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I am nearing retirement and struggling with hiring a flat-fee or fee-only (AUM) advisor to help me with retirement planning and ongoing investment advice for my $4-5 million estate. There’s a big cost difference between the two: the single fee is about $8,000 a year, while a fee-only consultant costs $35,000. The fee is very attractive but I don’t know if I can get the same service?
– Dave
For many investors, fees are among the most important criteria to consider when interviewing prospective advisors. On the surface, two consultants may look very similar, but their Payments It may vary materially. How can this be? As you rightly note Dave, it often comes down to the level of service each consultant provides.
Flat fee and fee-only (AUM) advisors Sometimes they have different service models, which can lead to significant differences in annual fees. We’ll examine what these two fee structures mean, unpack some of the potential differences in service models between the two advisors, and offer suggestions on how to evaluate each advisor.
A financial advisor listens to a client during a complimentary consultation.
Flat fees and asset-based (or AUM) fees are two of the most common advisor compensation structures. As stated in the question, when you work with a flat-fee advisor, you pay a certain absolute dollar amount each year for the advisor’s services — in this case, $8,000 per year. The dollar value of the fee does not change based on how much the consultant manages for you. Payments can be made in installments or when certain milestones are reached. For example, a flash payment advisor may require you to pay 50% upfront and pay the rest after the financial plan is approved.
Fee-only consultantsOn the other hand, they charge a percentage based on Assets under management (AUM) As a result, the actual dollar value paid each year by the advisor is based on the value of your portfolio. Therefore, the $35,000 fee the advisor quoted may vary depending on your portfolio’s performance over the next year.
This is because your assets are paid off as they grow (and vice versa) and not received. Commissions Fee-only advisors for selling investment products are considered to have a relatively strong interest in their clients. However, this can encourage advisors to manage portfolios too aggressively or too conservatively, depending on whether they prioritize fee growth or stability.
In a fee-only relationship, fees are usually paid quarterly and taken directly from the portfolio balance. Fee-only advisors typically calculate a percentage fee using a A level or balanced system – As assets under management increase, the percentage charge generally decreases. (And if you need help, try to find a mentor to work with SmartAsset’s free asset matching tool.)
While factors such as experience, credentials, company size, and brand name can affect pricing, service delivery can serve as the main difference between the two consultants. Let’s go over a few key areas in “service” to review and some questions you can ask yourself and prospective mentors.
Sometimes, fee-for-service advisors just give you a financial plan to follow. This means that you cannot manage your assets on a daily basis. If that’s the case, how do you manage your investment accounts? Will the consultant be out of a job? If so, what additional fees are associated with participation, and how does the advisor ensure that the investment strategy is aligned with the plan you have created?
If the advisor does not outsource portfolio management, do you have the necessary capacity, interest and skills to do it yourself? Given how fees are structured with fee-only advisors, you may manage your investments directly. Still, it’s important to understand what those services include and how the strategy fits into your overall financial plan.
Asset management and Estate planningAs it seems central to your situation, it tends to be complex, many generations must be considered. While not always the case, large asset pools like yours can increase the complexity of the services needed to meet your needs. You want to understand how well-equipped each consultant is to solve the complex problems unique to your situation.
A good question is: “Can you explain how and when you can adjust our plans and portfolios (if you manage your assets directly)?” That’s what it says. Similarly: “How does it influence your decisions as a consultant and team as you make these adjustments?” This will help inform how the team will be structured and what will guide the decision-making process.
With any advisor, you’ll want to know that they’ll be dealing with you often. How many sessions per year do you have with each counselor? What deliveries do you offer? How practical are they in the application?
In other words, do they give you a plan and leave you to execute each episode, or do they kill most of the sequel? Do you serve as an on-call, outsourced CFO with a high-end touch? Who is the main point of contact and how much support do they have behind the scenes? Finally, ask yourself what level of accessibility is needed to execute your plan and how much help is needed with implementation.
When thinking about a variety of services, remember to put them in the context of your goals for managing your estate. Are you looking to protect and preserve assets to pass on to the next generation, generate retirement income or support charitable goals? It may be a combination of some of these, but which advisor and fee structure will ultimately maximize these goals?
Fees can be justified if you decide that a high-fee consultant provides the right services for your needs and goals. (And if you want to broaden your financial advisor search, SmartAsset’s free tool can. Match up to three trusted advisors.)
A person talks to a financial advisor during a virtual meeting.
Ultimately, the choice comes down to your personal preferences, which of course include fees. While it’s important to evaluate how well each advisor’s services fit your needs, it’s also important to consider the different topics that go into the decision. How did you feel when you met them? How do you compare the level of trust established with each advisor? What are their motivations and do they align with your goals? Successful mentoring relationships tend to be long-term in nature, so finding the right one both functionally and emotionally is critical.
A useful exercise to gather your thoughts and make an unbiased choice is to list your priorities, assign a weight to each, and score each item on a scale of 1 to 3 or 1 to 5. It’s a draw. This exercise can help you be realistic and avoid making decisions based on the wrong reasons.
There is a lot to finding a financial advisor. You want to work with someone who provides the specific services you need Education planning Or Alternative investment Management eg. You also want to find someone who is clear about how their fees work How much do you pay? for their services. Also check the legal and regulatory history of the advisor and/or company. Disclosure It can be a significant red flag on a consultant’s record, but not always. To help you navigate this process, we’ve created a comprehensive guide. How to find and choose a financial advisor.
Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool It matches you with vetted financial advisors who serve your area, and you can make a free introductory call with your advisor matches to determine which one you feel is right for you. If you’re ready to find an advisor to help you achieve your financial goals, Start now.
Keep an emergency fund handy in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t exposed to high volatility, like the stock market. The trade-off is because the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
Are you looking for a financial advisor to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so they can spend more time converting. Learn more about SmartAsset AMP.
Jeremy Suschak, CFP®; is SmartAsset’s financial planning columnist who answers reader questions on personal finance topics. Have a question you want answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Jeremy is a Financial Advisor and Head of Business Development at DBR & CO. Additional resources from the author are available at dbroot.com.
Please note that Jeremy is not involved in this SmartAsset AMPor is not an employee of SmartAsset, and has been paid for this article.Some reader-submitted questions have been edited for clarity or brevity.
