Why Flat-Retainer Fees Are Doomed To Fail


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The great fee debate continues. I’ve heard a new paradigm coming into the market: advisors who charge no commissions or tiered fees, just a flat, annual retainer.

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It’s a nice idea but in reality they’re trading one bias for another – and I’ll explain why. While I see more cons than pros to this approach, I’ll consider both sides.

The advisor fee obsession

I have never ever seen an industry more obsessed with how it gets paid than the financial advisor community. Ask any advisor, whether they be hybrid, fee-only, fee-based or commission only, and every single one of them has a strong opinion about how their way is the best and everyone else is robbing clients blind.

For an industry that prides itself on being sweet, altruistic and focused on “putting the best interests of clients before their own” (ever used that phrase? You all have it plastered on your websites everywhere there’s a half inch of white space) it is very ironic that folks are awfully concerned with the almighty dollar. If they weren’t, then nobody would talk about fees and there wouldn’t be these Socratic debates all over social media, blogs news, and everywhere else financial-advisor related topics are discussed.

All Michael Kitces has to do is post a blog expressing a different angle on fee-based advisory models and 26,000 people read it. I’m not knocking Michael – I love Michael’s writing- but it shows you how advisors flock like moths to a flame with this stuff. Heaven forbid they should be ignorant of the latest news on how they are getting paid.

You don’t hear social workers clamoring right and left about how they get paid. You don’t hear them debating about why they should get paid per client rather than per hour or something ridiculous like that. Because they, the social workers, are an example of a profession that truly does put the needs of the clients before their own. They don’t care if they starve to death doing what they do, which is why you don’t hear social workers having the “Great Fee Debate,” as I call it, that we have here in advisor world.

Admit it, financial advisors. You’re fee obsessed. And that’s the #1 reason it is disingenuous that everyone has to pretend to be Mother Theresa on their websites and in every single aspect of marketing they communicate to the world.

The latest trend: Flat-fee investment advice

So now that I have all of your attention because I’m talking about getting paid, let me discuss the latest trend in advisor compensation, which charging a flat-fee retainer for investment advice. I emphasize that it’s not a flat fee for financial planning.

We are talking about an advisor managing assets with no tiered fees, asset-based fees, or commissions. They charge one amount, the same amount, to all clients and they manage these clients’ assets no matter how big the portfolio.

Example: A 60-year old with $5,000,000 portfolio who needs retirement planning pays $4,000 per year; a 35-year old with $5,000 portfolio and $50,000 in student debt and who needs college planning for her family pays $4,000 per year, etc.

The sizzle on this steak for the clients is that it removes the incentive for the advisor to recommend putting money to work in the market. For example, let’s say someone has student loans to pay off and they just got a big bonus. The advisor is more likely to recommend putting money into an IRA and brokerage account because he or she can get paid that way rather than paying down the loans. The same with paying down mortgages or investing in real estate, physical commodities (e.g. buying gold bars), fine art, etc.

Read the full article here by Sara Grillo, Advisor Perspectives

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