Monday , 4 December 2023

Why A Flat Fee Approach to Financial Advice Is the Way To Go – Here’s Why

Paying fees based on your assets under management may be costing you dearly. Consider a flat fee method instead. This article underscores the differences between the two and why a flat fee approach is the way to go.

What is an AUM-based fee model?

@$$4$…Assets under management (AUM) matter are how most financial advisers get paid, and it’s been this way for decades.

  • Most charge an “AUM-based fee” of…[.5% to 2%] depending on the size of one’s portfolio, for financial planning and their investment advice, and conceptually, it makes sense – when your investments do well and your assets grow, so too does the amount of money the adviser makes.
  • On the flip side, if the adviser loses you money, you pay less in fees but the reality is that win or lose, these fees are eating into your portfolio’s returns, and the truth is they are costing you a substantial amount of money.
    • For example, if you invested $100,000 for 30 years at an 8% annual return, you would have just over $1 million. If you paid a 1% fee, you’d have only $761,225, a sizable amount, right? Not so when you come to the realization that this 1% fee cost you $245,040  or almost 25% of your wealth.

What is the Flat Fee model?

The AUM-based fee is the model of the past, not the future. New fee models are emerging, and there is only one that is best for you (as it should be): the flat fee – a fee that is completely decoupled from your assets…

  • It is a fixed amount for ongoing, as opposed to one-time, planning and investment advice.
  • It’s not based on how much you invest but rather on your planning needs and the complexity of your financial life as it evolves over time.
  • It still costs money…from $2,000 to north of $5,000 per year, or even more, but it is tailored to meet your needs, as opposed to a more arbitrary fee that’s tied to how much money you have…

Three reasons why a new model is needed

1. Greater access and affordability:

  • The AUM-based fee is an exclusionary model…created for the 10%, who have money to invest, and not the other 90%…
  • A flat subscription fee creates an inclusive model because you can get access to advice no matter what stage you are at in life. It can be tailored to your situation so it’s affordable, and it doesn’t require you to have a lot of money before you can get help for your finances…

2. Redefining financial advice and aligning cost to value:

  • With an AUM-based model, how much you pay hinges on one thing: how much you invest and that fee goes up as you invest more.
  • A flat subscription fee gives you and the adviser the same priority: improving your financial health and well-being and, as your needs change throughout life – family, career, retirement – a flat fee can be adjusted to ensure you get the right advice for a fair price. You shouldn’t pay more just because you invest more.

3. Unbiased advice for a better relationship

  • ..Studies have found that how an adviser charges affects the advice they give to clients and may even lead to advice that is not in your best interest. Life is filled with trade-offs – should you invest, pay for college or pay down your mortgage? You don’t want the answer to those questions to depend on how your adviser charges.
  • A flat fee removes this conflict and cements alignment between you and your adviser. The only incentive is to provide quality, unbiased advice that’s best for your life and what matters most to you. You know what you are paying, why you are paying it, and it’s a model you can trust.

Is the flat fee the best approach?

  • The answer is no but, if you know what to look for, you can get quality advice tailored to your life, from an adviser you can trust, for a fair price. Not all financial advice is created equal, but here are some questions you can ask to make a more informed decision:
    • How do you charge, and how do you determine your fee?
    • What services will you provide, and will they be limited to investments, or will you help guide my entire life?…


True financial well-being is when you have freedom from financial worry and the power of choice – the ability to see your range of choices and to make the best decisions based on what matters to you. New fee models, including a flat subscription fee, will ensure that more people have access to essential financial counsel. This isn’t rocket science. It’s just good advice.

The above excerpt from the original article by Brent Weiss, CFP®, ChFC® was edited [ ] and severely abridged from 8250 words to just 800 (…) to provide you with a faster and easier read. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.


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