Many financial advisors charge clients via commissions, an AUM fee, a combination of fees and commissions, or an hourly rate. These methods guarantee that the financial advisor sees a healthy return for their time and effort.
However, they may not be the best method for your wallet.
At Afton Advisors, our pricing structure is intentionally different. In fact, it's very uncommon. What exactly makes our method different? We charge a fully transparent $4,800/yr for ongoing, comprehensive financial planning and asset management, regardless of the account size.
But why did we choose this approach? And why does a flat fee advisory model make sense for you?
We will answer both of these questions and more, but first, let’s look at how most firms charge and why these methods are less beneficial than a flat fee advisory model.
How Do Most Firms Charge?
There are a lot of models out there, but the overwhelming majority of financial advisors charge an AUM or "Asset Under Management" fee.
A typical fee might be 1% of the total assets under management. This probably seems like a bargain for those investors getting comprehensive planning with account balances of $50,000 or less.
$500/yr for an advisor to work with me whenever I need assistance? Great!
But here's the problem: most advisors realize that this isn’t a profitable contract for them. As a result, many advisors establish account minimums of $250k, $500k, or sometimes $1 million or more in order to work with a client.
Even if the account minimum is much lower, there will likely be additional costs for the client down the road. Although the $50k investor may be happy with this pricing structure at first, it's not sustainable for the long-term. Their advisor will likely push commissionable investment or insurance products in addition to this fee, or simply refuse to work with the client altogether.
What’s the True Value of an Advisor’s Time?
How much is a financial advisor’s time really worth? This is a difficult question to answer, as no two advisors are exactly alike. That said, you will obviously want your financial growth to far outpace the amount you’re paying to your advisor.
Additionally, you won’t want to overpay for services that require a relatively small time investment. Under this AUM model, an investor with a $3 million account might be paying $30,000 per year for services that require very little of the advisor's professional time!
We know from experience that we can manage a properly diversified $3 million account in the exact same amount of time as a $30,000 account. So, why should one investor pay $30,000/year while the other pays $300, all for the same time investment on our part?
The $3 million client might need retirement income or estate planning, while the $30k client needs foundational education, student loan support, or budgeting advice.
However, as an advisor, we can say with complete confidence that both of these clients’ needs can necessitate the same amount of professional hours.
Conflicts of Interest
We firmly believe that a flat fee pricing structure aligns our interests with our client's interests in the most appropriate and mutually-beneficial way possible.
An advisor paid via "AUM" fees certainly has an incentive to steer dollars towards the accounts he or she directly manages for the investor. What kind of advice do you expect the advisor to give if the client is considering paying cash for an investment property? What if the client wants to pay off student loans as opposed to saving or investing their money?
With a flat fee pricing structure, a client may have an interest in building a rental real estate portfolio, maxing out company-sponsored retirement plans, or paying off debt. We would love to help with all three! Our compensation won't be affected by our client’s goals, so we can give advice that truly aligns with our client's interests.
It's amazing to us that commission-based advisors love annuity products that pay high commissions. However, at the same time, fee-only advisors paid on AUM are quick to tell investors that annuities are a waste of money.
The truth is somewhere in between.
Ultimately, the advisor must do their due diligence to consider these products, rather than simply considering how much it will benefit their own bottom line. Once again, a pricing structure that doesn't add or subtract dollars from the advisor's pocket aligns the investor's interests with those of the advisor.
Eventually, the Flat Fee Advisory Model Is a Bargain
While most other advisors charge wealthy clients far more, we take a much more fair, transparent approach. A flat fee of $4,800/year for an investor growing year over year will eventually be a huge bargain. As net worth grows to $1 million, $2 million, or more, the value for your money becomes increasingly apparent. You will have true access to comprehensive planning and investment management at a fraction of the cost of other advisors.
While no pricing structure is perfect and we are all in business to feed our families, we take the well-being of our clients very seriously. At the end of the day, financial advice is very personal and we want to reflect our care and client-centric approach in every facet of our business, including the pricing structure. So, at Afton Advisors, we have developed a flat fee advisory model that is fair, transparent, and pure-intentioned.
Are you looking for a financial plan that fits your circumstances and maximizes long-term benefits? Consult the experts at Afton Advisors today for more information!