Let's Talk About Fees
I believe the Assets Under Management (AUM) fee model is outdated, if not broken. The foundation for the AUM model is the mutual fund industry. Before the advances of technology eliminated the exclusivity of Wall Street to a select few, most clients needed the benefits of a pooled investment. When advisory firms built their pricing models, they followed the same blueprint. Over the last 5 years specifically, there has been a race to zero for trading commissions. Unfortunately, the advice industry has been extremely slow to follow as their revenues are dependent on fees exclusively.
The counter argument we have been trained to follow, there are breakpoints (reduced rate for additional assets) and the value of the advice offsets the cost. I disagree. As an advisor for 22 plus years, I know the time allocated to a particular client is not dependent on the size of the account. It is dependent on the complexity of needs and the emotional risk tolerance of the client. To TRULY put the client first (act as fiduciary) then the AUM model is unfair to clients with higher asset levels. I earnestly believe clients deserve a fixed annual fee to provide holistic advice. This fee should include Complex Financial Planning, coordination with your Tax Advisor & Estate Attorney, as well as tailored investment recommendations.
The Ultra High Net Worth ($100M+) in our country have the advantage of establishing a Family Office, where they hire an investment manager on a salary basis to manage their investments, coordinate with various tax & legal professionals and advise on various charitable endeavors. Why shouldn’t we have access to a similar approach?
Questions to Ask:
- If I give an advisor $2M or $5M, what is the fee differential? -Then ask this -
What additional service / time / attention will you receive for the additional fees?
- Are you paying multiple layers of fees? Ask your advisor to detail all layers of fees being charged.
- Do I pay the same rate for Stocks and Bonds?
- Am I paying fees on cash?
At Sevey Wealth, we have answers to these and any other questions you have! Please let us know how we can help.