“The cost of a thing is the amount of what I will call life which is required to be exchanged for it, immediately or in the long run.” - Henry David Thoreau
I raised my prices, recently. If you are an existing customer, please don’t fret. You are now officially on my “Friends & Family” plan, which looks exactly like my original fee schedule.
Investment folks generally don’t like to talk in terms of their fees, but that’s not very Accountable if you ask me. I didn't come to this decision lightly, but the realities of running a business have led to the conclusion that some adjustments needed to be made.
When I was writing my initial business plan, I did quite a bit of research into what wealth management competitors charged. For example, my former employer offered a managed account of mutual funds that started at 1.1% of the assets being managed plus around .7% in management fees of the underlying funds, about half of which were proprietary (meaning they double dipped on fees). Their service offered only the management of the assets, and big profits for the firm. They were reluctant to call any of their other services “advice”, instead preferring the terms “guidance” or “education”.
Many firms had similar offerings. Most of the least expensive options fell under the model known as “robo-advisors". Typically, they provide algorithm based advice and/or portfolio management online, often without much human involvement.
Additionally, there were other advisers and planners that offered their services for flat fees, on an hourly basis, or on some form of retainer. Finally, there were the myriad of commission based providers, or those that combine elements of fees plus commissions.
Ultimately, I decided on a “Fee Only” Registered Investment Advisor offering wrap accounts (all commissions included in the advisory fee) at a below average fee based on the amount of assets being managed. Financial planning and advice are included as part of the overall offering. I'm able to offer my services at lower rates by leveraging technology and keeping overhead to a minimum.
Acting as a fiduciary, which I’ve discussed in previous articles such as Improve YOUR Yield: Be Prudent and Need Advice? Be Careful Who You Ask, puts us all on the the same side of the table. To drive that point home, I also decided that I would only charge advisory fees in months where clients’ accounts made money. I call it Fee-Only (When You’re Up) Accountable Wealth Management.
My timing for starting the company wasn't ideal, as the broad market was up in only 3 of the first 12 months. 2016, however, was about as good as it gets, with 10 months ending higher than they began across virtually every account. But as the business has picked up, so have some unavoidable expenses. Most notably, I significantly underestimated the transaction costs of reallocating new accounts out of their existing positions into our Accountable Portfolios.
The market won’t have 10 up months in most years, in fact, the average has been about 7.5 over the past 25 years. And I anticipate continued growth, which will lead to even more costs, especially those involving additional advisors or support persons. So, the question is, how much should financial advice cost?
Largely that is a matter of your perspective. People hire advisors because they seek expertise, need discipline, lack interest, or just don’t have the time. While some may feel that any fee is too high, mine will still be considerably less than the industry average. Most importantly, it will improve my ability to offer the service, and accountability you expect.
In addition to the the asset based model you are accustomed to, we are adding a planning service for people that want financial planning but may not have a need to have assets managed. It is a retainer model that may appeal to more price conscious clients, as well as some that have the expertise, discipline, interest, and time to manage their own investments.
If price is someone’s only consideration, there will always be cheaper alternatives. Our goal has never been to be the lowest cost alternative in the advisor business. The modest increases we have recently implemented, as well as the new service offering, will insure that ATX Portfolio Advisors can continue adding a thing called "life" to our customers for many years to come.