Why Advice-Only?
I take an “advice-only” approach to financial planning. That is, I will be providing advice about a range of topics, including investments. But I will not be managing your portfolio (i.e., placing trades on your behalf). This way you have a choice: you can manage the portfolio on your own (with my guidance), or you can engage a low-cost investment manager to provide that service, with me performing an oversight role.
Why a Flat Fee?
I use a flat-fee approach, in order to minimize conflicts of interest. There is never a way to completely eliminate conflicts of interest, but I believe that charging a flat fee at least reduces conflicts of interest. In contrast, I believe that fees calculated as a percentage of assets create meaningful conflicts. (For example, sometimes it may make sense to use dollars from the portfolio to pay down a mortgage or pay the tax on a Roth conversion. But in either case, a professional compensated based on assets under management would have an incentive to recommend against such a decision.)
In addition, depending on the size of your portfolio, you might find that the typical “1% of assets under management” fee would be quite expensive.
My goal with how I have set my fee is for the total cost for my service combined with the service of a low-cost investment manager (e.g., Vanguard Digital Advisor Services or similar) to still be less than the typical 1% of assets fee for most of the people I work with.
That said, if you search around, you will find that there are other firms that charge a lower price. Several are listed on the Advice-Only Network or Flat-Fee Advisors websites for instance. (To be clear, I don’t mean to officially endorse any of the advisors listed on either of those sites. I simply mention them as places to find other professionals to consider, especially if you find that my pricing is outside your budget.)
Initial Engagement and Pricing
The fee for the initial phase of the engagement is $5,500, paid up-front. The initial phase lasts for 3 months, and during that time we will work together to cover the following topics.
Goals: The whole point of this exercise is to help you meet your goals, so step #1 is for me to learn more about what those goals are.
Am I on track? For pre-retirees, this is an assessment of planned retirement date. For retirees, this is an assessment of whether the current spending level is reasonable.
Retirement distribution strategy: Which account(s) to spend from (i.e., tax-efficient spend-down strategy).
Roth conversion analysis: An analysis of whether Roth conversions are likely to be advantageous (and if so, up to what income threshold).
Social Security: Recommendation as to Social Security filing date(s).
Investments: We’ll work together to create an investment policy statement (IPS), which covers asset allocation, specific fund selection, and rebalancing policy. To give you an idea of my investment philosophy:
- I prefer to use diversified funds with low expense ratios, such as “total market” ETFs.
- I am a big believer in the benefits of simplicity. In addition to making it easier for you to manage the portfolio, it makes it easier for anybody you have designated as power of attorney to understand what is in the portfolio and why.
- I am not a believer in market-timing (or “tactical asset allocation” if you prefer to call it that). For the most part, I believe that changes to the asset allocation should only be made when there is a change to your own personal circumstances.
- Any portfolio I design will not include individual stocks or crypto currencies, other than to the extent that you already own them in a taxable account and it does not make sense, for tax purposes, to liquidate them.
Charitable planning, if desired: A discussion of tax-efficient ways to give, such as donating of appreciated shares, using donor-advised funds, qualified charitable distributions from traditional IRAs, and so on.
Ongoing Relationship (Optional)
If a client desires ongoing financial planning, after the first three months, the service automatically renews at a cost of $600 per month. (This is a lower monthly cost than the initial 3-month stage, because the initial months require the most work.) And each year we will do the following:
Annual Update Meeting #1
- Review Investment Policy Statement (IPS)
- Assist with investment rebalancing if necessary
- Review spending level and update retirement projections
Annual Update Meeting #2
- Tax planning, including Roth conversion analysis if applicable
- Insurance review
- Estate and charitable planning review
And of course you are encouraged to contact me throughout the year as questions come up or as new circumstances arise.
This ongoing service option is completely optional. But for anybody who is considering just the initial 3-month engagement, I want to be clear about the following:
- Once the engagement is over, it is over (i.e., I cannot provide advice/answers to “quick question” emails after the engagement has ended), and
- If you desired to re-engage me at a later date, it would be exactly the same as for any new prospective client. That is, it would be subject to my availability (which may be nonexistent). And it would simply be a new engagement with whatever the associated fee is at that time.
Can We Just Do a Quick One-Hour Call?
People sometimes ask whether we can just have a short 1-hour paid call (e.g., looking only at one very specific question), rather than an entire planning engagement. Unfortunately, I cannot do so, for a few reasons.
Firstly, in such a context, the likelihood of me giving bad advice is too high. Financial planning topics are interrelated, and looking only at one very narrow piece of your financial life, without being able to see the rest of the picture, is, in my opinion, not a good idea.
Secondly, the client onboarding process (i.e., before even doing any financial planning analysis) requires a few hours of my time. This includes activities such as 1) getting fully up to speed on the details of the client’s goals and circumstances, 2) setting the client up in the recordkeeping software and performing the necessary related compliance activities, and 3) setting the client up in the financial planning software so that I can actually do useful analysis. Some of these activities I am required by law not to skip. Some I would be allowed to skip, but it would be irresponsible for me to do so.
Finally, there would be regulatory challenges with such a business model. A registered investment adviser (RIA) must register in any state in which they have more than 5 clients within a 12-month period. If an RIA were to fill their schedule with one- or two-hour engagements, the total number of clients would be so high that the RIA would ultimately have to register (and maintain registration) in many different states. Such registration processes are time-consuming and often costly. It simply wouldn’t work for anything other than a large-scale practice.