Flat Fee Advisors
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Flat Fee Advisors are Registered Investment Advisors who charge their clients a flat annual fee to manage their assets. This is different from advisors who charge clients an annual fee that is based on a percentage of total assets under management. According to Forbes, flat fee, fee only advisors help to greatly reduce conflict of interest between the client and the advisor on terms of their payment and what they recommend.[1]
Advisors can be compensated in three different ways:
- Through a commission-based model
- Through a commission & fee model
- Through a Fee-Only model[2]
Pros of Using Flat Fee Advisors[edit]
According to Investopedia, there are significant advantages of having your financial advisor flat fee. The main advantage is to eliminate all conflicts of interest that would arise when a large sum of the adivsor's income comes from selling the investor financial products. Advisors who are not flat fee may be required by the firm to favor different products or services based on the employer which may not be the best personal option for the individual investor. These recommendations at other non-flat fee advisors may only be advised because it will enhance his/her commission.[3]
The National Association of Personal Financial Advisors also lists another advantage being high net-worth investors paying significantly less. Other advisors can charge an asset under management (AUM) fee which would mean a percentage of total assets under management would be the fee. So the larger your assets, the more you pay. With flat fee advisors, your asset amount does not determine how much your fee will be. [2]
Cons of Using Flat Fee Advisors[edit]
Although there are many great aspects about using a flat fee advisor, some disadvantages come along with it
For one, flat fee advisors typically aren't the right solution for those with smaller assets. For many individuals with limited resources and/or whose assets are tied up in other plans - the costs for flat fee advisors could be pretty high in comparison to their current portfolio or total assets. In addition to this, another issue arises that most flat fee advisors have a minimum amount to invest to insure that it is fair and just for the investor to be paying the minimum flat fee. [3]
Another issue arises when you look at the perspective of the advisor. Some investors think it is important and want to know how the advisor gets paid and if he/she is a fiduciary on your behalf.[4] It is important to do background research on your potential advisor and have a scheduled phone call or meeting with them to insure you feel comfortable with them and the ability of their work.
References[edit]
- ↑ Marotta, David John. "Fee-Only Financial Planner: What's the Difference?". Forbes. Retrieved 2018-06-07.
- ↑ 2.0 2.1 "What is Fee-Only Advising - NAPFA - The National Association of Personal Financial Advisors". www.napfa.org. Retrieved 2018-06-07.
- ↑ 3.0 3.1 Wohlner, Roger (2014-10-20). "Fee-Only Financial Advisors: What You Need to Know". Investopedia. Retrieved 2018-06-07.
- ↑ "What are the pros and cons of working with a fee based financial planner vs a commission based planner?". NerdWallet. Retrieved 2018-06-07.
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