How to Pay Your Financial Advisor

[David S Meyers CFP]

>From today's Wall Street Journal

http://online.wsj.com/article/SB10001424052970204554204577024152103830414.html

Discusses the pros and cons of various compensation schemes for
advisors

Asset-Based Fee
Fee Plus Commissions
Flat Fee
Net Worth and Income
Hourly Fee

What's missing, I think, is the cases where people don't realize
that they're paying at all, which usually means commissions or
back-end fees. Lots of folks who call themselves "financial
advisors" are actually selling products and their commissions
are hidden in the prices of the products (this is especially
common with insurance products, but it's also buried in various
non-insurance products like B or C share-class mutual funds).

Anyway, it's a welcome article and I'm glad they've put it
out there. The examples of conflicts of interest are good
and anyone getting financial advice (whether they are paying
for it, or just think that they are not) should read it.


--
David S. Meyers, CFP(R)
http://www.MeyersMoney.com
disclaimer: for educational purposes only. This is not financial advice.

[Ron Peterson]

On Dec 12, 2:59 pm, David S Meyers CFP <m...@meyersmoney.com> wrote:

> Discusses the pros and cons of various compensation schemes for
> advisors

> Asset-Based Fee

That is what I have for my active brokerage accounts, but use a
transaction fee for my checking account. It normally saves me
transaction costs, but my transactions are down this year because of
the depressed market.

> Hourly Fee

I would prefer this type of arrangement for financial planning advice,
but would financial planners be able to work enough billable hours to
keep their rates reasonable?

--
Ron

[Don]

On Dec 12, 2:59 pm, David S Meyers CFP <m...@meyersmoney.com> wrote:

> What's missing, I think, is the cases where people don't realize
> that they're paying at all, which usually means commissions or
> back-end fees.  Lots of folks who call themselves "financial
> advisors" are actually selling products and their commissions
> are hidden in the prices of the products (this is especially
> common with insurance products, but it's also buried in various
> non-insurance products like B or C share-class mutual funds).

Yes! When a "financial advisor" makes a point of telling you he or she
is charging you nothing, that certainly is a tip off that all is not
well and there could be a conflict of interests. If anyone stops and
thinks about it for a minute, they will surely realize the advisor has
to be paid somehow, and the answer is undoubtedly "from commissions on
the products sold." He who pays the piper calls the tune. Do
commissioned advisors who charge you nothing ever recommend index
funds, DRIPs, or funds with relatively low management expenses and no
loads? Do those financial advisors ever recommend investment in real
estate instead of or in addition to mutual funds? I guess those are
foolish questions.

[ps56k]

my wife - a teacher - just received an email from this place....
http://vantagefinancial.com/home.cfm
and here is their fee schedule.
http://vantagefinancial.com/pay_my_fee.html

I haven't looked yet to see what it all entails,
but those are some pretty hefty fees...

In Illinois - the main concern is what has happened
to the Teacher Retirement System
that was supposed to be intact...
http://vantagefinancial.com/will_trs_be_enough.html

BUT.... being Illinois :)

[David S Meyers CFP]

"ps56k" <pschuman_...@interserv.com> writes:

> my wife - a teacher - just received an email from this place....
> http://vantagefinancial.com/home.cfm
> and here is their fee schedule.
> http://vantagefinancial.com/pay_my_fee.html

I like how straightforward they are.

> I haven't looked yet to see what it all entails,
> but those are some pretty hefty fees...

Actually, if they are giving ongoing comprehensive
financial planning on a retainer basis, those are
pretty competitive fees. $5000 for the first year
and then $2000/yr - considering how much time and
how much work it takes to draw up a comprehensive
plan and then to monitor it on an ongoing basis -
is likely at the *low* end -- and that's their
"executive" service which covers folks who have
advanced tax planning issues and complex issues
like stock options and deferred comp plans.

This was very interesting to me:
http://vantagefinancial.com/compare_vantage_plans.html

One of the problems with much of the industry is that
instead of charging for comprehensive planning, folks
who charge by assets-under-management often charge
*more* and just say that the planning is "included".
That muddies the waters and, in my opinion, devalues
the planning. Efficient asset management benefits from
some economies of scale, so if someone is charging, say,
1% of assets-under-management and has a $500,000 minimum,
he's still charging $5000 (at a minimum!) but is the
client getting twice the planning and value if he'd had
$1million and was paying $10,000?

Vantage seems to charge between 0.6 and 1.5% of assets
for investment advisory services (meaning they actually
perform the transactions for you) -- and that's separate
from financial planning services.

As I said, I like the way they are making the specific
services priced out distinctly. Thanks for posting the
link to these guys.

I don't know what the right answer is. Frankly, my
business is still evolving. Many of my clients work
with me on the simple by-the-hour basis. Many people
need little more than an hour or two in the office and
an hour or two of research/notes to follow up. But
then they need to do *implementation* and they need
to remember to come back in for tune-ups and that's
a lot of responsibility to put in the client's hands.

As the article I posted a link to indicated, all of
the different models have pros and cons. So long
as the clients (and professionals!) are very clearly
aware of what the conflicts of interest are likely
to be, I don't mind as much. What bugs me most, though,
is when costs and conflicts are hidden rather than made
explicit.

Any time someone provides services of some sort but
doesn't provide an explicit bill for it, you should
ask yourself (and ask them!) just how that service
provider is getting paid for his time and work.