Flat Fee Financial Advisors and Planners
How is your financial advisor paid?
As we have stated many times, it is crucial to understand how your financial advisor/planner is paid. The three basic compensation methods are commission, commission and fee, and fee-only.
If your advisor isn't a fee-only advisor, they are either a commission or commission and fee advisor (fee-based advisor).
In the commission model, the advisor is paid based upon the volume of transactions. For example, a mutual fund with a front-end load will pay the advisor upon purchase of the fund. The obvious problem with the commission model is that it incentivizes high turnover (churning). Given this conflict of interest, it is difficult, if not impossible, to see how a commissioned advisor can claim to be working in your best interest. They are not Fiduciaries.
Commission and Fee Model or "Fee-Based" Advisors
Worse than the commission model is the commission and fee option, as this allows the advisor to both collect commissions and charge the client an annual management fee. These advisors frequently categorize themselves as “fee-based”, which creates significant confusion for investors who are seeking fee-only advisors. The investment statements we have seen from these advisors tend to have high cost mutual funds with built-in sales commissions and 12b-1 fees along with some type of commission generating annuity policy with high surrender charges. They are not Fiduciaries as they are not required to work in your best interest at all times.
To clarify, fee-only advisors accept payment only from their clients and do not accept commissions or recommend investments with hidden 12b-1 fees. They are the only type of advisor that should be considered fiduciaries. Within the category of fee-only, there are three types of compensation—asset-based, hourly, and flat.
By far the most common, the asset-based fee is calculated as a percentage of the assets you place with the advisor to manage. A commonly stated argument is that since the advisor is paid on assets, the advisor’s incentive is to maximize assets. Everybody wins! But do they? Certainly the advisor wins, but the client, not so much. Asset-based fees can be very expensive and become even worse as assets grow. To us, it makes no sense to pay an advisor based on something he has no control over—the performance of the financial markets. It can also lead to absurd situations such as a 20% raise in 2017 (based on the S&P 500 return). In fairness, it should be noted that asset-based fees decrease in a market downturn, but why should advisors receive a pay cut, especially during the time period when they are working their hardest to convince their clients to stay the course?
The hourly fee structure certainly has merit, as it’s consistent with how most financial professionals (e.g., accountants and actuaries) are paid when acting as consultants. One potential problem is the incentive to maximize the number of billable hours.
The flat, or retainer fee structure is the one we utilize at Clarity Capital Advisors because we believe it is the one that is most fair to our clients. While the level of assets is considered in setting the initial fee, it will not change based on market fluctuations. Advisors should be paid a fair, fixed fee (flat fee) based on the services they provide, their experience, and credentials.
Our flat fees include financial planning and investment management services provided by a team of fee only, credentialed wealth advisors for a fraction of the cost of other firms.
A Fee-Only Registered Investment Advisor (RIA)
Clarity Capital Advisors is a fee-only registered investment advisor (RIA) firm legally bound by the fiduciary standard of care. True to our name, Clarity, we believe you are entitled to honesty, full transparency in advisory and investment fees, and investment advice that is free from the conflicts of interest found in many financial firms. Our clients benefit from an array of fiduciary wealth services for one simple and straightforward flat advisory fee.
Fee-only means our only form of compensation is the flat fee we charge for our services. We do not recommend any investments with sales commissions, surrender charges, or hidden fees, such as mutual fund 12b-1 fees. Being fee-only means we've eliminated the conflicts of interest associated with fee-based and commissioned financial advisors.
Client accounts are held with TD Ameritrade Institutional for safekeeping.
As fiduciaries, we are limited to trading and debiting of our advisory fee from your account(s).
Download the PDF How Your TD Ameritrade Institutional Account is Protected
Flat-Fee Wealth Management Services
- A Dedicated Team of Credentialed Financial Professionals with 50 years of combined financial experience.
- Financial Planning - Retirement Planning, Retirement Income, College Planning, Estate Planning Review, and Charitable Giving Strategies
- Personal Risk Assessment
- Investment/Portfolio Management
- Account Setup and Transfer Documents
- Custom Investment Portfolio Options - Reduce advisor fees while maintaining your low-cost investments.
- Low-Cost Mutual Funds and Exchange-Traded Funds (ETFs) - No Sales Commissions, No Hidden 12b-1 Fees
- Low-Cost, Tax-Efficient Investment Portfolios comprised of Dimensional Fund Advisors and Vanguard mutual funds.
- Employer Retirement Plan Asset Allocation and Advice
- 529 College Savings Plans
- Donor Advised Funds
- Quarterly Investment Portfolio Review - In person or online
- Quarterly Portfolio Monitoring - We review your accounts every quarter to make sure your allocation is consistent with your goals.
- Portfolio Rebalancing and Tax Loss Harvesting, as needed
- Quarterly Portfolio Performance Reporting and Gain/Loss Accounting
- Annual Risk Assessment and Wealth Plan Overview - To keep you on track.
- Client Portal - View your accounts, account performance, and custodian statements in one place.
- Other Services - Roth Conversions, Required Minimum Distributions, and Retirement Rollovers
- We work together with your financial professionals - Accountants and estate planning attorneys.
As your fiduciary, we make the following commitments to you
- We will always put your best interests first--ahead of our own and that of our firm and our employees. As defined by federal law, we will act as a fiduciary.
- We will act with prudence, that is, with the skill, care, diligence and good judgment of a professional.
- We will not mislead you; we will provide full and fair disclosure of all important facts and advisory fees we charge.
- We will avoid conflicts of interest, and we will not receive any fee or commission from any product or service we utilize on your behalf.
- We will fully disclose and fairly manage, in your favor, unavoidable conflicts.