A common practice in the financial industry is for advisers to charge clients a percentage of their assets under management (AUM). This means that if you have a portfolio worth $2,288,500, and your adviser charges you 0.84%, you will be paying approximately $20,000 annually for their services.

While a 1% fee is typical under the AUM model, it’s important to evaluate whether this is reasonable for the services you are receiving. If your adviser is providing comprehensive wealth management services such as retirement projections, tax planning, portfolio management, estate plan reviews, and more, then a 0.84% fee may be justified. However, if your adviser only manages your portfolio without offering additional services, this fee may be on the higher side.

Consider the value you are receiving for the amount you are paying. Is it worth spending nearly $20,000 a year on your adviser’s services? It’s important to remember that fees are negotiable, and you may want to discuss the possibility of switching to a fixed fee structure.

In a fixed-fee payment structure, clients pay a one-time, predetermined fee for their adviser’s services. This often includes the creation of a comprehensive financial plan. Some advisers may also include investment advisory services under the fixed-fee umbrella. However, it’s crucial to clarify with your adviser exactly what services will be covered under this payment structure.

Ultimately, the decision to switch to a fixed fee or continue with the AUM model depends on your specific needs and the value you receive from your adviser. Take the time to evaluate your current arrangement and consider if a fixed fee would provide you with greater transparency and control over your financial management.

The Benefits of Working with a Flat-Fee Planner for Clients with Large Asset Balances

Clients who possess significant asset balances can greatly benefit from collaborating with a flat-fee planner. This arrangement is particularly advantageous for individuals who seek to maintain an ongoing relationship while growing their wealth. Compared to an assets under management agreement, where fees fluctuate based on the client’s portfolio, a flat-fee structure can potentially result in lower long-term costs.

A Fixed Commission for Rising Assets

As certified financial planner Alonso Rodriguez Segarra at Advise Financial suggests, a fixed commission can work in your favor if your assets continue to increase over time. However, if you anticipate your assets decreasing due to retirement, a percentage-based fee may be more suitable. It is important to approach commission negotiation with sensitivity and consider the overall value you receive beyond just the return on investment.

The Drawbacks of a Fixed Fee

Naturally, a fixed fee might not be the right choice for everyone. According to Primeau, it can be disheartening for clients to see their portfolio declining while their advisor receives the same compensation as in previous years. This misalignment of incentives can create unease among clients who desire a strong correlation between their advisor’s performance and their own financial outcomes.

The Merits of the AUM Model

Many financial advisors advocate for the assets under management (AUM) model as it aligns the interests of both the advisor and the client. When your portfolio thrives, both parties benefit. Conversely, if your portfolio experiences a decline, both parties face the consequences. This alignment of incentives serves as a compelling argument in favor of the AUM model.

Making the Decision

Ultimately, deciding between a fixed fee and an AUM model is not always straightforward. Certified financial planner Harrison Hinz at Spark Financial recommends considering three factors in order of importance: the relationship and trust established with the advisor, the services included in asset management, and the cost difference. It is crucial to assess which aspects hold the greatest significance for you.

Transitioning and Switching Advisors

If you are contemplating switching advisors or altering your billing structure, it is essential to carefully evaluate the relationship and trust you have with your current advisor. Additionally, it is vital to thoroughly discuss any changes to services as opting for a lower fee may result in a reduction of certain offerings. Ultimately, the decision should be based on what matters most to you.

By considering these factors, clients with substantial assets can make an informed decision that suits their needs and financial goals.

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