Financial Advisor Fee Structures and Considerations

Financial advisors can be paid through commission, fee-based, or fee-only structures, each with pros and cons.

### Financial Advisor Fee Structures and Costs
* 💰  There are three main fee structures for financial advisors: **commission-based, fee-based, and fee-only**.
* 🏷️  Commission-based advisors get paid based on the products they sell, while fee-based advisors are paid directly by clients and may also receive **commissions**.
* 🔒  Fee-only advisors are paid solely by clients, which **aligns their interests and reduces conflicts of interest**.
* 📜  The fiduciary standard requires advisors to put clients' interests ahead of their own, but the distinction between **suitability and fiduciary standards** has become **muddled**.
* ⚖️  Fee-only advisors who adhere to the fiduciary standard are a **small percentage** of all financial advisors.
* ⏳  Hourly advisors charge between **$200 to $400 per hour** and provide a **lower-cost solution**, but the relationship can be **transactional**.
* 📅  Retainer-based advisors charge between **$2,000 to $7,500+ per year**, allowing for an **ongoing relationship**, but they may not provide **comprehensive service**.
* 📈  Assets under management advisors charge a **percentage of the assets they manage (often around 1%)**, aligning incentives with clients and providing comprehensive service.

[Music] I know when I go to a nice restaurant and there's not prices on the menu got like oh gosh what is this place there's no telling what this place cost or you go on their website and they don't publish what their costs are you're like oh this is this is not good so there obviously has to be a cost for somebody to get all this can you talk walk us through the different versions or the different structures you might pay if you were paying a fee on for a financial advisor so when it comes to financial advisors there are really three main fee structures three different ways financial advisors get paid the first is the commission side and these are more sales-based positions this is someone who gets paid based on a product that they're selling so rather than you the client paying then there's some third party the company they work for the company they represent that is paying them a commission and it's a sales-based role generally well then there's fee based now this is someone who gets paid

Direct from the client, but there's also a commission-based structure, so it kind of blends both of them. There is a good chance that a fee-based advisor could be more holistic. It's going to be less likely with a commission-based advisor because of the way their compensation is structured. Fee-based, you increase your likelihood, but then there's the third area, and this is fee only. This is the one that we love. This is where the only way a fee-only advisor gets paid is directly from you, the client, so there's no third party that they are representing. They're not trying to get paid based on products they're selling or products they're pushing. They are getting paid solely and exclusively from you, the client. We like it because it seems to align the interest, and it seems to remove a lot of conflicts of interest. Well, it's also gotten confusing out there. I mean, years ago, you had the suitability standard, and then you had the fiduciary standard, and it was kind of easy to tell who was if if you had

somebody who had the suitability standard, they were selling you something. But if you had somebody had the fiduciary standard, they were, you know, they only got paid, and they actually were held to a higher legal standard if they put their, that your interest, the client's interest even ahead of their own, you know, was held to that legal standard. The government, and, and, and they were doing good work or trying to do good work by adding the fiduciary rule on retirement assets and other things, but in a lot of ways, it's muddied the water. It really has CU. Now you have so many people that, on a portion of your assets, they're going to still be trying to sell you products or doing something that's under the suitability standard, but then on another portion of your asset, are going to be doing, because the government mandates it, a fiduciary standard. So now, you know, instead of you knowing who is doing what, it kind of gets complex and confusing. So that's why what I love is somebody who signs up and

does fee only and then joins Napa XY planning or Garrett they usually have to take an oath saying look I am going on the record, and it's not just because the government mandated this. I'm actually putting myself on record that I'm taking this fiduciary standard, and I'm putting my clients ahead of even my desires. And if you add up the membership of all those organizations I just said, it's still less than 2% of all the people that the Bureau of Labor Statistics classifies as financial advisers. And that's why we want to focus on this 2% that are willing to go above and beyond, not what's mandated by the government, but actually signed a decree, signed an oath, and says your interest comes first. So even inside of the fee-only structure, there's some confusion, and we want to hopefully bring that light because even fee-only advisers might have different ways of their compensation are structured. And there are three main tranches that you can look at. There are ones that are paid by

the hour to B fee only. There are ones that have a fixed fee or a retainer-based model, and then there are those that charge assets under management. That's a percentage of assets that they are helping you manage. So let's walk through the costs of each, and then let's walk through the pros and cons of each of these different structures. So for hourly advisors, the cost for an hour plan is generally going to be somewhere between $200 to $400 per hour. You'd say that's probably aligned with what we've seen out there in the market. That's pretty reasonable. The benefit of hourly is it's probably one of the lower cost solutions when it comes to getting a holistic advisor. You're going to kind of know exactly what you're getting into if they're going to work for you for six hours or for eight hours to help you develop a plan. You're going to pay for that. That's probably going to be the lowest cost financial advisory solution. Yeah, and it is great for those one-times

cuz like I told you, there was a part of my career where I had a very successful individual hired me to fix some problems that he had. Definitely fell into that mechanic category. So now let's talk about some of the cons. One of the cons is this can often be a very transactional relationship, rather than building an ongoing, in-depth, intimate relationship. It's going to be based on a project basis. Hey, I'm going to work with you by the hour, and when you have a problem or when you have an issue, that's when I'm going to be thinking about you. And there may be an incentive for them to be very transactional, much less relational. Yeah, I actually, I don't mind CU. I look back on that client that hired me, that's where his need was. CU, he was primarily very illiquid in real estate. He needed somebody to fix his situation on the estate side. He needed somebody to fix, you know, his risk profile with all these cars and so forth. I think that's

what he needed, and I met him where he was, and I love that this is out there. I will tell you that I think for somebody in you saw this, he didn't want me going too much above and beyond because of you talk about is because if I did more, it was going to cost him more. So, he started having some apprehension about going any further, and then also I recognize that if you're trying to change the financial landscape, there are, as I shared with you, 98% of people, of the advisers out there, are working off a completely different model, and you might be the most brilliant financial adviser in the world, but you're probably only, and we're going to talk about the Dunar principle in a minute, you can only help so many people. So, it's just hard, you're limited by your time. So, the scalability of this is pretty small, you're going to only be able to help a few hundred people at a time, and with Millions upon Millions, I mean we know that if you take

out housing equity and actually look at liquid equity. You know, liquid assets is only 5 million millionaires in America. Well, if you can only have 200, you know, clients or 150 clients, you're just not going to be able to do have a huge scalable impact. So that's the hourly feeling model. Now let's talk about the retainer model. Most financial planning retainers are somewhere between 2,000 to 7,500 plus per year, but this varies wildly. Some retainers can be as high as $50,000 a year. Retainer it very much depends on the client and on their unique circumstance, but there are some benefits to the retainer-based model. This does allow you to have an ongoing relationship. If you do have someone on retainer, they're probably going to know what's going on in your life. There's going to be a back and forth. There's going to be access that you're going to have to the client. The client's going to have to you, and there's going to be a

fixed cost associated with that. Again, going into it, you know exactly what you're going to be paying for services, unless for some reason the scope of what you're asking the adviser for changes. Yeah, and it's also available. I mean, this is something because you hear us, you know, some of financial advisers, they're the advisers for Millionaires and above, a retainer, especially if it's $2,000, $3,000 a year, it is going to be more accessible to people with smaller net worth. So if you think, hey, I need an ongoing relationship, I don't have assets for this person to manage, a retainer model makes a lot of sense in those type of situations. I love it. So now let's talk about some of the cons of the retainer-based model. The first is that it's less likely to be a coner service. When we say coner, a lot of advisers will not only help you design a plan and put a plan in place, but they will actually help you implement and

manage the plan through time with the retainer-based model. There's a good chance that they're going to design a plan for you, and then they're going to hand it over to you for you to implement. So there's a really good chance that it's not going to be as hands-off for you, and it's not going to be as much of a comprehensive service as some of the other advisory models. When you say, I mean, let's talk when you're setting up maybe because I think that there are retainers that going help you with doing the paperwork, filling out the paperwork. You're just saying like ongoing support, ongoing tax planning, and other things. It's just not going to be a direct relationship like others, but it is. I mean, it's going to have a harder time. And then the other thing I worry about is that if you were getting $6,000, $7,000 per CL is there an incentive or somewhat of a conflict that you'd be better served if

you had 400 clients, then if you had 15 C it does incentivize volume over the quality, and that's just something to be aware of. So if you're looking for a retainer-based advisor, that's something to know. Let's talk about the third type of advisor, the assets under management advisor. This is an advisor that charges a percentage of the assets that they're helping you manage. Oftentimes it's something around 1% of your total managed portfolio. So you look at the value of your portfolio, you multiply it times the fee percentage, and that tells you what you're paying for the advisor. We think the benefits of this are one, you have aligned incentives. If your accounts go up in value, the advisor makes more money. If your accounts go down in value, the advisor makes less money. So naturally, your advisor wants the same thing that you want. Another big benefit is that with the assets under management model, it does allow for corner service. This is something that is not necessarily going to be it's going to be brains on hands.

off they want you involved in the process, but you don't have to be the one that actually implements the rebalancing. You don't have to be the one that actually implements the tax loss harvesting. They might be able to go and do an income tax return review. They're able to provide more rolled-up White Glove service. Well, just like we were talking about an hourly, there's a the con is there's a friction for use, meaning every time they call you, it's kind of like when you call your CPA or attorney, you're like, Man, I need this, but I know I'm going to have a fee, an invoice is just going to show up if I use this. What I love is I think about an advisor. One of our advisers came and was talking about they have they work with, they work with the adult children, they work with the parent, the older parent, and there was a concern. They were over at the older parent's house, and there was a concern that came up. The adult child called it. We were able to

kind of step in and, and not only do we help spouses, we help, you know, adult children with their parents, it since there's a relationship there, you know, there's no calling the 1800 number, you know, give the variables all over you actually know it, and you're able to meet people where they need the help, and actually try to get them to be the best version of themselves, and also take away the hardship of some of the things that happen with money. Money makes things hard sometimes, yep. Another benefit of the assets under management model is that for most advisory firms, they have a decreasing effective fee, meaning the larger your portfolio gets, the smaller the effective fee because it's a tiered percentage. So a lot of folks may start their relationship with advisor paying x%, but fast forward 5, 10, 15 years in the future, the percentage they're paying for the advisory service is actually a much smaller portion of their total net worth or their total portfolio than it was when they began the engagement. So all

those things I see on social media where it says that you know if you pay this fee, and when your assets are $10 million, you're not really paying, we're going to get there, buckle up, we are going to go through that. Let's talk about some of the negatives of the assets under management model. The first is, and you hear this, these types of advisers tend to focus on higher net worth individuals and higher net worth clients. In my experience, that's true. Most asset advisers will have some sort of asset minimum that they work with. This is exactly why I started this show, realize I knew I had a high minimum, I knew I was only working with certain people, and in 2006, I was like, Hey, I'm going to start giving people free education so they can be better with money because this shouldn't be something just for rich people, this should be something for everyone so that the younger version of myself would have had a shortcut to do this. We've tried to do that so that we can cut the corner off.

of that con. That's the abundance cycle. Is when you reach that success. Hey, maybe you'll think about who planted all those seeds.

How to Understand Financial Advisor Fee Structures (Commission, Fee-Based, and Fee-Only)

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Understanding the Different Fee Structures for Financial Advisors

Financial advisors can be paid through commissions from a third party, a blend of fees and commissions, or solely through fees from the client.

Fee-only advisors are preferred for their alignment of interests and reduced conflicts of interest.

The introduction of the fiduciary rule has added complexity by requiring different standards for different assets, making it harder for clients to understand how their advisor is compensated.

The Different Structures of Fee-Only Financial Advisors

Fee-only financial advisors are part of a small percentage of financial advisors who take a fiduciary oath to prioritize their clients' interests.

These advisors may be compensated through hourly rates, fixed fees, or a percentage of assets under management.

Hourly advisors typically charge between $200 to $400 per hour, offering a lower cost solution with a focus on specific projects, but may lack ongoing relationships with clients.

The Challenges of Financial Advising Models

Meeting clients' needs without increasing costs creates apprehension and limits scalability for financial advisers.

The retainer model offers ongoing relationships and fixed costs, making it more accessible, but it may lack comprehensive service.

The variability in retainer fees and the focus on high-net-worth clients are drawbacks of the retainer-based model.

Managing Financial Advisors: Retainer-Based and Asset-Based Models

Retainer-based financial advisors provide a less hands-on and comprehensive service, focusing more on specific tasks and paperwork.

They may also have an incentive to prioritize quantity of clients over quality of service.

On the other hand, asset-based advisors charge a percentage of the total managed portfolio, aligning their incentives with the clients and allowing for more personalized service based on the portfolio's performance.

This model provides a hands-on approach and a direct relationship between the advisor and the client.

The Benefits of Financial Advisory Services

Financial advisors can assist with rebalancing, tax loss harvesting, and income tax return reviews, providing a "White Glove" service.

They also offer support for adult children and their parents, creating a more personal and relationship-based approach to financial guidance.

Additionally, the assets under management model often results in a decreasing effective fee as the client's portfolio grows, making the service more cost-effective over time.

The Negative Aspects of the Assets Under Management Model

Asset advisers focus on higher net worth individuals, creating a high asset minimum barrier for others.

This approach limits access to financial education and services for the general population.

The system perpetuates a cycle of abundance for the successful, neglecting the opportunity to support and educate a wider demographic.