When you work with a financial advisor, it’s critical to know how much you’re going to pay and manage conflicts of interest when possible. Keeping your fees at a reasonable level is also important, and the more money you have, the harder that is.
But a flat-fee arrangement can help you get retirement planning advice and investment management services at a cost that’s both reasonable and transparent. You’ll always know the maximum annual cost.
Key takeaways:
- Costs don’t rise endlessly.
- Most clients know exactly how much they’ll pay each year.
- There are fewer conflicts of interest if you have alternative uses for your money.
- You can potentially pay less, in some situations
What is Flat-Fee Retirement Planning?
Flat-fee advice means the fee you pay is:
- Not necessarily tied to market performance
- Predictable
- Not necessarily driven by account deposits or withdrawals
- Completely free of commissions
The fact is that managing a $2 million portfolio is not twice as difficult as managing a $1 million portfolio. But traditional assets under management (AUM) models treat it that way. While you might get a slight break on fees, you can typically expect to pay substantially more each year as your assets grow.
That situation can be problematic. For instance:
- Can an advisor really take credit for a stock market that rises year after year (of course, markets can also fall)?
- Is the advisor biased when suggesting you should roll over your 401(k)?
- Is there a conflict of interest when discussing whether or not to pay off your home loan?
When the assets are directly tied to advisor compensation, those problems are more likely.
But when you’re paying a flat annual amount each year, there are fewer conflicts of interest.
Why This Matters for Retirement Planning
This is especially important for those who are near retirement or already retired. At this stage in life, you’ve built up significant assets, and traditional AUM fees can easily be tens of thousands of dollars. A flat fee can help keep costs reasonable.
Services and Conflicts of Interest
The question is whether or not you’ll get the value you’re paying for. Financial planners should be doing more than just managing your accounts. You likely need guidance on things like tax planning, Social Security claiming strategy, managing and paying for healthcare, choosing which accounts to spend from, preparing for the eventual death of a spouse, and much more.
With a flat fee, the cost is not directly tied to your investments. Instead, you’re signing on as a client for bigger-picture planning.
Retirees are especially cautious about being taken advantage of. You’re within a few decades of becoming vulnerable, and you might have a variety of assets ranging from financial accounts to real estate, and more. It’s critical to manage conflicts of interest at this point.
No model is entirely free of conflicts of interest. But with a flat-fee arrangement, you might improve your chances.
Advice Plus Investments
Ultimately, you might hire a flat-fee planner to get help with retirement planning, and you also end up getting help with investments. As a result, you have more free time and mental space, and you know that somebody else is on top of things if you experience cognitive decline or if a surviving spouse is not interested in managing investments.
How Flat-Fee Advice Works at Approach Financial
You typically get the following experience from Justin Pritchard, CFP® as flat-fee planning clients:
- Retirement projections including chances of success and/or spending guardrails
- Long-term and short-term tax planning, including Roth conversion and spending strategies (and the impact of RMDs)
- Fiduciary advice that aims to manage conflicts of interest
- What-if scenarios to evaluate risks and options
- Social Security claiming advice for singles, couples, divorcees, and survivors
- Ongoing access to a professional with 20+ years of experience working with clients
- Navigating early retirement
- Planning for survivorship
- Evaluating insurance options
- Investment advice and ongoing management
- Guidance on other financial topics besides investments
- And more
Not all clients need or want all of those services. But those offerings are available if they would be helpful for you.
Pricing Transparency
We set an agreed-upon ceiling for your fees. You won’t pay more than $9,000 per year, even if your account grows.
For example, assume you have $2 million invested with Justin Pritchard at Approach Financial. The flat fee would be $9,000 per year for married couples. The fee comes out quarterly in arrears, so you’d pay $2,250 each quarter.
Compare that to a traditional AUM billing structure. With $2 million under management at those firms, you’d typically pay more like $20,000 per year, or $5,000 per quarter.
The lowest cost isn’t necessarily the best, but it is wise to avoid paying more than you need to. It’s also critical to understand if you get more than investment management from other firms.
Who This Is Right For (And Who It Isn’t)
The flat-fee advice service from Approach Financial is ideal for those in their 50s, 60s, and 70s who primarily want help with retirement planning and investment management. You want to know if and when you can retire, how much you can spend, what to expect for taxes (and how to manage those taxes), how to deal with Social Security benefits, and more.
Younger clients are more than welcome to inquire, but it’s critical to know who is not the right fit:
- Those wanting stock tips or active management
- Those who primarily need help with student loan management
- Those who are grappling with debt
Are you a DIY investor? Consider my one-time advice option instead of the ongoing flat-fee option.
Frequently Asked Questions About Flat-Fee Retirement Advice
What is a flat-fee financial advisor?
A flat-fee advisor charges a set fee for their services instead of a fee that is directly tied to the amount of assets you have. As a result, pricing is predictable and transparent, and there might be reduced conflicts of interest.
How does flat-fee pricing compare to AUM (Assets Under Management)?
AUM advisors typically charge about 1% per year of the amount in your accounts. On $1.5 million, that’s roughly $15,000 per year. For those with significant assets, flat-fee pricing is generally less expensive than AUM. A flat-fee advisor might charge more like $10,000 per year, even if your assets double. But with traditional AUM, your fee would increase substantially if your accounts double.
Is flat-fee advice better for retirees?
Some retirees prefer a flat fee because they have accumulated significant savings, and they can pay less under a flat fee. Plus, there might be fewer conflicts related to moving money under an advisor’s management.
Can a flat-fee advisor help with Social Security and taxes?
Yes, a flat-fee advisor often includes broad retirement planning as part of the core service. Because the fee is not tied directly to your investments, you should expect services that look beyond managing your accounts. Planners can often help with Social Security timing strategies, tax management, and more.