How to Pay Your Financial Advisor

That is what I have for my active brokerage accounts, but use a transaction fee for my checking account. It normally saves me transaction costs, but my transactions are down this year because of the depressed market.

I would prefer this type of arrangement for financial planning advice, but would financial planners be able to work enough billable hours to keep their rates reasonable?

-- Ron

Yes! When a "financial advisor" makes a point of telling you he or she is charging you nothing, that certainly is a tip off that all is not well and there could be a conflict of interests. If anyone stops and thinks about it for a minute, they will surely realize the advisor has to be paid somehow, and the answer is undoubtedly "from commissions on the products sold." He who pays the piper calls the tune. Do commissioned advisors who charge you nothing ever recommend index funds, DRIPs, or funds with relatively low management expenses and no loads? Do those financial advisors ever recommend investment in real estate instead of or in addition to mutual funds? I guess those are foolish questions.

my wife - a teacher - just received an email from this place....

here is their fee schedule.http://vantagefinancial.com/pay_my_fee.html I haven't looked yet to see what it all entails, but those are some pretty hefty fees...

In Illinois - the main concern is what has happened to the Teacher Retirement System that was supposed to be intact...

BUT.... being Illinois :)

I like how straightforward they are.

Actually, if they are giving ongoing comprehensive financial planning on a retainer basis, those are pretty competitive fees. $5000 for the first year and then $2000/yr - considering how much time and how much work it takes to draw up a comprehensive plan and then to monitor it on an ongoing basis - is likely at the *low* end -- and that's their "executive" service which covers folks who have advanced tax planning issues and complex issues like stock options and deferred comp plans.

This was very interesting to me:

One of the problems with much of the industry is that instead of charging for comprehensive planning, folks who charge by assets-under-management often charge

*more* and just say that the planning is "included". That muddies the waters and, in my opinion, devalues the planning. Efficient asset management benefits from some economies of scale, so if someone is charging, say, 1% of assets-under-management and has a $500,000 minimum, he's still charging $5000 (at a minimum!) but is the client getting twice the planning and value if he'd had $1million and was paying $10,000?

Vantage seems to charge between 0.6 and 1.5% of assets for investment advisory services (meaning they actually perform the transactions for you) -- and that's separate from financial planning services.

As I said, I like the way they are making the specific services priced out distinctly. Thanks for posting the link to these guys.

I don't know what the right answer is. Frankly, my business is still evolving. Many of my clients work with me on the simple by-the-hour basis. Many people need little more than an hour or two in the office and an hour or two of research/notes to follow up. But then they need to do *implementation* and they need to remember to come back in for tune-ups and that's a lot of responsibility to put in the client's hands.

As the article I posted a link to indicated, all of the different models have pros and cons. So long as the clients (and professionals!) are very clearly aware of what the conflicts of interest are likely to be, I don't mind as much. What bugs me most, though, is when costs and conflicts are hidden rather than made explicit.

Any time someone provides services of some sort but doesn't provide an explicit bill for it, you should ask yourself (and ask them!) just how that service provider is getting paid for his time and work.