Carlos P. Sava, a portfolio manager for Clarendon Capital Management LLC in Arlington, Va., says his firm has two pricing structures: the more traditional AUM fee for clients with equity managed accounts and an annual fee of $1,000 billed quarterly for other clients.
For the flat fee, clients get a risk assessment, a financial plan with savings rates, an action plan and a quarterly performance review, among other services.
“For clients with $100,000 in investments, this represents an equivalent of 1 percent, which is in line with the fees of many other national advisory firms and below many,” Sava says. “For larger clients, since the fee is fixed, it becomes a much lower percentage of their assets.”
The rise of robo-advisors that offer low-cost, do-it-yourself investment management has prompted the use of different fee structures, says William F. Davis, executive vice president of Apex Financial Advisors Inc. in Yardley, Pa.
“These robo-advisor platforms make it easier for the average investor to feel like he or she is getting good advice, [but] robo-advisors should not be relied upon to be the only source of financial planning expertise,” Davis says.
Apex has recently been asked by some clients and potential clients to develop a financial plan with action steps to implement the firm’s recommendations, yet these people have no interest in the firm doing investment management. The firm has a onetime retainer starting at about $8,000, depending on the amount of time the planning is estimated to take. The clients can then continue with a yearly retainer or switch to an AUM fee and let the firm manage their portfolios.
Another approach might be to charge a smaller fee on total wealth rather than just assets under management, since the advisor may be dealing with more than just the investments, suggested Wayne Badorf, president of Wells Fargo Funds Distributor LLC in San Francisco, in a recent blog.
The Garrett Planning Network, based in Eureka Springs, Ark., is an organization that has used an hourly fee structure since its inception 15 years ago; the price for its 300 advisors averages $190 an hour.
“Our fee structure has been successful in attracting young clients to our advisors,” says Justin Nichols, director of operations for Garrett. “Instead of doing a broad-based plan that costs $3,000, we can do it in, maybe, $750 increments over two years. That makes it more affordable.”
“Our engagements have to be done without any minimum and based on a project fee for that client,” he says. “We may deal with how to allocate a 401(k) plan at first, and then deal with other issues later. The advantage is that we make our services more accessible.”