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There are many different pricing arrangements that financial advisors can offer to assist their clients. The three most popular arrangements include Planning Only (otherwise known as fee-only), Fee-Based, and Commission. Some financial advisors only offer one of these arrangements while others, like our firm, offer multiple options so we can find what fits best with your needs.
There is no one way to charge for the services of a financial advisor that is always the best fit for everyone. Pricing arrangements can be passive or active. Neither option is inherently right or wrong, it simply depends on what specifically you are looking for. There is also no one pricing arrangement that exclusively ensures your financial advisor is a fiduciary.
In our industry being a fiduciary means you put the client’s interest above all else. We always put the client’s interest first. We also offer our clients several different pricing options. We believe there is a case for all three. Let’s discuss those options.
Planning Only – Hourly Fee
This is also referred to as a fee-only financial advisor and sometimes can be misrepresented as if this is the only option that looks out for a client’s best interest.
Planning Only is just as it sounds – it is an arrangement in which financial plans (such as retirement or estate plans) are delivered in exchange for a predetermined fee. Planning Only can, and should, include asset allocation. This is a passive way to manage an account. Under this arrangement, your advisor typically is not making changes between the times you meet, let’s say semiannually or annually, unless you are charged for that time. If a Planning Only advisor does make changes to your plan, they have built into their fee schedule revenue for that time – either in the upfront fee or an ongoing hourly fee.
If you are looking for just a plan and intend on doing all the work yourself once the plan is created, then a Planning Only arrangement might be a good fit for you.
A downside to this pricing arrangement is that it can sometimes discourage clients from calling with questions due to the fees they will be charged. This can prevent you from receiving timely advice and/or taking timely action. If you seek active investment management and/or want the ability to connect with your advisor without an hourly fee, then this is likely not the best fit for you. At Virtus Wealth Management, we want you to feel comfortable calling us if you have any questions. This is where Fee-Based pricing arrangements fit in.
For our Planning Only clients, we typically charge between $150 to $350 per hour. The hours involved and total cost varies depending on what type of plan we prepare for you. Precise numbers will be fully discussed and disclosed during your complimentary consultation and before you must make any decisions.
Fee-Based – Percentage of Assets Managed
Fee-Based differs from Planning Only in that this fee is typically based on assets managed. This is active management. If your accounts perform well and you make money, we make money. If your accounts are down and you lose money, we make less money.
Fee-based advisors are automatically fiduciaries due to the Department of Justice rules that require it. However, we are still a fiduciary to our Planning Only and Commission-based clients as well. As with all our colleagues and the majority in this industry, working in your best interest is always the priority regardless of what the law requires. We provide you different pricing arrangement options to best suit your needs and your interest are always first regardless of which pricing you choose.
For our firm, and as a Fee-Based client, the fee on your assets managed also includes a holistic wealth management plan. This plan involves investment management, retirement planning, goal-based planning, tax planning, risk management, and estate planning. You can read more about the components of a holistic wealth management plan here on our website. Also included in this pricing arrangement is unfettered access to your financial advisor. You will have multiple review meetings annually to ensure you stay on track to pursue your goals, at no additional fee. And you have the freedom to call or email your advisor with questions as often as they arise, at no additional fee.
If you do not have assets to be managed by our advisors, or prefer to actively manage your assets yourself, then this might not be the best fit for you. However, if you a looking for everything a financial advisor has to offer, then this is your best fit.
For our Fee-Based clients, our pricing is tiered based on the amount managed and who manages it. Our fees range from .75% to 1.50%. This fee could be higher if you decide to use a third-party manager. Pricing is negotiable for accounts over $10,000,000. If you would like an exact quote on what we will charge to manage your accounts, contact our advisors today.
This is a tricky pricing arrangement to discuss because it has been misrepresented as the black sheep of the family. Some will tell you as an absolute truth that any advisor charging a commission is not looking out for your best interest, regardless of what your interests and needs actually are. However, there are circumstances in which commission-based arrangements actually might be best for you.
What if you want to set up a 529 college savings plan of $50,000 for a new born child that is 18 years away from college? If an advisor is Planning Only, they are getting an ongoing payment over the next 18 years for giving you the advice on using that 529 plan. If they are Fee-Based, they can charge you a fee every year for something that doesn’t really require active management. Under such circumstances, you may be better off paying an upfront commission, with no ongoing costs paid to an advisor. You can and should compare the total cost of the plan paid to a Planning Only advisor, the annual fees paid to a Fee-Based advisor, and the one-time fee of a Commission-receiving advisor. The most cost-effective option might surprise you.
Due to the various and rare circumstances in which this might be offered, we do not have a price range to provide you here. However, we can provide you the assurance that you will be given clear and comprehensive pricing details before any decisions must be made.
Transparency Is Key
If a financial advisor is not upfront and transparent about the fees he or she receives, that should be a red flag. If an advisor tells you “the insurance or product company pays them”, and/or will not tell you how much he or she earns in commissions or fees from an investment, then you know there is a lack of trust and transparency that will not lead to a successful partnership. This is when an advisor might not be working in your best interest. In this case, you might be saving an upfront commission cost but you could still be out that money in the long-term due to lower returns or growth.
Additionally, if you are on the search for a financial advisor, it is important to compare apples to apples. A 1% fee for managing your money is not the same as a 1% fee to manage your money in addition to providing holistic wealth management services. Try to avoid the ‘fee trap,’ which happens when consumers focus solely on who has the lowest fee with little regard to services and performance. Is it better to have a lower fee if it also means a lower return and poor service?
There is not only one way to help a client. We provide all three of the options above. We are also fiduciaries. If it fits you best to proceed one way over the other, then that is the way we will go. Very seldom will it be commission based. That is the major exception. We just want the option in case it is actually what is best for you.
Due in part to the many different fee structures and services offered, choosing the right financial professional to work with can be difficult. Ultimately, mutual trust is the key to a successful relationship between you and your advisor. This is why we offer complimentary consultations so you can get to know our people, our process, and our office environment.
We also provide more information in our Virtus View – a newsletter we send via email twice each month. For the latest investment insights, tips, and strategies to help you live your best financial life, you can sign up to receive this newsletter at the bottom of this page. In addition, past Virtus View articles can be read here on our blog.