You are ready to start a relationship with a financial advisor, but how do you tackle the elephant in the room? How do they get paid?
Hiring a financial advisor is one of the biggest financial decisions you will make, and as you will see today, what they charge and the value they add will likely be a massive component of who you choose to partner with.
In this article, we reference the 2020 Kitces Research Study, which addresses advisor pricing and was authored by Dr. Derek Tharp, Ph.D., CFP®, CLU®.
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This financial advisor business model gives you access to financial advice in the same way you would pay other professionals, like your CPA or attorney.
Depending on the financial planner, they could charge a flat annual rate or an hourly rate based on the work they do for you.
Some will manage your assets as part of this fee, and others will focus solely on giving financial advice and avoid managing the portfolio altogether.
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This financial planner business model uses the portfolio size that the advisor manages on your behalf as the measuring point for how much you pay. The bigger your portfolio, the higher the fee.
According to the 2020 Kitces Research Study on Advisor Pricing, a $1 portfolio has an average financial advisor fee of 1% of the portfolio value.
For example, many financial planners operating under an AUM model include other areas of financial planning beyond investment management. These types of services could consist of tax planning, estate planning, and retirement planning, to name a few.
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On the other hand, some financial planners limit the scope of their services to purely managing the portfolio in exchange for their AUM fee.
While this model goes all the way back to the “stockbroker” profession of old, some modern examples of this business style are insurance products like annuities or life insurance, commission-based mutual funds, or non-traded REITs.
While commissioned financial advisors may have an abundance of knowledge, they are, by definition, selling a product rather than giving financial advice (which is my guess as to why this model was left out of the study.)
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If you simply seek access to financial products and do not desire financial planning services, this could be a fit for you.
Conversely, if you desire advice surrounding tax planning, retirement planning, and other key areas of your financial life, this style of financial advisor will likely be much more limited in their offering.
The true cost of this advisor compensation style can vary dramatically depending on the financial product being sold. As a result, the best advice I can give is to ask the advisor for the total cost of the investment.
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Again, while none of the above-listed compensation methods is wrong, it is massively important that you understand how your financial advisor is getting paid and exactly what services are included with that fee.
Now that you are familiar with how a financial advisor can get paid, it’s time to look at the flip side of that coin, value.
Depending on your answer to that question, the right-fit financial planner for one person could be drastically different than the right fit for you.
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For instance, you may be a real estate agent seeking advanced financial planning surrounding the tax implications of your business and the options available to you to not get nailed by the IRS. You will likely seek the advice of a financial planner offering tax planning and not just investment management.
Conversely, you may simply seek access to an investment account that you can delegate the management of and are uninterested in lowering your tax bill. In that case, a lower-cost, investment-only financial advisor could be right for you.
The best-case scenario for you as the client is to find a financial planner whose value outweighs the cost of hiring the professional.
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While it can be difficult to put a hard number on the value of a financial planner, Vanguard makes a good attempt in compiling their Vanguard Advisor’s Alpha® report.
Additionally, we would argue that tax planning (which includes how you order your withdrawals) can deliver quantifiable value to the trajectory of an individual’s financial plan.
Our Spokane, WA firm provides fee-only, no-commission financial planning that is strategic, all-encompassing, and ongoing. We invite you to schedule a no-obligation complimentary insight meeting to discuss how we can help you.
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Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.BAY CITY, MI — Providing a means for jail inmates to communicate with their loved ones on the outside is a lucrative business for a Dallas-based company, which supplies phone services to jails throughout Michigan.
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Since at least 2000, the Bay County Jail’s phone services have been provided by Securus Technologies, formerly known as Evercom. The company is self-described as “the premier provider of innovative communication solutions for the corrections industry.” There are 85 jails and incarceration facilities in Michigan that make use of Securus, including those in Saginaw, Midland, Tuscola, Gladwin, Isabella, Arenac and Clare counties.
“Inmates have to have communication with their families, and we make a lot of provisions for that, ” said Capt. Troy Stewart, Bay County Jail administrator. Inmates are able to write letters, place phone calls and, once per week, receive visitors.
“We don’t have our own phone system, everything is contracted out, ” Stewart said. “Sheriff (John E.) Miller has been very good at trying to get the lowest price vendors on everything we have in this place. We’re very conscious of the cost that goes to the inmate, too, but that’s not a cost we put on it, that’s a cost from the company.”
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Securus serves about 2, 200 correctional facilities in 45 states and employs about 750 associates. In 2012 alone, they won $40 million in new contracts.
Securus’ website indicates that a call from the Bay County Jail runs $4.24 for the initial connection, plus 0.69 cents per minute. A 15-minute call costs a total of $14.59. The rate is the same for the Saginaw County and Tuscola County jails. By contrast, inmate calls from the Midland County Jail cost an initial connection fee of $3 and $0.25 per minute.
The most recent contract between Bay County and Securus was approved in December 2010 by a 9-0 vote of the Bay County Board of Commissioners. According to the contract’s terms, the county is to receive 51 percent of the gross revenue of calls. From January through October of 2013, the county made $80, 212.89, according to a document supplied by the county's Finance Department.
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Bay County Commissioner and County Board Chairman Ernie Krygier, D-2nd District, said the county isn’t involved in helping Securus set its rates.
He added that the Securus/Evercom contracts have been approved as they have provided “the lowest bid and the greatest amount of return for us.”
Stewart said maintaining phone services at the jail isn't always easy as irate inmates often damage phones, which can then lead to fights.
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“We go through handles nonstop, ” he said, adding that Securus responds within hours to repair any
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