How should you pay your advisor?
There are several ways that a financial advisor can be paid by a client, either directly or indirectly. The best way for you to be charged depends on your initial planning needs and ongoing services that you will require. After meeting with hundreds of families over the past 23 years, we have charged and been paid in all ways. Our main goal has always been fairness and transparency. We are almost exclusively “flat fee” and/or “fee only” at this point, meaning that there are no “built in commissions or fees” and no hidden or surprise charges.
Here, we’ll explain the various fee structures and give you some basic guidelines and questions to ask so that you get the most advantageous arrangement with your financial advisor. Regardless of the arrangement, we believe that full disclosure is a must – we want our clients to know what they are paying and what they are getting in return, whether it’s a fee, commission, hourly rate, or a combination. Many financial firms won’t disclose certain commissions, we think this is wrong and undermine’s the trust in the client-advisor relationship.
There are a few ways that a firm can charge a fee:
Commissions– this is one of the most common and seemingly easiest to understand. If you buy a product, the advisor earns a commission. This can be from an annuity, life insurance policy, mutual fund, stock, bond, etf, or other financial product. Many times, though, the commission is “built in” to the price of the product, meaning that it is not overtly disclosed to the client. For instance, if you buy a life insurance policy from an agent, they earn a percentage of the premium, but the company does not have to disclose that to the buyer. This is also true for many annuity products and mutual funds. The main problem with this arrangement is that conflicts of interest can easily arise. For example, if there are 2 products that are suitable for a client, but Product A pays a 5% commission and Product B only pays a 3% commission, the advisor has a true incentive to recommend Product A with the higher commission. Shouldn’t the client know about this? When we determine that a commission based arrangement is the best for a client, we fully disclose all commissions to our clients before any final decisions are made.
Investment Management Fees– this is one of the most straight forward arrangements to understand. In our practice, we routinely charge clients fees to manage their investments. It’s easy to explain and understand because it is a flat percentage of whatever assets we are managing. For example, if we manage a $100,000 account for a client and charge them a 1% annual fee for our services, they pay us a $1000 per year fee. Typically, this is billed quarterly and paid directly from the account. We like this arrangement because it is simple for our clients to understand and everything is fully disclosed on the reporting that they get from us.
Hourly Planing Fees / Flat Per Project Planning Fees– some clients just have a one time issue that may need our help. In this case, we can charge an hourly fee or just a flat fee to cover our time spent. Some examples of this are if a client just wants a review of their current plan (investments, insurance, taxes, etc) but wants to continue managing things on their own. Or they may want us to give a second opinion of what their current advisor is doing. We’ve also helped clients locate and consolidate old stock certificates, insurance policies, retirement plans, etc. that they have accummualted or were left to them by parents, grandparents, etc. Our current hourly rate is $250 per hour and we can also negotiate a flat fee for certain projects.
In all cases, before we accept a new client, we decide on a suitable payment arrangement. Many times we use a combination of what we described above. But what we always make sure of is that you, our client, is fully aware and informed of how much you are being charged and the services you will receive in return.
Beware of the “free consultation” that most financial salespeople offer. In most of these offers, the financial advisor is simply a commission based sales person and the “free consultation” is no more than an attempt to find out where your assets are so that they can try to sell you a financial product. In our experience, there is no real financial planning accomplished in these “free” meetings, and you’re smart enough to know that nobody works for free. There are plenty of advisors that operate this way, it’s just not what we consider an ideal client-advisor relationship. “Free” advice usually comes with a cost, so beware.
At Maryland Financial Advocates, we use a different approach. We charge a nominal planning fee of $247 for a 90 minute initial planning consultation.
In that meeting, we’ll review your entire financial picture, identify areas of concern, and gather the necessary information to start building your planning blueprint and timeline. If you see the value in our way of doing business and want to continue the planning process, we can present those details at the end of the meeting. If we cannot help you and don’t feel like we are a good fit, we will tell you that as well.
We charge an initial fee because we are professional financial planners, not commission based salespeople. We also know that by you paying a fee for our professional advice, you’ll be more involved and invested in the process and you’ll be more likely to take the necessary steps to potentially improve your financial plan. At the end of this meeting, you’ll have a clearer picture of your financial situation and how we can help going forward. It will be up to you if you’d like to continue the planning process with us.
To schedule an initial meeting or for more details and explanation of planning process, click here to go to our meeting request page.
Copyright © 2017 Maryland Financial Advocates. All Rights Reserved. The financial consultants of Maryland Financial Advocates are Registered Representatives and Investment Adviser Representatives with securities and investment advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA / SIPC. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: MD, VA, PA, FLA, NJ, DE, WA, TX, GA.