There are three primary types of fee structures that financial advisors use to charge for their services.  To decide which is right for you, it is best to think about your situation and needs and choose the one that best aligns with your goals.

Commission-based Model

Many organizations sell financial products to their clients.  These are specialized products, often complex in nature, in which they are experts.  Advisors in these types of firms are usually highly knowledgeable in their respective product offerings (such as annuities, life insurance, etc) and can help you to identify the product that best fits your needs.

The downside is that there exists the possibility of bias since the advisor makes commissions on the products they sell to you.  Your needs and theirs are not necessarily aligned, and when push comes to shove, you must wonder if they’re looking out for you or themselves.

As an example of this concept, think about buying a car.  A typical car loan is 60 months.  When sitting in the finance manager’s office they may say, “I think you might want to consider a 72-month loan, as it will lower your monthly payment quite a bit.”  The tradeoff of getting a lower monthly payment is that you incur more interest and it ultimately costs you more money over the course of the loan than if you’d made a higher monthly payment for 60-months.

I know many salespeople who are genuinely helpful, honest people who look out for their customers.  But when you’re buying a complicated financial product, it makes sense to have a trusted third party to make sure that you have looked at every angel and are making the best decision for your future.

PROS: deep product knowledge, access to specific products

CONS: possible bias and/or conflicts of interest, minimal financial planning

Fee-based Model

The term gained popularity with commission-based companies as a response to the creation of the fee-only model.  If an advisor is promoting that they use a fee-based model, then it signals that they make money from fees they charge you, but they may still earn commissions from the products/services they recommend.

Firms offering fee-based models are usually going to be providing a wider selection of services, in addition to financial products you may need.  This can be a convenient avenue for gaining access to desired financial tools while also getting financial planning.

PROS: access to specific products, more financial planning than commission-based model

CONS: possible bias and/or conflicts of interest, more expensive than commission-based

 

Fee-only Model

Advisors offering a fee-only model are those who do not sell any financial products and do not make any commissions or kickbacks on products that they may recommend.  As a neutral third party they offer a more objective view of the situation as they help you to evaluate and select any financial products that may be beneficial to your situation.

The fee-only model was created back in the early 1980’s by financial advisors to ensure that clients received unbiased advice by removing the opportunity for any conflict of interest to exist in the financial planning process.  Some fee-only firms will even go an additional step further by acting in a fiduciary capacity.  This legally binds them to their promise to always put the needs of their clients first.

Within the fee-only model exists several methods that advisors use to structure their service fees:

• Hourly- charging for financial planning services on an hourly basis is a great way to pay for only the analysis that you need, especially if you have a very simple financial situation.
• Flat fee- paying a fixed fee for financial planning services works best if your financial situation is of moderate complexity. If your financial situation is more complex than is typical for a flat fee arrangement, the advisor will likely recommend an alternative that is better suited to your needs.
• Assets under management (AUM)- this type is specific to firms who will manage your investment portfolio on your behalf according to your needs. AUM fees are a percentage of the assets you give the advisor to manage for you. This percentage is agreed to upfront and does not increase. AUM fee structures are often tiered depending on how much money you have invested and usually sit around 1% on the first $2 million of assets, with lower percentages applied to assets above that threshold.
• Subscription or retainer- these are lower-cost options typically offered by financial planning firms as a form of introduction to their full suite of services.

PROS: unbiased advice free from conflicts of interest, detailed financial planning

CONS: can be more expensive than commission-based or fee-based models

 

Altfest Fee Structure

At Altfest Personal Wealth Management we believe that a fee-only model is the most advantageous for our clients, which is why we have served in a fee-only fiduciary capacity since the day we opened our doors back in 1983.  Our advisors are passionate about helping clients to make smart financial decisions which enhance their lives and the lives of their families.

For those interested only in financial planning services, we offer our services on a retainer structure.  For clients looking for a higher level of investment and financial planning support, we offer our services through an AUM structure.  Our AUM offering is our most comprehensive offering and includes active management of your investment portfolio in conjunction with integrated custom retirement planning, cash flow analysis, tax planning, estate planning, and much more.

Work with Altfest

Interested in a conversation?  Request a no-obligation complimentary consultation with a member of our team to discuss how to get from where you are now to where you want to be.

 

Investment advisory services provided by Altfest Personal Wealth Management (“APWM”). All written content on this site is for information purposes only. Opinions expressed herein are solely those of APWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.