Fee only or fee based?

[dirt651]

Suggestions on fee only Registered Investment Advisor vs fee based planners. Why is one better than the other.?

[davidsa]

Suggestions on fee only Registered Investment Advisor vs fee based planners. Why is one better than the other.?

I don't believe I've heard either of these terms and I've worked with multiple financial advisors over the past 4 years. What service or information are you seeking?

[Bassin08]

I’m pretty sure he’s talking about hourly rate advisors, or percent under management advisors.

[davidsa]

I’m pretty sure he’s talking about hourly rate advisors, or percent under management advisors.

I'm guessing you are correct but see these as very different services and the rates are not what the eye should be seeing in my view. In my experience--

A financial advisor helps us create strategies and plans to save for retirement, make diversity calls on the investments as we near retirement, to inform us of how much we need to retire to fund our income needs, and helps with drawdown strategy. I have two such relationships now. One is with Fidelity and is free because I have all my assets with them. The Second is another huge financial firm and I pay for an annual plan but only when I think strategy questions exist like they likely will once we see tax changes of current administration. Both of my advisors talk to me about asset classes (e.g. large cap growth funds, small cap index funds, etc) but chasing equities is not part of this unless I'm chasing something that is outside the expected risk profile for my age.

I see paying a % of my portfolio to manage my investments as a different service. In my modest experience, these people are focussing on and selling beating the market or meeting the market with lower risk. They are less about say strategies to convert IRA to ROTH or when to take Social Security. They also generally need to manage your money to add value. This means the money in your 401k they don't really like because they can't manage it and charge you x%. You will see a hard push to move it to them when you retire.

The last thing I will call out, that I had never used until last fall, is that the big brokerage houses have online retirement planning tools. I've had custom plans done by financial houses and I do my own models and the generic application on the Fidelity website is consistent with any of them. I'd bet Charles S. , Vanguard and all the big brokerage houses have them and they all work the same.

but as in my first reply, what service need do you have is the key question

[AustinV]

My advisor takes 1% of all assets managed. Post above describes nicely how I think about it too. Planning, taxes, risk, timeline etc. helps me justify the expense. I COULD do all of the planning and thinking myself, but it’s nice to compare and have a second thought on anything. (Great returns over the last 13 years since I started)

[dirt651]

[QUE=davidsa;13815053]I don't believe I've heard either of these terms and I've worked with multiple financial advisors over the past 4 years. What service or information are you seeking?[/QUOTE]

• Fee-only
  Advisors are paid exclusively by their clients through fees, which can be flat, hourly, or a percentage of assets under management.
• 
  Fee-based
• Advisors are paid by their clients and may also receive commissions from selling financial products, such as insurance-based investments

When to choose is the question

• If you want to feel confident that your advisor is acting in your best interests, you might choose a fee-only advisor.
  
• If you want more control over your portfolio, you might prefer to work with an advisor who is not fee-only

[davidsa]

I don't feel passionate about one vs the other and they are thin lines in my experience. I paid a flat fee for an retirement readiness analysis and along the way the financial advisor shared multiple insurance based products for me to evaluate on say something like long term care. Had I taken one, I'm sure his firm would have gotten a %. So that appears to me something where I paid a fee only but that did not preclude them from floating an insurance product; note they floated not recommended. Now in my relationship with Fidelity, I pay nothing directly but my advisor did recommend a set of income annuities because they had better rates on the 3-6 year products vs a bond or CD. I noticed in the paperwork that the advisor had to state why he recommended a product where his firm benefitted to show he was acting in the best interest of the client.

Personally I don't care about fee only or fee based. What I care about is the total cost and quality of the service I get. This is highly related to the skill and person you are working with in my experience.

in my professional life, I had to create "should cost models" to understand what we might need to pay for something and I do that in my personal life as well. I should pay between $500 and $2000 for a financial plan if I can provide my asset inventory and spending needs to my advisor. I'd estimate they spend 2-6 hours of work doing the analysis. If I'm asking someone to provide an ongoing management and planning service, that is going to cost more and is usually % based. Even when I hold a Fidelity Mutual fund in my portfolio they have an expense ratio of typically .4 to .8% if it is a managed fund so that is a %fee.

My only watch out is when you seek a financial plan and when your advisor wants to focus on managing a stock portfolio for you. Those are different services and it could become difficult to separate what interest the advisor is really pursing.

[Jeff La]

My first advisor was with Ameriprise. I was charged annually 2%, one for Ameriprise and the other for my advisor. After many years I fired him and ended up with an independent advisor who's fees are less than 1%. I am doing much better now than before.

[davidsa]

My first advisor was with Ameriprise. I was charged annually 2%, one for Ameriprise and the other for my advisor. After many years I fired him and ended up with an independent advisor who's fees are less than 1%. I am doing much better now than before.

??? how would an independent advisor manage your money. I'm thinking about the access model? Did you move all your funds to an independent advisors firm or other arrangement is my question

[Jeff La]

He is an independent that works through Cambridge investments. My fees are .68%, but I don't buy and sell individuals with him. They charge more for those transactions.

[davidsa]

He is an independent that works through Cambridge investments. My fees are .68%, but I don't buy and sell individuals with him. They charge more for those transactions.

thanks!

[WildmanWilson]

A low cost S&P index fund will beat most advisors or just as well for a fraction of the cost. 1 or 2 percent is a lot of money over time.

[Matt D]

We pay .75% and I am happy with that as it is only in the dollars under his management. He also offers guidance on our 401k and some tax strategies along with Roth IRA conversions. Nothing is paid for that which helps me sleep better. I also then use some of his guidance and ideas in my “fun” investment accounts which are starting to have some heft to them. He will also answer questions in regards to thoughts/ ideas I have on different investments. Worth it to me.

[davidsa]

We pay .75% and I am happy with that as it is only in the dollars under his management. He also offers guidance on our 401k and some tax strategies along with Roth IRA conversions. Nothing is paid for that which helps me sleep better. I also then use some of his guidance and ideas in my “fun” investment accounts which are starting to have some heft to them. He will also answer questions in regards to thoughts/ ideas I have on different investments. Worth it to me.

This sounds like a great value if you seeing evidence the relationship is working. The rate is good and the advisor seems to be consulting on a portfolio for which he does not get direct revenue. Your mention of strategies is something I frequently see missing when friends talk about their advisor and for certain when someone talks about an index fund. I own lots of index funds so I value 80% of the conversation being about tax, conversion, analysis of holdings, etc.