Below is an excerpt from an email I received from a financial advisor who regularly reads this blog. His comments were in reference to last week’s post which highlighted a few sources for finding a fee-only investment advisor or financial planner:
Regarding fee-only advisors, I really hope you will highlight Jonathan Chevreau’s comments which were posted here http://network.nationalpost.com/np/blogs/wealthyboomer/archive/2009/02/12/where-to-find-a-fee-only-planner.aspxYou know as a former advisor that a “fee-only” advisor who charges their client 1.5% of assets is no different than the majority of your former colleagues who would happily offer the same deal.Drill down into the numbers and I think you will find that the vast majority of the advisors listed here http://www.canadianbusiness.com/my_money/planning/article.jsp?content=20080310_110229_7096are actually more expensive for the typical client. Ok, fine to say you charge 0.5% on assets over $2,000,000 – but the vast majority of clients are in the $250 to $500K range. It’s a bait and switch – advertise a very low percentage of assets for the one or two accounts they have that are big, and then charge the majority of their clients more than they would pay with most brokers.I really like Jonathan’s article – but I will bet you that very very few of the advisors listed in Duncan Hoods article will ever reference it.Keep up the good work.
It’s a good point. A TRUE fee-only advisor relationship is one in which they charge strictly by the hour, or a flat rate, and there is no management of assets (or custodianship). I see that there are some fee-only advisors who further calculate their flat fee based on how large your portfolio is – but only in extreme cases does that really change the level of complexity of the financial planning.
So, if you are looking for someone to work on your financial planning and you are looking for an unbiased professional who earns a living through hourly or flat rates, make sure to look for a fee-only “financial planner” whose rates do not change with the size of your assets (if your situation is more complex, it will take longer to figure out and the charge will be higher, so you are not short-changing them).
A fee-only investment advisor, who may change their fees based on how large your portfolio is, is not necessarily a bad thing – you just have to understand the value you are receiving and what you are paying for.
There is enough grey area that there are those out there (perhaps unwittingly) who are taking advantage of the good will associated with the fee-only name. Certainly, there are more blog posts to discuss the ins and outs of “fee-only versus fee-based” to come!