There are a variety of ways to work with (and pay) a financial advisor. Traditionally, the only option was to pay commissions, but things have evolved. The next generation involved paying advisory fees for assets under management (AUM), which helped to reduce “churning” and other conflicts of interest. But AUM advice is not conflict-free—there’s probably no form of advice that’s truly free of conflicts.
Enter flat-fee financial advice, which is gaining momentum and is an excellent option for some people.
What Are Flat-Fee Financial Advisors?
Flat-fee financial advice involves a fixed rate that clients pay regardless of asset sizes. Costs typically depend on the services provided and an advisor’s expertise, and clients know how much they will pay in advance.
Types of Flat-Fee Arrangements
There are various flat-rate financial advisory models, and it’s likely that you can find one that feels right and meets your needs.
- Investment management: You pay a fixed fee for ongoing investment management. Fees are not based on how much you have invested. Instead, you agree to an annual rate that is often billed quarterly. The fee might come out of your accounts, or you might pay the advisor directly. For example, you might pay $6,000 per year (or $1,500 per quarter) for investment management.
- One-time: You pay a set fee for a time-limited project or engagement, such as a retirement projection or a one-time meeting with an advisor.
- Ongoing: You pay annual, monthly, or quarterly charges for ongoing financial planning services. This is generally a long-term relationship, and you can often end things whenever you choose to (but verify before you sign on).
- A combination of everything above: Depending on your needs and an advisor’s offering, you might get a combination of services. For example, you can get ongoing investment management and financial planning for an agreed-upon annual rate.
There are other fixed-rate models, and the listing above is not all-inclusive. Every advisory firm can customize an offering based on advisor and client preferences, so shop around if you haven’t found what you want (yet).
Potential Benefits of a Flat Fee for Advice
These arrangements tend to have a relatively direct link between the fee being charged and the services provided. They can also reduce some problems related to asset-based charges.
Are Asset Levels the Right Measure?
Managing $2 million is not necessarily twice as much work as managing $1 million. But a typical AUM agreement might charge nearly double the fee when assets double. There’s an argument that higher asset levels are an indicator of more complex situations, and there’s some truth to that. But an increase from $10,000 per year to nearly $18,000 (or even $15,000) might not always make sense.
|Flat Fees vs. AUM Fees (Annual Example)|
|Assets||Weighted Avg. Cost||AUM Fee||Flat Fee|
(Hypothetical example for illustrating a concept only. This is not based on any particular firm and is not an offer of services.)
That said, some clients (especially those with “smaller” accounts) might pay a reasonable amount with AUM fees. However, the advisor must always provide value for those fees—or any fees—to make sense.
Conflicts of Interest
When the compensation amount is not directly tied to assets under management, an advisor might be more objective. For instance, if you want to pay off a mortgage, buy another property, or give money away, a flat-fee advisor will not lose revenue. So, if that makes sense financially—or if it’s what makes you happy—those advisors are less likely to discourage you out of self-interest. But other advisors might take a big pay cut if you buy a vacation home.
Advisors shouldn’t necessarily get all of the credit or all of the blame when markets gain or lose value. A fixed fee keeps the focus on the services provided and provides predictability. That’s helpful for both advisors and clients.
A flat-fee advisor is often (but not always) a fee-only advisor. That means the advisor cannot accept any commissions for selling financial products. Again, this helps to reduce conflicts of interest and promote transparency.
Easy to Track
When you pay a flat fee for a single service or at regular intervals, it’s easy to keep track of expenses. You know what to expect, and you can double-check your costs. For example, you don’t need to do complicated calculations that might be based on average daily balances. Then, you can decide if the cost is worth it.
When you use a fixed fee, you agree to the cost before getting involved with an advisor. You don’t have to guess how much they’re getting paid—assuming they are fee-only advisors who aren’t getting any type of kickback or commission. You already know what their compensation is, and you don’t need to wonder how the sausage is made behind the scenes.
How Much Do Flat-Fee Advisors Charge?
So, how much does it cost to work with a flat-fee advisor? In many cases, advisors publish fees on their websites, and that’s the best place to learn about a specific firm. The fee depends on the advisor’s business model. So, you need to consider things like the services provided, location, the complexity of your needs, and other factors.
For instance, you might pay a few hundred dollars for a one-time meeting, or you might pay tens of thousands of dollars for complex management and planning services—or anywhere in between.
Unfortunately, there isn’t much hard data on average flat fee offerings. But recent studies point toward broad ranges, such as:
- A few hundred dollars to $6,500 for a financial plan only
- $660 to $17,500 for a flat annual fee
Anecdotally, I typically see fees around $10,000 or less for advisors who manage assets and provide advice on retirement income planning. However, costs are all over the board. You can see my current pricing here.
Can You Negotiate Fees?
Everything is negotiable, and you can always ask. Advisors might not be willing to budge on the fees they charge for a variety of reasons, but all they can do is say “no.” Check the firm’s Form ADV to see if fees are negotiable. If your situation is especially simple, it may be possible to get a discount.
How to Find Advisors Who Charge Flat Fees
There are plenty of financial advisors who charge flat fees—including me. The most likely places to find these offerings include fee-only advisor directories. For example, you might start with XY Planning Network and NAPFA. But a basic online search that includes the phrase “flat fee” can also help you find somebody. Sometimes people use the term fee-for-service.
Be sure to research any advisor’s background, including any regulatory or disciplinary history. Start at Brokercheck, and dig deeper into an advisor’s credentials, such as checking the advisor’s record with the CFP® Board.
Then, schedule a time to speak with the advisor. Ask questions about their experience and their services, and take note of how they answer questions. Are they happy to share information, or do they hesitate and try to confuse you with complicated responses? Those discussions can go a long way toward finding the right advisor.
For discussion ideas, see my top questions to ask a financial advisor. And if you want to explore working together, send me an email to start the conversation.