The FPA community weighs in on common misconceptions about fee models.
“The most common fallacy is that we take home 100 percent of that fee! Actually, most advisers earn only 38 percent of the gross fees, or less. There are many costs associated with running a firm, including employees, technology, software, continuing education, office costs, etc.”
Nadine Marie Burns, CFP®
President and CEO, A New Path Financial
“My team and I have worked really hard to come up with a fee model that is customizable for the client. Do they want investment management? Do they want comprehensive financial planning? Do they want both? Do they have a few basic financial planning needs? The answers to these questions will help me better gauge which path I will recommend for that client. This allows us to better serve our clients and tailor a plan that is right for them—no one-size-fits-all. Because of that, we don’t need to have a certain minimum investment under our management. Everyone deserves to have access to good financial advice.”
Jodi Viaud, CFP®
Partner and Financial Adviser, Knox Grove Financial
“Many [advisers] go fee only for less regulation rather than for the fiduciary duty. I don’t feel advisers understand adviser compensation, such as platform fees and other fees and their total compensation, and that when we sell annuities, we get a large upfront commission. I almost always take the maximum trail option to be paid, essentially identical to an advisory fee account.
At the end of the day, I sell solutions, not products, and a fee-only account is still a product, especially if it is the only one you have. I think the biggest misconception is that just because someone is paid a certain way doesn’t mean they don’t hold themselves to a higher standard than the law requires.
I want to do what is best for my client, regardless of how or if I am paid, and in order to do that, I feel the need for clients to be offered more options. I find being able to work with clients in all different models allows more access to solutions that make sense.”
Andrew Komarow, CFP®, ChSNC®, AIF®, BFA™, CAP®
Founder, Planning Across the Spectrum
“I moved to strictly hourly, fee-only planning after leaving XYPN. I used to offer prospective clients the option of monthly subscription or hourly and would try to convince them to go with the subscription fee model.
I switched to hourly-only advice a while after I joined the Garrett Planning Network. Commission- and AUM fee-based models are clearly the dominant fee structures in the personal financial services industry—and [they] can be highly lucrative for planners and their firms.
I think fixed-fee and hourly fee structures (i.e., fee for service) better align with the client’s best interest than most other fee structures. I think hourly is superior to fixed fee because the client only pays for the advice he or she needs and nothing more. The ‘problem’ with time-based fees is that price-sensitive clients might balk at the hourly rate or be hesitant to reach out because they know it will cost them money. One way I try to address this issue is to set a total fee range for the service upfront, so the client has an idea of how much it will cost for planning.
I progress the bill monthly in arrears, so the client knows how much time I’ve spent working on the project. I also give them a heads up if the fees are approaching the upper end of the fee range as services are rendered, because of scope creep. The beauty of hourly planning is that you can work with just about anyone, regardless of their income or asset level. For most clients, hourly planning will likely cost less than most other fee structures.”
Founder and President, Mercer Street