Fee-Only Investment Management Services

Professional, flexible, fairly priced investment advice and execution.

Context and Clarity on the Fiduciary Standard

Admittedly, we are unusual in our approach and don’t apologize for it. We do offer fee-only investment management services to our clients, but not in the traditional way. Here is a brief education on why that’s the case.

We want to avoid conflicts of interest

If you are at all familiar with the industry, there are generally two ways that financial advisors are compensated for the sale and/or management of investment products. The first is that of third party commission, and the second is asset based billing.

Commissions | We simply don’t believe that commissions are something that belong in a relationship between a fiduciary and their client. When there is a financial incentive for even a well intentioned human being to transact in a particular way, the chances are that they will. Maybe that would come in the form of a commission loaded mutual fund that you could have bought for free on your own or an annuity contract paying a massive commission and locking you into a contract for 7+ years with a very high likelihood of underperformance. In either case we don’t see how that could possibly align with our values or your best interest.

Being totally honest, the industry is full of advisors that operate under this model and they are literally hoping and praying that you don’t get wise to how this world really works and how unnecessary they are.

Asset Based Billing | Also referred to as assets under management (AUM) fees, this is a step in the right direction in comparison to the commission model. If you are already familiar with the idea of fee-only financial planning and/or investment management, asset based billing was the primary catalyst for the concept. The idea is that clients pay their advisor directly for the advice and administration related to their investments. They are charged a quarterly fee that is usually deducted right from their account(s). The advisor may purchase stocks, bonds, mutual funds, ETFs, etc. within the accounts but will not receive any sort of commission from the fund selected.

In this scenario the advisor has no incentive to suggest ‘investment A’ vs. ‘investment B’ because they will be paid the same regardless of which investment you choose. You can also walk away from the relationship at any time without surrender charges or other potential downside that we see with commission products if you are no longer comfortable with the relationship.

While this is a much better alternative to commissioned sales, there is still substantial room for bias and conflict to creep into an asset based billing relationship. While there is no incentive to choose ‘investment A’ vs. ‘investment B’, there certainly is an incentive to have you invest all available resources in traditional financial market investments and to do so with your advisor. In this situation there are many potential competitors to asset under management – especially for younger clients like Gen X & Millennials. For example, your emergency cash reserve, paying off debt, and purchasing insurance products all directly compete with your ability to invest your financial capital.

Combination Billing | Of course there is also an option to do a combination of both commission and fee based work. Again we feel that this too often ends up as a “fox guarding the henhouse” type of situation and encourage most people to avoid these types of compensation arrangements.

We are committed to engaging in relationships that exhibit a fair exchange of value

We have established that there should be no place for commissioned sales in this industry and that asset based billing is a less conflicted alternative. We also pointed out, however, that even a fee-only standard does not remove as much of the conflict as we would like to see. Aside from the potential conflicts of interest already discussed, we should also examine fairness and exchange of value.

This is a tricky and subjective conversation to have because at the end of the day if you or I spend money and receive something in exchange that is worth more than we paid we should consider that a win, right? In the context of investment management a simple illustration or narrative from a fee-only, asset based billing advisor might sound something like this:

Over time the market as a whole has generated around a 10% rate of return. Yet the average investor has captured about 1/3rd of that return. I may be able to slightly outperform the market, but even if I just roughly match it, I will help you stay the course and put you in a much better position than you would have otherwise been in – and my fee is only 1%.

The advisor might cite something like this reference: https://www.dalbar.com/QAIB/Index

What’s the alpha? | In addition to research like that cited above, there has been an expansive body of work developed by Vanguard titled Advisor’s Alpha™ that makes a compelling argument that a competent advisor could add up to as much as 3% of annualized “alpha” for their clients via a coordinated strategy that includes things like proper portfolio construction, behavioral coaching, financial planning, etc. We have gone through extensive CE on the topic and agree that much of what they discuss is true in comparison to a novice investor left to their own devices. A competent advisor that is really dialed into their client’s needs and wants can add a lot of value. The question that we have is, “how much should you be willing to pay for that”?

We wrestle with this question on a regular basis. There is a dichotomy here that should be managed with a great deal of thought and care. Let’s say for example that you represent the average investor that would underperform the market or an advisory relationship by about 3% before advisory fees. How much of that 3% should the advisor be entitled to keep and for how long? As a fiduciary your advisor must put your interest in front of their own while also juggling a need/desire to earn a sufficient income and remain economically viable so that they can stay in business and continue to serve their clients.

Following the herd | So what do most advisors do? They look around at what everyone else is doing and do approximately the same thing. In the case of the fee-only financial planning / investment management space, the standard is about a 1% fee depending on the size of the portfolio with the idea that the level of client wealth is a proxy for complexity and potential value creation. I guess when we think about free markets, willing buyers and sellers, etc., that the market of investors that want to work with a financial advisor have accepted this 1%-ish price point, but we aren’t sure that the public fully understands or appreciates the cost.

A generational divide | We also feel that there is a big gap in how this is viewed among generations. The Baby Boomers have been indoctrinated into transacting this way. Outsiders looking in, like Gen-Xers and Millennials looking at their parents’ statements are generally disgusted when they see what their parents are forking out in fees and would never agree to the same terms.

Compared to what? | First of all, we have to establish a baseline of where you, not the average person, stands in terms of technical competence, willingness to do the work, and behavioral tendencies. If you are someone that scores low in all three of those categories then maybe there really is as much as a 3% alpha. What if on the other hand you score relatively high in all mentioned categories and you just want some 3rd party perspective and assurance that you are on the right path? In that case the alpha must be less, and the price should be too, right?

Clients should have more choices…and be made aware of them

The reality is that thanks to advances in technology and competitive market forces, there are a lot of choices ranging from DIY, to low cost periodic consulting and robo-advisors, to full service financial planners and investment managers. We try to help individuals and families assess themselves and determine where they land on this quadrant based model to help inform where they can most likely find the optimal exchange of value based on their circumstances. Where do you think you fit in this model?

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How We Do It

We believe that the companies that have the greatest advantage are those that can deliver the goods and services that society demands at the lowest price while covering cost. Free markets have been and will continue to create business model disruption and fee pressure in the financial services space. But Wall Street this is an old, stubborn, stodgy, wealthy, powerful industry and it won’t budge easily – especially when asked to reduce profitability.

First, how we don’t do it

Allow us to paint a picture for you that will either cause you to vomit, change careers, or both. Based on today’s fee standards, technology, and ability to scale it is very, very doable for a relatively incompetent financial planner but excellent salesperson to reach a personal income of $1M per year on a 10 year trajectory. It works like this:

YearNew ClientsTotal ClientsIncome
This example assumes an advisor seeking out clients with $1M+ to invest at a rate of less than one new client per month and charging a 1% fee. It is certainly oversimplified and does not account for operating costs but is very feasible. This just doesn’t seem fair to us.

The real value is in financial planning – and financial planning is not investment management

In the illustration provided above the assumption is that the hypothetical advisor was making their way around town and securing client relationships in what we call an “asset gathering” context. They are not doing financial planning. Some advisors talk about financial planning and provide a narrative that they never live up to while others have the stones to just tell their clients that they don’t do financial planning. In either case, many, but not all, investment advisors are not engaging in what we consider to be comprehensive financial planning with their clients.

An advisor that is simply in the business of asset gathering would have no problem taking on 100 clients with maybe one support person. In our model, one advisor will not exceed 40 clients because that is simply the capacity for a competent advisor doing high quality financial planning work for their clients.

A financial planning centric model | It’s real simple. No financial planning, no investment management. We don’t offer investment management services unless you are a Family CFO Services client. We view the execution and administration of the investment strategy as a courtesy service that ties a bow on the real work that we do for our clients. If an appropriate fit for this service model, the fee structure has three parts:

  1. Flat Initial Onboarding Fee
  2. Flat Annual Recurring Fee
  3. Asset Based Fee

Onboarding Fee | The flat initial onboarding fee is $1,500 and covers all of the time that we spend with our clients on the front end of the relationship to get to know them, establish roles and responsibilities, set clear goals, get them financially organized, build financial statements, set up a cash flow tracking and reporting system, and work our way through the development and implementation of their financial strategy. This fee is due upon the commencement of a client engagement and is generally paid for by ACH transfer.

Annual Recurring Fee | The annual recurring fee is $6,000 and covers all of the work that must be done to review, update, and maintain a well designed comprehensive financial strategy over time. This fee can be paid either monthly through scheduled ACH transfer or on a quarterly basis through a financial custodian if the firm is handling the client’s asset management for them.

Asset Based Fee | Our asset based fee is .25% and only applies to accounts and assets that our clients would like us to take full responsibility for in terms of oversight and administration. This fee is billed quarterly through the financial custodian holding the client’s assets.

For more information on Family CFO Services, click here.

What this looks like at various levels of wealth

AssetsCost / YearCost / QuarterCost / Month
We are confident that with this pricing structure that we can deliver the advice and services that the public demands at an extraordinarily competitive price while covering cost and remaining economically viable.

If you are interested in speaking with us and exploring the possibility of a relationship we would welcome the opportunity. Please the button below to schedule a complimentary consultation.

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