Question – Oh boy. I guess I was due to make another appearance since summer is over.
Answer – Right.
Q – So, what am I here for today?
A – The increase of fixed fees.
Q – Huh? Or as your French-Canadian ancestors might say – Eh?
A – Funny. I came across an article recently that mentioned how in down markets more asset-based advisors are turning to fixed fees.
Q – Isn’t that a good thing?
A – Yes. However, call me a bit suspicious.
Q – You are a cynical one, being a GenXer and everything. Why are you so suspicious?
A – Because the article talked about how advisors are adding fixed fees to replace lower revenue due to the market being down.
Q – Go on.
A – The article mentioned how these archaic asset-based advisors are seeing lower revenue and they need to increase their incomes.
Q – Well, that kind of makes sense that a business would like to increase their revenue, right?
A – Sure, but on the flip side, when the market was up nearly 30% last year, were these same advisors charging clients 1% a year cutting their fees? Or were they increasing services by 30%?
Q – I don’t know how many times I have to say this – I ask the questions here. But I see your point and I am guessing none of them cut their fees when they were making more. Nor were they increasing services.
A – Exactly.
Q – Let’s get to the big question rolling around in my head. You are fixed fee, aren’t you?
A – Technically, yes.
Q – No, none of this “technical” stuff. Are you or aren’t you?
A – I am, but I only charge a single fixed fee for financial planning and investment management, or flat fee as I call it.
Q – How come it is okay for you and not these other advisors making the shift?
A – Good question. Let’s talk about the other advisors first. The article talked about how these advisors are adding fixed fees and not dropping asset-based fees like the 1% charge for managing assets. Specifically, it mentioned how advisors don’t want to work more for less pay.
Q – Sounds like an add-on fee to increase their incomes and not necessarily a real shift in their philosophy of how they charge clients. So much for that “skin in the game” story 1% advisors share. Basically, when their skin gets scuffed by a down market they find other ways for clients to pay and make sure the advisor is still whole. I share your cynicism.
A – Correct. And there is my second point. My fee is one flat fee and is based on my knowledge and experience. Yes, it does not go down in years when the market is down, nor does it go up in years the market returns 30%. If my knowledge and experience go up then I start thinking about raising fees. Not because of some arbitrary factor outside of my control like how the market does.
Q – I get it. Anything else to discuss?
A – Two things.
Q – I guess I should have brought a chair.
A – These will be quick.
Q – Get to it.
A – First, the article mentioned how advisors are adding fixed fees because it is what is best for their business. No mention of what is best for the client. It just annoyed me.
Q – I get it. Doesn’t sound much like being a fiduciary where you always put the client first.
A – Exactly. My second item is just a vent about when advisors say they are “flat fee” but have multiple fees that is not what I consider to be flat fee.
Q – It sounds like this is a rabbit hole we don’t have time to go down.
A – You are right. I guess my point is if you are talking to a flat fee advisor be sure to find out if it is one flat fee or more. And are there additional charges for things like investment management.
Q – Got it. Good tips. Now, can I go back to doing my own thing?
A – Absolutely. Although I know you are just thinking about taking a nap.
Q – Hey, good sleep is important to overall health. And you know how I always need a nap after talking about the exciting world that is financial planning. Until next time.
A – As the kids used to say back in my day – Peace out, girl scout!
Q – No one has ever said that. Nor should they.
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.