Advisors talk about keeping costs low - until it comes to their fees

Our flat fees save our clients thousands of dollars in advisory fees every year.

Where does your current advisor's annual fee rank on this chart? If you don't know, you owe it to yourself to find out.

The annual asset-based fees used in the chart and calculations below are from the AdvisoryHQ study, "Average Financial Advisor Fees and Costs 2018 Report." 

No Asset Minimums. Minimum annual fee is $2,500. 

 

Do you know what a 1% advisory fee is in dollars? Many investors are surprised by the numbers. Don't get caught in this very expensive trap!

$500,000 x 1% = $5,000

$1,000,000 x 1% = $10,000

$2,000,000 x 1% = $20,000

$3,000,000 x 1% = $30,000 and so on.

 

You don't need to pay an advisor 1% of your assets or any asset-based percentage fee.

  • Most of our clients pay less than one-half of 1% annually based on an asset-based percentage fee equivalent, as seen in the chart above. 

  • No Asset Minimums. Minimum annual fee is $2,500.

  • Our flat fee stays fixed as your assets grow. Example: You begin with $1 million in assets and those assets grow to $1.5 million. Your fee is still the flat $5,000 per year.

  • We don't nickel-and-time you for different services like other advisors.

  • Advisory fees include ongoing fiduciary investment management and financial planning  (retirement planning) services for one flat fee.

  • Fees cover all accounts within a client's household and there are no account setup fees.

 

 

Why is it so difficult to get a straight answer when it comes to an advisor’s fees/compensation quoted in dollars?

Fees are normally quoted in percentages or basis points but rarely in dollars.

 

Investor to Advisor: What are your fees?

Advisor: Our fees are based on a percentage of the assets you place with us to manage - an AUM (assets under management) fee.

Investor: Uh OK, what would your fees be based on my $2 million in assets?

This is where it gets interesting.

Advisor: Your fee would be point nine percent or 90 basis points. It’s less than 1%.

Investor: What is a basis point? Less than 1%? That sounds good to me, sign me up!

Unknowingly and unfortunately, this investor just agreed to pay the advisor $18,000 per year. As the assets increase over time the dollar amount will increase. A 1% fee would be $20,000 per year.


The Flat-Fee Advantage: Total Fee Transparency for Investors

At Clarity Capital Advisors, our pricing structure is in line with other legal, medical, and tax professionals - one simple and straightforward flat fee. We believe investors should pay financial advisors a fair, flat fee based on the advisor's education, professional designations (e.g., Certified Financial Planner CFP® and Chartered Financial Analyst CFA®), financial experience, and the services they provide such as financial planning (e.g., retirement planning, investment planning, retirement income strategies, college planning, etc.) and investment management. Our fee-only, flat-fee form of compensation provides Total Fee Transparency and is aligned with the Fiduciary Standard for financial advisors.

 

You are no longer limited to the high-cost financial advisors in your city and state. 

We work with clients nationwide - in person and online.

 

 

The Power of Flat Fees and Fiduciary Advisors - Meet Jeff and Lisa

Although Jeff and Lisa are a hypothetical couple, their financial situation is all too familiar.

 

Age: Mid-50s, one daughter, Kayla, graduated from college in 2017
 
Jeff and Lisa came to us seeking fee only, fiduciary wealth services. They have been working with a fee-based advisor (fee and commission) for ten years who is charging them a 0.90% assets under management “AUM” advisory fee annually and sold them some investments on which he made additional commissions. Their current assets are $2 million comprised of a joint account, two IRA Rollover accounts, and two Roth IRAs. Their current advisor is charging them $18,000/year, plus the additional commissions he collected.
 
It should be noted that their current advisor did not provide college planning or retirement planning services which they desperately needed over the last ten years. Lost opportunities for additional savings in their 401k plans, tax-free withdrawals for Kayla’s college education, Roth IRA conversions, tax loss harvesting, and prudent portfolio rebalancing. In addition, the Jeff and Lisa were not aware of the additional sales commissions they paid or the costs (expense ratios) associated with their investments.
 
After our discussion, Jeff and Lisa decided to join Clarity Capital Advisors where they will now receive the appropriate retirement planning, estate and tax planning services, and low-cost, tax-efficient, customized investment portfolios geared towards their retirement goals. We will slowly transition their existing investments, taking into consideration the significant, embedded capital gains within their taxable joint account.
 
Our annual flat fee for Jeff and Lisa is $7,000 or $1,750 per quarter, saving them over $11,000 per year. The $11,000 will remain invested in their accounts instead of being paid out in expensive advisory fees. Our fee for Jeff and Lisa has an annual asset-based percentage equivalent of 0.35%. Our investments do not have any sales commissions or hidden fees. All investment fees and costs will be disclosed to you. This is what real fiduciary advisors do.

 

Why a Flat Advisory Fee Makes Sense

Financial advisors have been charging their clients a percentage (e.g., 1%) of the total assets they manage since the early 1990s. These fees are commonly referred to as assets under management "AUM" fees. Over the last decade, financial technology has drastically reduced the costs for advisors to provide wealth management services to their clients, yet many advisors refuse to lower their clients' fees to reflect their reduced costs.

At Clarity, we have passed the savings directly to our clients in the form of low, flat fees. We are committed to keeping our advisory fees and investment costs to a minimum, so our clients can increase their investment returns and have a better opportunity of achieving their financial goals. This is what real fiduciary advisors do.

 

A 1% advisory fee might seem trivial, but have you ever stopped to think about what 1% is in terms of dollars? Depending on your age imagine 30 to 40 years of a 1% fee and how it can impact your retirement savings.

Since advisory fees are normally deducted directly from investment accounts, many investors are unaware of the actual dollar amount they are paying to their advisor. Asset-based (AUM) percentage fees (e.g., 1%) = ZERO fee transparency for investors.

 

Asset-based Percentage Fees and Your Retirement: 

Are you willing to pay a financial advisor 25% of your retirement income? 

Note: An advisor's fee is in addition to (not included in) your retirement income calculations. 

Over time, high asset-based percentage fees can cause people to work longer and rob retirees of a significant portion of their retirement income every year.

Example: You have accumulated $1 million in retirement assets, a 4% withdrawal rate would be $40,000 per year and the advisor's 1% fee would be an additional $10,000 per year or 25% of your retirement income.

Now let's assume that you have $2.5 million for retirement and you are withdrawing 4%. That's $100,000 per year and your advisor's 0.88% fee is an additional $22,000 per year. This would equate to 22% of your income.

At $5 million in assets your 4% withdrawal would be $200,000 and your advisor's 0.84% fee is an additional $42,000 per year or 21% of your income. 

At $7.5 million in assets your 4% withdrawal rate or $300,000 and your advisor's 0.80% fee is an additional $57,750 per year or 19% of your income.

(The annual asset-based fees used in the calculations are from the AdvisoryHQ study, "Average Financial Advisor Fees and Costs 2018 Report.")


 

Ask your advisor, "What is the actual dollar amount I am paying?"

Then ask yourself, "WHY?"

 

 

 

How are we able to charge such low fees compared to other firms?

We've cut out the middleman.

Our fees are based on our firm's costs and reasonable compensation for a credentialed financial professional to provide you with investment management and financial planning services. As an independent, fee-only, registered investment adviser (RIA) firm, we are able to negotiate our software costs and other relevant fees directly with our service providers, thus reducing our firm's overhead. 

Unlike other financial advisors who are employees of financial firms (i.e., banks, brokerage firms, broker/dealers, other RIA firms, insurance companies), we do not give a portion of our income to an employer. Some so-called "independent firms" outsource their investment management and back office duties to a turnkey asset management platform (TAMP), a robo-advisor firm, or another firm such as LPL (the middleman). Many of these financial firms and service providers take a portion of an advisor's income primarily based on a percentage of the assets the advisor holds with the firm or service provider. This is why many investors are charged AUM percentage fees.

This is how it works.

Let's assume you have $1 million invested with a firm that is charging you 1% per year. Your fee is $10,000 annually. When the fee is deducted from your accounts, the middleman firm (your advisor's employer) may take anywhere between 60 - 80% of the $10,000 fee and leave your advisor with a fraction of the fee as compensation. The amount your advisor receives is called a "payout" and it's normally a percentage of the fee the firm collects. The $6,000 - $8,000 of your money may go towards the firm's advertising (we see a lot online and in TV commercials), providing your advisor with a posh office in a nice location, company parties, etc. If you are working with a "fee-based advisor" (a fee and sales commission advisor) at one of the larger firms, some independent firms, an insurance company, or a bank investment program, plan on being sold investments with a sales commission and some hidden 12b-1 fees on top of the 1%. That's if the additional sales commissions and fees are even disclosed to you.

As an independent firm, we have 100% control over our operating costs compared to financial advisors who are employees of other firms. By keeping our costs low for advertising and office space, and placing our capital in areas that make us more efficient, we are able to pass the savings directly to you. Ask us about our complimentary fee analysis.

5 Myths About Low-Cost Advisors...

 

FACT: High advisor fees counteract the use of low-cost investments

We see financial advisors touting low-cost mutual funds or a low-cost investment strategy while charging their clients 1% or a tiered percentage asset-based fee. This defeats the purpose of a low-cost investment strategy. With historically high market valuations and very low interest rates contributing to lower future investment returns, wise investors do all they can to control investing costs. One of the easiest ways to do this is to avoid using a financial advisor who charges you an annual advisory fee based on a percentage of the assets you place with them to manage. The good news is that you now have a viable alternative to high-cost advisors that requires no sacrifice in the level of service received, Clarity Capital Advisors.

 

Q: We are currently with another advisor and pay much more than your stated fees. How can we work with Clarity Capital Advisors to reduce our advisor fees?

 

A: We work with clients nationwide. Please give us a call at 800-345-4635 or complete the Contact Form below.

Many financial advisors require their new clients to liquidate their existing investments to move into the advisor's recommended investments and asset allocation. We recognize that while this may be convenient for the advisor, it may be expensive from a tax standpoint for investors with significant embedded capital gains. Assuming your investments align with your financial goals, ask us how we can manage your existing investment accounts and incorporate our financial planning and retirement planning services for one flat annual fee.

 

We do not hold any client assets. Your investment accounts will be held with our custodian, TD Ameritrade Institutional (TDAI), for safekeeping. TD Ameritrade Institutional does not charge any annual account maintenance fees. If your accounts are currently held with TDAI you will simply sign one Advisor Authorization form for each account you would like us to manage. The Advisor Authorization form limits our access to your accounts to the purchase and sale of securities and the authorization to debit our fees from your designated account(s).

If your accounts are not held with TDAI, we will provide you with new account documents to make the transition as easy as possible. To facilitate the transfer we will need a copy of your most recent statement from your current advisor. Please be advised that your accounts will transfer with the investments you currently hold so you do not have to worry about being out of the market during this process. The transfer time from most firms to TDAI is ten business days. Your advisor's firm may charge a small one-time transfer fee per account.

 

FAQ