Retirement

Choosing amongst the many financial advisors, financial planners, and wealth managers can be daunting. There are a lot of credentials and designations to consider. Consider reading: CPA, CFA, or CFP®: Pick Your Abbreviation Wisely. At Intelligent Investing, we have all three of the best-known professional designations in the financial industry.

When it comes to how an advisor gets paid, unfortunately, the water becomes even murkier. A fee-only financial planner sounds strikingly similar to a fee-based financial planner, but there’s a big difference in how they get paid. Here’s what you should know about fee-only and fee-based financial advice:

Fee-only

Fee-only financial planners are registered investment advisors with a fiduciary responsibility to act in their clients’ best interests. They do not accept any fees or compensation based on product sales. Fee-only advisors have fewer inherent conflicts of interest, and they generally provide more comprehensive advice. The advisor does not receive a fee or other compensation from another party based on the referral of a client or the client’s business. Fee-only advisors help reduce the conflicts of interest inherent in how they get paid and what they recommend.

Although fee-only financial planners may include other methods of charging clients such as a flat retainer, or hourly rate, they typically will charge based on a percentage of assets under management. Intelligent Investing typically charges clients based on a percentage of assets under management. 

Another advantage of a fee-only financial planner is that there are no financial hooks, surrender charges, or lockup periods. Clients are free to leave at any time if they are disappointed.

Fee-based

Commission-based agents and brokers often don’t like this distinction. Blurring the difference, they created the category dubbed “fee-based,” which sounds a lot like fee-only. However, it means they charge a fee in addition to collecting commissions. Study after study shows that even consumers seeking a strictly fee-only advisor find these terms confusing.

Most commission-based agents and brokers are no doubt sincere people trying to do honest work for their clients. However, based on our study of human behavior, we believe human nature is bent, and good intentions often fall prey to repeated temptation, especially in gray areas. The fees of commission-based agents and brokers are tied to specific products and transactions. This model completely misses much of what clients need. Although commission-based agents can serve their clients in unique ways, product commissions seem a backhanded way to acquire comprehensive wealth management.

Broker-dealers have another potential conflict of interest…revenue sharing. Generally, revenue sharing payments are a percentage of broker-dealer client assets invested in a particular fund. This means the broker-dealer gets paid a percentage from the fund company to put clients in a certain fund or investment. This may or may not be best for the client. As long as the investment is “suitable” for the client, which is a lower standard than the fiduciary standard, they can get away with this.

Intelligent Investing

Our primary fee structure is based on managing all of our client’s financial affairs. Many of the services we perform for clients depend on an integrated financial plan that goes beyond investments. Our services strive to be more holistic, and often we will collaborate with other professionals, such as estate planning attorneys and CPA or tax professionals.

How We Get Paid

We charge a percentage of assets under management because of our emphasis on offering comprehensive wealth management. We get paid one way…by our clients. Period. We are not incentivized to put our clients in any products or investments via revenue-sharing agreements. Since we are independent, if we think it is best for a certain investment to be in a clients’ portfolio, we will put it in that clients’ portfolio.

Our clients’ fees (based on a percentage of the assets we are managing) get them access to us any time they need us. We purposely don’t add an hourly rate. We do not want clients to hesitate to contact us. If there is an hourly charge, many clients wouldn’t call even when they should.

We are fanatics of the 100% fee-only model. We would much rather see consumers handling their finances on their own than wondering if the products they have been sold are really the best option to meet their goals.  It is also why we give away as much “do-it-yourself” information as we can. We want consumers to be as informed as possible about good wealth management techniques.

If you’d like to become a client of Intelligent Investing, please click here to call or schedule a “discovery” meeting.