Intelligent Investing

Insightful. Independent. Innovative.

Fee-only

Beware: How to Choose Your Financial Advisor

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Buyer Beware

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

Intelligent Investing is a 100% fee-only fiduciary registered investment advisor. One of the reasons we founded Intelligent Investing was because of the fee-only fiduciary structure. We were attracted to the fact that we could “sit on the same side of the table as our clients” and act in their best interests. We took comfort knowing we could sleep at night because we did our best in creating a portfolio for the client, without being tainted by sales commissions. It would be too difficult to run a business if its success pulled us in a different direction than working for our clients. Because we are getting paid to do whatever our clients would do if they had our time and expertise, we are free to do just that without worrying about how we get paid for the service.
 

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.

Three Things You Must Share with Your Financial Advisor

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Holding Hands

Reading Time: 4 minutes

I recently had the opportunity of being invited back to the South Carolina Business Review on South Carolina Public Radio to discuss this topic. Mike Switzer interviewed me on the importance of core values in investing. You can hear the interview by clicking here.

You’ve probably heard it said, “You’re the average of the five people you spend most of your time with.” The people around you matter. Especially the ones you are entrusting with your wealth and family.

We generally share common beliefs with those who are closest to us. If you’re married, think about where you met your spouse. Most of the time it isn’t random. Typically, there was a common bond, a shared activity, or a mutual friend who introduced you to each other.

Now, think about who you ask for recommendations. Typically, I start with my family, and then I may ask some friends on Facebook or some other social media platform.

Have you ever stopped to wonder, why we ask them for recommendations? It is likely that we know them, and we trust them. 

What if your car mechanic gives you some recommendations, or perhaps your dentist or doctor? Depending on your relationship with such person and whether you trust them or not will determine whether you act upon their recommendation. 

What about when it comes to money and working with a financial advisor who has recommendations. In order for the relationship to work best, there must be a common bond, but we think it goes beyond that. In fact, we think if you are going to work with a financial advisor, you must share three things with them.

You should share common values with your financial advisor.

We don’t mean that if the client is Presbyterian, they shouldn’t work with a Baptist financial advisor. Nor do we mean that you must line up exactly on the political spectrum with your advisor. However, we believe that the client’s core values should closely align with the one who is managing their wealth. Talking about money and families, and sometimes faith can be a very intimate conversation. We believe it best that the client and advisor align.

Simon Sinek says you should start by answering the question, “Why?” People like Martin Luther King Jr., Steve Jobs, and the Wright Brothers had little in common, but they all started with WHY. They realized that people won’t truly buy into a product, service, movement, or idea until they understand the WHY behind it. 

I don’t have time to go into each one of them in this blog, but our core values are an acronym for the word, “CLIENT.” They are Compassion, Legacy, Integrity, Excellence, Nimbleness, and Truth. They answer the question of “Why we are in business.”

How to Know If You Share Common Values?

When we interview prospects to see if they would be a good fit, we are constantly processing whether we can trust them and if they are understanding the basic tenants of our investment philosophy. At the same time, we are hoping they are listening and asking good questions to decide whether they can trust us with their wealth and whether our process makes sense. If we get any sense the prospect isn’t going to be a good fit in the long run, we’ll probably walk away. We think of this interview process as the dating phase. If you aren’t careful, and just focus on the assets the prospect has, you could end up needing a “financial divorce” down the road, which could prove inefficient and costly.

Intelligent Investing has found that the clients we most enjoy working with are those who:

  1. Share our core values and investment philosophy.
  2. Understand our process and how we integrate their financial goals, plan, and risk.
  3. Have wealth we can manage. We are after all a boutique wealth management firm.

Notice the order of those three. Sharing our core values and philosophy is much more important than whether the client has a lot of assets we can manage.

You should share an unbreakable trust with your financial advisor.

If you see headlines about fraud or a financial institution being sued because of misappropriation of funds, and you say to yourself, “I wonder if my financial advisor would ever do something like this” it is time to pull the plug.

At Intelligent Investing, speaking the truth in love is one of our core values. Speaking the truth in love means that sometimes we have to have a difficult conversation with a client. Perhaps they are spending too much…perhaps they are being taken advantage of by their children. Whatever the issue, we must have the ability to communicate with them…even though at the time they may not want to hear it.

Wars and divorces begin with a lack of trust. If you aren’t comfortable with your dentist or doctor, then pick another one. If you aren’t sure your financial advisor has your best interests in mind as they manage your wealth, then pick another advisor. Life’s too short to miss out on a great experience you could be getting from another professional.

We believe that technique and technology are important, but trust is of utmost importance.

You should share a common financial interest with your financial advisor.

I chose this profession because it afforded me the opportunity to build my own family’s wealth by helping other people build (and protect) theirs.

Intelligent Investing’s fee is based on a percentage of the assets we manage. We are an independent 100% fee-only fiduciaries who must always act in the best interest of our clients. Intelligent Investing never sells any products (such as annuities or insurance), nor makes any money off of commissions, nor are paid by anyone other than our clients. We believe this creates perfect alignment of interests between us and our clients. When our clients prosper, then we prosper. When our client’s suffer due to inevitable and temporary declines, then we suffer.

Last Thoughts…

So, in conclusion, the three things we think clients should share with their financial advisor are:

  1. Common Values
  2. Unbreakable Trust
  3. Financial Interests

If you aren’t working with a financial advisor who shares these three things with you, we’d love to have a quick coffee and introduce ourselves. We’d be happy to have a short conversation with you to see if we can serve you and your family. The families we can serve best have between $500k to $5M of investable assets. Click here to learn more about our firm, or click the link below to schedule a stress-free call or meeting.

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