With so many individuals in the industry claiming to be “financial advisors,” it can be difficult to differentiate between those who will truly provide objective advice and those who are more concerned with bolstering their own bottom line. Fortunately, understanding how your advisor is compensated will reveal a great deal about their client approach and the way they provide services.
Advisors’ compensation structures vary, but fundamentally the most popular models are either from the purchase of certain financial products with transaction fees or based on a percentage of Assets Under Management (AUM). If an advisor is compensated based on product purchases with transaction fees, he or she receives payment from the financial or insurance products clients purchase through them. In the Assets Under Management model, the advisor charges the client based on a percentage of the assets they manage on the client’s behalf, typically ranging anywhere from 1% to 5%. Both these models present far too much conflict of interest between the advisor and the client, making them inherently flawed; the complexity-based fee model, however, eliminates these problems.
The problem with both of these models is that the advisor’s recommendations run the risk of being influenced by their own compensation, creating an inherent conflict of interest. An AUM advisor may be tempted to retain as many of his client’s assets under his management as possible even if that choice is not in his client’s best interest. For example, an AUM advisor may try and deter you from liquidating assets to pay off your mortgage, deter you from donating a sizeable amount to charity, or deter you from taking less risk in the market since a reduction in your total assets may subsequently reduce his or her compensation. Or a transaction-based advisor may urge you to purchase an insurance policy or forfeit an annuity even if it isn’t the best choice for your personal situation.
Whenever the way or amount an advisor is paid is linked to the financial guidance provided, there is no surefire way to know if the advice being provided is for the benefit of the client or the benefit of the advisor.
How the Meenes Wealth Partners Fee Model is Superior
Unlike the traditional financial advisory business, we eliminate this conflict of interest by operating on a Complexity-Based fee structure. Instead of basing our fees on an arbitrary percentage of your Assets Under Management (AUM), we price each client relationship based on the actual complexities involved with the planning and advisory services, including:
·Intricacies of the financial plan
·The types of assets to be managed
·The frequency of meetings required
·Client preferences for advisor involvement
After evaluating your unique circumstances, we will propose an ongoing fee accompanied by a written agreement detailing the fee and services to be provided.
Many individuals in the industry find this fee model disruptive. My clients, however, love it, because they:
1) Receive Objective Advice
Since our fees are not tied to the value of your investments, or generated based on the purchase of certain financial products, you can feel confident you are receiving advice that best helps you reach your financial goals.
2) Pay Lower Overall Costs
Since we don’t charge based upon your portfolio size, or receive transaction fees, we are able to implement your plan in a more cost-effective manner including low-fee, high-quality investments and other solutions typically only available at the institutional level.
This model allows our firm to customize our services to meet each client’s needs and eliminate those that don’t. The client pays only for the services that suit their personal situation.
Our complexity-based fee typically represents significant savings to those with portfolios over $750,000, compared to the traditional financial advisory approach.
3) Retain More of Their Wealth as It Grows
Our fees do not increase simply because your wealth increases. The year after year fee savings you may achieve remains yours to compound and accumulate over time. Our model enables you to retain more of your returns to continue building upon your wealth.
If you’d like to learn more about how the Meenes Wealth complexity-based model benefits you, the client, we’d be happy to discuss it with you during a complimentary Get Acquainted meeting.