As Manuka Financial continues to thrive, one thing that I always prioritize is putting the interests of my clients first.  In that regard, there is a relatively new fee structure that I believe is at the leading edge of financial planning / advising: the fixed flat fee.

Not just a fixed flat fee for planning, but also for investment management.

Traditional registered investment advisory (RIA) firms manage money and charge a percentage of assets under management based on the market value of your accounts.  This can work well when a firm is trying to scale while managing smaller account sizes, but as the accounts grow, the advisory fees can really add up.

For example, on a $2 million portfolio, the average independent financial advisor fee would be around 0.9%¹, or approximately $18,000 per year.  On a $3 million portfolio, the average advisor fee would be around 0.85%¹, or approximately $25,500 per year.

But if that advisor is following a mostly passive investment strategy, as more and more firms are, there is rarely any additional time involved in managing a $3 million portfolio compared to a $2 million portfolio.  The complexity and time involved are more dependent on the number and types of accounts and meeting frequency, not the account size.  Sure, there are additional complexities if a client is subject to federal and/or state estate taxes, owns a complex business, has multiple rental properties, or has a number of privately held investments, but these are the exception, not the rule.  And those specific issues are more complex on the planning side, not in managing the investments.

After some soul searching and talking with other like-minded professionals, I have decided to update my investment management fee from a percentage of assets under management to a flat fee of $20,000 per year. That means on a $3 million portfolio, the total advisory fee would be $20,000 vs. the average advisory fees around $25,500, as stated above.  This represents a savings of $5,500 per year.  And I think this is fair.

This decision was not made overnight.  It’s been something I’ve been interested in for over 8 years now and I believe it better aligns the additional time it takes for portfolio management with the best interests of my clients.  I think it’s the future of providing financial advice, even if most of the industry has not yet embraced it.

About the Author

Michael T. Powers, CPA, PFS, CFP® (Mike), is a flat fee-only financial planner based in Richmond, VA serving clients virtually nationwide.

Footnote

1 – https://www.kitces.com/blog/financial-advisor-average-fee-2020-aum-hourly-comprehensive-financial-plan-cost/

Looking to find a flat fee fiduciary financial advisor to help guide you on life’s journey?  Feel free to reach out to see how we can help.

Updated 5/23/24 to reflect current pricing.

All written content on this site is for information purposes only. Opinions expressed herein are solely those of MF, unless otherwise specifically cited.  Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, MF disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose. MF does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall MF be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if MF or an MF authorized representative has been advised of the possibility of such damages. In no event shall Manuka Financial have any liability to you for damages, losses, and causes of action for accessing this site. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.