As a high net worth or ultra-high net worth individual, you have diverse needs as far as structuring your finances are concerned. Owning businesses, properties, and engaging in multiple interests like philanthropy requires careful planning and execution. In such cases, it may help to work with a financial advisor. However, one has to understand the financial advisor cost to be able to select and work with the right professional. We have discussed in detail the various cost structures of financial advisors in this book on choosing the best financial advisor for individuals with $10 million or more in investible liquid assets.
A financial advisor’s fee opens up so many debates. Fees tend to build a perception about the quality of service, the transparency of an advisor, and the number of services. Some individuals may perceive a higher fee to equal more services. Some may perceive lower fees as reducing the quality of the advisory. Some may feel that hidden fees compromise on the trust and transparency factors of a relationship between a client and a financial advisor. At Pillar Wealth Management, we take our fee structure very seriously. We have adopted a fee-only model and work with clients who ask us to manage anywhere from $5 million to $500 million in liquid assets.
Since fees are so important, we will dedicate this article to important topics like why a financial advisor’s fee structure matters, what a flat fee financial advisor per plan entails, what is the normal fee for a financial advisor, and why use Pillar Wealth Management to manage your ultra-high net worth portfolio is worth it. We believe that knowing the answers to this question will enable you to make smart decisions about working with the right kind of financial advisors.
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Why a financial advisor’s fee structure matters
There are different fee structures in the financial advisory industry. They all can be broadly grouped under three different models. Some advisors work on a fee-only structure, some adopt a fee-based model, while some work only on commissions (no fee).Pillar Wealth Management follows the fee-only approach while working with high net worth clients with $5 million to $500 million in investible assets. We believe that the fee-only model best aligns the incentives of the advisor with the interests of the client.Feel free to schedule your free consultation to discuss this in detail.
This alignment of the interests of the advisor and the client is the biggest reason why a financial advisor’s fee structure matters. A fee-only model is one in which the financial advisorcharges a fee either as a percentage of the assets being managed, an hourly rate, or a fixed milestone-based fee. The whole idea of a fee-only structure is that there are no commissions. Therefore, there is no incentive for an advisor to “recommend” or “push” certain products in the hope of earning a commission.
A fee-based model is one where fees, as described above, are charged along with commissions. It is a hybrid model. Commissions are usually paid to the advisors by the companies that sell the investment products which the advisors then recommend to clients. In this structure, the fixed fee portion may be lower because the shortfall can be made up through commissions. However, advisors may be motivated to recommend products that the client could do without.
A commission-only model is great in terms of being price competitive. The client does not have to pay a fixed fee. However, products that pay the highest commissions to the advisor may get recommended the most, and financial advisory is not a one-size-fits-all formula.
Flat fee financial advisor per plan
A flat fee financial advisor per plan is someone who charges a fixed amount and prepares a financial plan for the client. The flat fee could be anywhere from $1,000 to $3,000. This sort of plan sounds great to a client that wants to save money and get a plan by spending the least amount.
However, financial plans are not a static concept. They have to be updated regularly. One makes a financial plan because it reflects the current financial situation and charts out a path to achieve short, medium, and long-term goals based on that current situation. However, as the clichéd saying goes – Life Is Unpredictable. Things happen, situations change, and the world around us changes. Therefore, it is inevitable that every financial plan will also have to be tracked and updated regularly. Any good financial advisor will monitor the progress of his/her clients towards life goals. If the progress isn’t satisfactory, then changes are made immediately.
As a high net worth individual, you don’t mind paying 1% of assets under management as the annual financial advisory fee if the advisor is able to save you hundreds of thousands of dollars. It is worth paying the fee if your advisor helps you generate millions of dollars in wealth over a period of time. A flat fee advisor might not be able to concentrate on generating returns while controlling investment costs in the way that a dedicated wealth manager can. Read about how important investment costs are to net returns in this downloadable guide on improving portfolio performance for investors with $5 million to $500 million in investible liquid assets.
Financial advisor cost is not the sole deciding factor. It is about how the cost is structured and how your interests are served with respect to that cost.
As a high net worth or ultra-high net worth individual, you want to be able to clearly see the benefits of paying financial advisor fees. Firstly, a good financial advisor will bring in multi-area expertise. Whether you are looking to seek advice on taxes, retirement, portfolio management, business succession, or legacy planning, a reputed financial advisor who has experience working with high net worth individuals will be able to help you with all of those topics. You do not have to go meet multiple professionals for every single area. That would not be very time-efficient.
Plus, you may end up having multiple advisors working in silos. If one person handles it all, then the decision making is synchronized as it will take into account the impact of every decision on all of those areas. Feel free to start a conversation with Hutch Ashoo to explore whether Pillar Wealth Management has the expertise in areas where you need advice.
Secondly, a financial advisor can bring in a system that works. Financial decisions cannot be made emotionally or via hunches. If one of your hunches is wrong, you stand to lose millions of dollars. Just ask the high net worth folks who saw major chunks of their portfolios wiped out during the dot-com crash. If you follow a system, then your focus is on reaching your financial goals regardless of what the market is doing. Let the advisor worry about creating the right system and then monitoring the progress of that system towards your goals.
There are more benefits to working with a good financial advisor. You can read all about it inour guide: The Ultimate Guide to Choosing the Best Financial Advisor: For Investors With $5 Million to $500 Million in Liquid Assets.
What is the normal fee for a financial advisor?
Now that you know what financial advisor cost is and how different fee structures work, you probably want to know what is the normal fee for a financial advisor. After all, there are so many different models and structures and you would certainly want to know what the norms in the industry are.
As a high net worth or ultra-high net worth individual, if you decide to work with a fee-only financial advisor, then you can expect to pay an average of 1% of the assets under management. It means that if you hire an advisor to manage $10 million for you, then the advisor will charge you 1% or $100,000 annually for his/her services. This 1% fee is generally the base fee. Any specific tasks or value-added services might cost you extra. You can get in touch with Pillar Wealth Management to know how its 1% fee-only structure works.
The hourly rates, if that is the fee structure adopted by an advisor, tend to vary a lot more. Depending on your location, the kind of advice, and the experience level of the advisor, you can expect to pay anywhere from $100 per hour to $700 per hour. You will have to check with your prospective advisor whom you are evaluating in order to get a better idea.
Lastly, fixed fee models tend to range between $1,000 and $3,000 as pointed out above. Again, this is a fixed fee that normally only gets you a financial plan that you may have to implement yourself. There may be no constant monitoring and updates on the prepared financial plan.
There is also a commission-only structure. But in that case, the client usually does not pay any fee. The advisor gets paid through commissions from the investment product company itself.
Why use Pillar Wealth Management to manage your ultra-high net worth portfolio is worth it?
We have shared a lot of details about the financial advisor cost and the benefits that you can derive as a high net worth individual by paying those costs. As you search for the best financial advisor for your requirements, it may be a good idea to consider Pillar Wealth Management.
You might ask yourself this question,why use Pillar Wealth Management to manage your ultra-high net worth portfolio is worth it? Pillar Wealth Management is a registered fiduciary. It means that the firm has to act in the best interests of the client and it is bound by law to do so. If a potential conflict of interest situationever arises, then Pillar Wealth Management has to inform its client about the same.
You can read in detail about the 5 non-negotiables that Pillar Wealth Management practices in this guide on choosing the best financial advisor for clients with $5 million to $500 million in investible liquid assets. Pillar Wealth Management is also unique in that it commits to saving its high net worth clients at least $100,000 for every $10 million brought in by the clients for management. For a high or an ultra-high net worth individual, that effectively pays for the first year of annual base fees.
Pillar Wealth Management also used market data from the 1920s to simulate unusual stresses and the impacts of extraordinary events on its clients’ portfolios. After all, wealth management really counts when the unexpected happens and your portfolio still stays on track to reach your financial goals. You can schedule a free conversation with us and talk about anything related to financial advisory. So, make sure you take the opportunity and explore what we can offer you.
Finding the best financial advisors
We believe that it is very important to speak directly with an advisor before deciding on whom to hire. The direct meeting gives you a chance to evaluate intangible aspects like the advisor’s personality and style of working. You need to be able to build trust with an advisor to trust him/her with your finances. That human connect is important in our opinion. It is also the reason why we know all our clients by first name whenever they call.
Besides doing your own research, you can also speak to your family, friends, and work colleagues to discover promising financial advisors. Good luck and wishing you the best of prosperity.
Hutch Ashoo and Christopher Snyder are the expert founders of independent, fee-only, and fiduciary wealth management firm Pillar Wealth Management. If you would like to speak with them or simply ask any questions about how custom and trusted wealth management advice is offered to highnet worth individuals with $5 million to $500 million in investible assets, then feel free to start a conversation.
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