So…I made the mistake of posting this on the Bogleheads website. It got the reaction that I should have expected. Nonetheless, I’m curious to hear from this peanut gallery. Let me know what you think.
I’ve mentioned on here that I’m a CPA in a tax practice, and I’m also a registered rep. (Please hold your applause.) I’m also a PFS and CFA, and as such, I can offer “financial advice” through my RIA. And after tax season, I plan to start offering financial planning services to our clients. (Just to note–since I’m an accountant, I can use the accountant’s exclusion as long as the advice is “incidental to the practice of public accounting”. However, that only goes so far. EG - I can tell a client that municipal bonds are not subject to tax, but I cannot recommend an asset allocation or a specific mutual fund. That is outside the realm of “public accountancy”.) I plan to use the “financial planning” umbrella to do everything that is not specific to portfolio management (asset allocation, asset location, security selection, and monitor & rebalance). This includes: - estate planning (will, living wil, HIPAA, durable POA, medical POA, financial POA, etc.) - retirement planning (estimating retirement budget, creating a savings plan, monitoring progress, spending strategies) - Social Security optimization (both in advance AND at the point of retiring) - insurance analysis (I have both a life & health AND a property & casualty license) - Elder planning (TBH, I have very little experience or knowledge in this area) - Philanthopy (split interest trusts, qualified charitable distributions, donations of appreciated stock) - Intergenerational wealth transfers (estate tax planning, postmortem tax planning) - Business succession (buy-sell agreements, key man life insurance) - Miscellaneous, but oft-overlooked things (e.g. beneficiary designations and 401k optimization) My question to the community is this–if you were my client, would you rather pay a once-a-year retainer fee? Or would you rather pay a straight hourly fee? Retainer - The retainer would be high in the early years, because we have to hash out all these details and actually implement parts of the plan. Later on, when we are on cruise control, and all we are doing is reviewing and making incremental changes, the retainer would be relatively small. But it would remain fixed for the duration of the year. And in some years, that would mean that I get more out of the deal, and some years the client gets more. But the client would be less focused on the “hourly bill”, so they might be more inclined to engage me, thus benefitting them in the long run. (And it benefits me, because I know what my yearly revenue is going to be.) Hourly - Like the retainer, it would probably start high and eventually decrease. And it keeps things straight–the client gets only what they pay for–no more and no less. But they might look at the $175/hr bill and balk. “You know what, I don’t need Greenman to review my estate planning documents. After all, nobody has died or gotten divorced. No need to pay him money to do nothing.” (Nevermind the fact that the estate tax exclusion changed, which changes the entire strategic planning of your estate. Nevermind the fact that daughter turned 18, which necessitates a medical/financial/durable POA. Nevermind the fact that your term life insurance expired two years ago, and now you’re naked.) Just looking for comments or opinions.
p.s. Yes, I do plan to manage my clients investable assets at standard rates (i.e. 1% for the first two million and scaling down from there). Yes, I do plan to sell Variable Annuities and Variable Universal Life when appropriate. Yes, I plan to sell A-shares of mutual funds, when appropriate. I’ve discussed this before on this site. I’m not going to change my mind and you’re not going to change yours, so let’s just completely omit the whole debate about whether advisors are worth paying for. However, I would welcome opinions or comments about how fees from one service should offset fees from another. Or whether or not I should allow people to manage their investments themselves or keep their “legacy advisor” and charge them a de-facto AUM fee.