Are You Looking for a Flat Fee Financial Advisor?

The financial advising industry has a wide and confusing array of compensation models.

A rising number of financial advisors are offering their services for a flat fee as opposed to the legacy pricing models (you can read about legacy pricing models in more detail here). The flat fee model is one of several attempts to simplify and make more transparent the ways that you will be charged.

Under the traditional financial advisors fee structure, as your net worth goes up, you end up paying more to your advisor.

In some cases, this can be justified – more money and more accounts of varying types may mean more complexity managing your financial situation… However, in many cases just because your account values are increasing does not mean that your situation is increasing in complexity…

If you’re considering whether a flat fee financial advisor is right for you, it’s important to understand how they operate, what services are offered, and how flat fees are calculated.

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What Does “Flat Fee Financial Advisor” Actually Mean?

Flat Fee Financial Advisor refers the method through which the financial advisor charges you, the client, for their services. Specifically, flat fee indicates that the advisor charges one flat, annual fee that covers the entire scope of services that you will be utilizing.

This flat fee may be billed annually, quarterly, or monthly – but it does not fluctuate over that 1 year period.

The fee amount will be established at the onset of the advisor client relationship based on a number of factors including but not limited to:

• Retirement Planning Responsibilities
• Assets the advisor will manage on your behalf
• Meeting Frequency
• Financial Plan Complexity

It’s typical that the flat fee will be re-calculated annually to account for any material changes to the scope of work.

In the sections below we will be covering fee only financial planner cost and rates.

Are Flat Fee Financial Advisors Fiduciaries?

Of increasing popularity and value to clients is that their financial advisor be a fiduciary. Advisors that provide advice under a fiduciary standard are required to make recommendations that are in the best interest of their clients, rather than themselves.

Operating as a fiduciary requires that financial advisors eliminate the conflict of interest that arises when an advisor receives outside compensation via sales commissions or kickbacks from companies that want the advisor to recommend their investments.

Because flat fee advisors only ever receive compensation from clients directly, they are considered fiduciaries and fit under the broader umbrella of fee only financial planners or fee only financial advisors.

You can read more about what types of financial advisors are considered fiduciaries here.

Is Financial Planning Covered Under a Flat Fee Model?

Yes – it is frequently the case that financial planning will be covered under a flat fee model. Many advisors that charge a flat fee will also be financial planners. The flat fee financial planner will make their comprehensive financial plan the cornerstone of your working agreement together.

The financial plan will determine the recommendations and actions that the advisor will share with you. If the financial plan includes wealth management or investment management recommendations, be sure to ask the financial advisor early on who will be responsible for implementing that part of the plan.

Because flat fee advisors do not charge assets under management AUM fees, some will also opt not to directly manage client’s investment accounts.

Typically flat fee advisors will charge a higher fee when including managing financial accounts in their scope of work. In early years when account values are lower, a flat fee may actually be higher than aum fees.

Over the years as account values grow, it’s likely the case that a flat fee structure will favor clients when compared to an assets under management approach.

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What Service Are Covered Under a Flat Fee Arrangement?

The services covered under a flat fee arrangement will vary by circumstance and need. Broadly speaking, any financial advisory service you can obtain across the industry can also be obtained under via a flat fee advisor.

• Comprehensive financial planning
• Management of retirement accounts
• Retirement savings strategies
• Cashflow management strategies
• Social Security and Medicare election strategies
• Investment management and Investment selection
• Setting and tracking financial goals
• Many additional services

Just as with traditional financial advisors, flat fee advisors may specialize in certain areas of financial advice or financial planning.

You should make sure to ask the advisor in question what their areas of expertise are.

Whether they will be able to provide all of the services you are looking for or will need to refer out for portions of the plan is important to note in advance of formalizing a working partnership.

What is the Typical Fee for a Financial Advisor?

Financial advisor fees vary widely making it difficult to standardize an “average” that you should expect. Flat fee advisors will typically charge somewhere between $2,000-$10,000+ per year. The lower the fee, the less complex the project, and vice versa.

Beyond the flat fee space, retirement financial planner fees could include any of the following:

Assets Under Management AUM

Many financial advisors have asset minimums – meaning they will not take on clients who have account values below a certain amount.

Asset management fees across the industry range from .25% to as high as 2% of assets under management.

In exchange for those fees you’ll receive investment management services and occasionally some financial planning or financial advice. More often than not under an AUM fees arrangement the scope of work will be limited to investment management without any financial planning services.

Commission

To this day many financial advisors are still paid via commissions based upon the investments they recommend to clients (although this is quickly going out of fashion).

Estimating the cost of commissions is very difficult – the industry is very opaque and it is usually not until you actually have a contract for those investment products and have read the fine print that you will be aware of the cost to you.

Commission based services typically end upon the sale of the product being complete. Most traditional advisors responsibility to you ends upon your purchase of the annuity or insurance product as the responsibility for customer service falls upon the insurance company from that point forward.

It is our belief that commission based structures lead to conflicted advice that usually ends in the advisors (or brokerage companies) favor.

Retainer for Services

Retainer services refer to a set monthly or annual fee. This is another form of flat fee financial advisor where a portion of the fee may be paid up front as a retainer with the balance being paid in quarterly or monthly installments. The cost is usually irrespective of how much money you have available to invest, but may increase based on the complexity of your situation.

Retainer based services typically cost between $2,000-$10,000+ per year.

In return you will receive comprehensive financial planning service, assistance with implementation, as well as ongoing monitoring and adjustments.

Hourly Rate

Some financial advisors (such as those under the Garrett Planning Network) charge an hourly rate similar to an attorney or accountant.

The average rate is somewhere between $200-$500 per hour.

This structure is useful if you do not need an ongoing planning relationship but have one-off questions that need answering. Topics like saving for college, setting up self employed retirement accounts, or setting up a budget are common examples.

Flat Fee Per Plan

Occasionally an advisor will charge a flat fee for creating a financial plan that does not include any assistance with implementation, ongoing management, or oversight.

The cost ranges from around $1,000 – $3,000 and may be otherwise known as “project based” planning. You’ll receive the plan and be expected to carry out and execute on your own.

Interested in learning more about how to choose a financial advisor? You can begin with our free guide “Finding a Financial Advisor.” Or, if you’re ready to take action, watch our free masterclass and then schedule a free call to speak to one of our flat fee only fiduciary financial advisors.

What Are the Other Financial Advisor Compensation Structures?

Broadly speaking there are three frameworks within which advisors work.

Commission Only

Commission only advisors get paid via commissions on the investments they sell to you, the investor.

Fee-Based

Fee based advisors are paid via a combination of fees you pay as well as commissions from other interested parties such as insurance, annuity, or mutual fund companies who want the advisor to steer you towards their investment options.

Fee-Only

Flat fee advisors fall into the fee only category. Fee only refers to the fact that the advisor is only ever compensated directly by you and is therefore conflict free.

You can read our comprehensive guide to Financial Advisor Compensation Models here.

Why Is a Financial Advisor’s Fee Structure Important?

The ways financial advisors get paid effect the quality of their recommendations and advice to you, the investor.

In order to make the best decision regarding which financial advisor to hire for your particular needs, you need to understand how they are paid and what services they offer/specialize in.

Prepare for interviews with advisors by creating a list of questions and understanding the terms fee based advisor, fee only advisor, and commission only advisor.

This article was originally published here and is republished on Wealthtender with permission.

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