best option for you or if Fund A is just paying a bigger commission to the broker.
We do not accept any commissions. You only pay a fixed fee for advice based on the complexity of the plan. This ensures that the advice given is not being swayed by some payout from a third party.
What’s Next?
We provide financial planning and advice. All new client relationships begin with a comprehensive initial plan. Fill out our online form below to receive a complimentary personalized proposal within two to three business days.