A prospect recently visited a financial planner’s website and had the following conversation.
Welcome to my office. How can I help you today?
I viewed your website and am impressed with your credentials and firm status, but I have several questions regarding your fees.
Sounds good; fire away.
Okay. I noticed you have several fee options, but I don’t understand the difference. Can you explain why you have so many choices?
Absolutely. We offer multiple fee schedules because clients like to choose the best structure that fits their needs. We offer four distinct plans: an asset management fee, a flat fee, an hourly rate, and a financial planning fee.
I Got it. What’s the difference?
It’s simple, really. We charge a 1% asset management fee for managing your money and completing a financial plan. For example, if you invest $1 million, the cost is $10,000, and if your account increases to $2 million, your new rate is $20,000.
I see. The 1% fee seems high. Is it not?
No way. It’s the industry standard, and we profit when you profit.
We offer a flat fee for asset management and financial planning of $10,000 per year.
If my account is $1 million, I pay $10,000. Is that not a 1% fee?
It is, but it’s a flat fee. Do you see the difference?
No, not at all.
If your account rises or falls, you only pay $10,000.
What if my account drops to $500,000?
It’s still $10,000.
Now my fee is 2% per year – correct?
Technically, yes, but it’s a flat fee of $10,000, and we don’t use percentages or refer to it as a fee-based account if we charge you a flat fee. Does this help?
No. Let’s move on to your hourly rate.
You bet. Our hourly rate is $500 per hour.
Wow. How many hours does it take to finish a plan?
About twenty hours, give or take.
Really? Your hourly rate is $500, which takes twenty hours, so your fee is $10,000? It Is the same rate as your two other options.
I guess it is, but different because it’s an hourly rate.
Let’s move on to the last one, financial planning only. Let me guess. Is it $10,000?
How did you know?
It’s just a hunch.
Our financial plan only module is $10,000. We set up your plan with instructions on how to implement it yourself.
My self? What do you mean?
We give you the finished document, and then you select your investments, manage your assets, and rebalance your accounts. Also, you’ll need to implement our recommendations for creating trusts, buying life insurance, changing beneficiaries, etc. It’s a simple process.
Absolutely. You can open a Vanguard account, select two or three mutual funds, and you’re up and running! After opening your accounts, you can Google estate planning attorneys, life insurance agents, CPAs, etc. They will assist you with the remaining areas of your financial plan.
It sounds like I’m doing most of the work. Is your plan worth $10,000?
Yes, on both accounts.
What if I need to update my plan?
Your fee is good for one year; we charge $500 per hour to update your plan.
All your fees are almost identical.
I guess they are. I’ve never noticed that before. Odd.
I’m going to check with a few more firms to compare notes. I’ll get back to you soon if I want to proceed.
Thank you. When you check out other firms, please ensure you only work with an advisor with an “O” and not an “E.” There is a big difference.
You bet. Good luck with your due diligence, and thank you for coming to my office today.
May 30, 2022
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management, located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.