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 $1 million portfolio, the average independent financial advisor fee would be around 1%1, or approximately $10,000 per year.  On a $2 million portfolio, the average advisor fee would be around 0.85%1, or approximately $17,000 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 $2 million portfolio compared to a $1 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, 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 $2,500 per year for ongoing planning clients where asset management exceeds $500,000.  The first $500,000 are already included in their ongoing planning fee, if they wish to utilize my firm’s investment management services.  All-in on a typical $2 million portfolio, the total advisory fee would be $10,000 vs. the average advisory fees around $17,000, as stated above.  This represents a savings of $7,000 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 6 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/independent-financial-advisor-fees-comparison-typical-aum-wealth-management-fee/

 

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 3/26/22 to reflect current pricing.

 

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