What Separates The Flat Fee Financial Advisors From Others?

What do you mean by the flat-fee financial advisor? Like any financial advisor, the flat fee financial advisors provide financial guidance or advice to their customers for compensation. This includes several services such as tax planning, investment management, and estate planning. As there are numerous ways the financial advisors may charge for the services, the new client is quite often perplexed by trying to decide how much should they expect to pay. Here in this guide, we look forward to explaining the most common ways the financial advisors go on to charge for the services rendered.

Compensation Categories

The basic models of the compensation for financial advisor are as follows-

Flat Fees

The financial advisors that charge the flat fee will regularly offer their clients with the list of the services along with the fees they charge as per the service. The self-directed investors happen to pay the advisors flat fee or go along with the hourly rate plans of payment. They often just seek suggestions by advisors or the options to utilize complicated assets, models of the allocation.

Other sets of investors might want the advisors to take the authority of the portfolios and then make all the respective decisions for them. Investors tend to possess less of an understanding of the financial matter. Flat fees go on to range anywhere from 1,000 dollars to 2,000 dollars for the advisor to simply look over the client’s portfolio and then make or give simple suggestions.

The Commission-Based Fees

Commission-based financial advisors go on to receive compensation or the fee based on the sales of a product. They receive their fee when the clients make a particular financial transaction recommended by them, such as the buying of stocks or some other asset.

The Hourly Rates

Advisors may also charge their clients per hour instead of commissions or a particular percentage of the assets under management model. It all simply depends on the kind of advisory service the client requires. The general hourly rate for a financial advisor ranges from 150 dollars to 400 dollars per hour.

Fee-Only

Fee-only advisors do not really accept compensation or commissions based on product sales. The fee-only advisors may go on to structure the fee in several other ways. They may charge by the project, by the hour, by assets under the management, or some combinations of these. Simply because their income doesn’t come from the selling of financial products, these advisors are quite often seen as staying less biased and are focused on giving their clients personalized advice that is based on a client’s financial objectives, goals, and the best interests.

Assets Under Management Fees

Several advisors go on to charge the fee based on the percentage of client’s investments that are simply called AUM which stands for assets under management for the services they offer – meaning the more is your account value, the higher the advisor is going to receive for the services, he offers.

However, that approach does not go on to make sense for any or everybody. Assuming the customary 1 % AUM fee, does the 4 dollar million managed account (40,000 dollars in AUM fees) genuinely receive the services that are 8 times more treasures than the account with 500,000 dollars (5,000 dollars AUM fee) balance? The Assets Under Management model was planned to eradicate conflict of interest vs historic commissionable account. Whilst it certainly gets rid of commission consideration, the advisor’s compensation problem remains when you, as the client, start spending the money. The flat-fee model also went on to remove that conflict of interest.

As the financial consultant become increasingly known and popular, many have observed that a few of the advisors partially embrace the model whilst continuing to tie the compensation to a few of the aspects of the client assets or the net worth.

Pros of Using a Fee-only Advisor

The fee-only financial adviser has the fiduciary responsibility towards his clients and he is invested in assisting you to achieve all your monetary goals that are related to the financial goals & objectives, and in your best interests. When the adviser is compensated based on a percentage of assets under management, the higher the money you go on to make, the more amount he makes. He should not be swayed to provide insurance products or higher commission securities because he cannot collect the commission.

Cons of Using a Fee-only Advisor

You may get stuck while implementing the plan on your own, so when you are not the savvy investor, that is a downside. Besides, the fee-only advisor may have a bit more limited offerings, the moment when it all comes to the securities along with the insurance items. And one may not have the incentive to recommend specific money moves — like paying off the mortgage or purchasing the guaranteed insurance items (backed by the financial strength and the ability of the claims-paying of an issuing institution) as well as the life, disability, health, and the long-term care insurances — as that goes on to put the money in someone other’s pocket instead of the managed investment portfolio. One may also go on to find a fee-only financial advisor is incite to act more aggressively with the portfolio to grow his fees and make some additional money.

Final Words

Hopefully, this guide will help you all know about the various models of the compensation categories. This would also help you all plan on the kind of financial advisor that will suit you or your business need.

If you have read the entire article you would know that there are quite a few categories of the compensation under which the financial advisors are paid and the services are offered accordingly. All you need to do is research a bit more, in case, you still have your doubts and get it cleared before you go on to avail the services of a financial advisor to excel forward in your business.