This is a rather in-your-face statement, however, I firmly believe it to be true. When I launched my own retirement planning firm with my flat-fee model I quickly learned many of my “peers” do not care for my model. I believe it comes down to I am disrupting their practices by offering another option for how clients pay for financial services. On the flip side, clients love me for the exact same reasons other advisors hate me. Let me take a few paragraphs to walk you through why I believe this so strongly.
The majority of financial advisors are compensated by either commission or charging a fee based on assets under management (AUM). The average AUM fee is .99% annually. Now, if the average AUM advisor uses the average mutual fund the client is paying another 1.26% annually. If a client works with the average AUM advisor who uses the average mutual fund, the client is paying annual fees of 2.25%. For a $1 million account this comes to $22,500 annually in fees. Yikes!
Many clients utilize this AUM fee model because they desperately want to believe their advisor knows what the stock market is going to do. Well, I hate to be the bearer of bad news, but no one knows what the market will do and no one controls it. This AUM system is broken and I created what I consider a better approach.
I am similar to an attorney or CPA in that I charge based on my expertise as a CERTIFIED FINANCIAL PLANNER™. In my practice I understand how important fees are when it comes to investment returns. I charge a flat fee of $4,800 regardless of asset size. Additionally, the most expensive portfolio I manage costs less than 0.30% annually, but let’s be fair and round it to 0.30%. So, for that same $1 million account my clients pay annual fees of $7,800. That extra $14,700 stays in their account year after year!
The right clients for me are people nearing or in retirement and know there are no do-overs in retirement. Accumulation of assets is what most advisors focus on because few of us have the ability to specialize in the distribution of assets in retirement. I utilize cutting edge software that shows the most effective distribution strategies, including Social Security optimization. My approach has shown the ability to add nearly a decade to a client’s retirement portfolio. While other advisors focus on the assets they manage I look at the entire wealth management picture.
Finally, clients appreciate me because we work together on items ranging from estate planning to long-term care to tax minimization strategies. Plus, everything I do is transparent as I fully disclose all fees a client pays. This extends over to answering any and all questions asked of me by clients. I take this another step by making sure clients fully understand my recommendations. Final decisions are always made by my clients as this is their money. Finally, my fixed fee model allows me to work with the people I like, like me, and I know I can help. I would rather spend my time working with these people than the person who can pay me more if I operated under an AUM model. At the end of the day this is the best tradeoff I can imagine.
Again, the same reasons why advisors don’t like me are the same reasons my clients love me. I charge based on my value, I focus on controlling fees, I utilize modern tools to develop the best retirement distribution strategies, and I look at the entire wealth management picture. If you are nearing or in retirement and have been looking for a better model, feel free to check out my website, www.forwardthinkingwm.com, and click on the Let’s Chat button to schedule some time to talk.