How Do We Get Paid?
Although many investors seem to be suspicious of how financial advisors get paid, it is not difficult to understand how we make a living. There are three ways to compensate a financial advisor:
Commissions: Advisor receives a commission each time he/she sells a particular product.
Fee-Only: Advisor charges a percentage fee based on the assets under management. A typical fee is in the range if 1%-2% annually. Typically, the more assets under management, the lower the cost.
Fee + Commission: Advisor charges a fee based on assets under management as well as offering investment products for a commission. The majority of my business is derived from the fee only option. While I believe this pricing model is in the best interest of most investors, for many reasons, is not the approach that I recommend for particular clients. With a fee-only platform, calculating fees as a percentage of the assets we manage enables us to operate on a more relationship basis, rather than a transactional one. We continually seek to add value to our association with our clients by assisting them with an assortment of financial issues, well beyond just managing their investment portfolio.
For instance, an all-inclusive fee encompasses a broad spectrum of personalized services that comprises: estate investment planning, college planning, insurance planning and retirement planning, not to mention consultation with client’s CPAs and estate planning attorneys. With the fee-only compensation model, clients know precisely what they are paying. There are no hidden costs, and fees are 100% transparent. I have always been an advocate that price should only be an issue in the absence of value. Clients want and deserve value for the fee they are paying. It is my responsibility to deliver that value.
*Fee-based accounts are not designed for excessively traded or inactive accounts, and may not be suitable for all investors.