We get paid based on the amount of money you have invested with us at our custodian, Foliofn Investments Inc. Every three months, Foliofn deducts 1/4th of the annual asset-management fee due to our company from your accounts. This is the only fee you pay and that is only for assets you have at Foliofn. There are no trading costs or any other fees for any products we use to implement your plan. We don’t receive or entertain any kickbacks, any commissions, nothing. You don’t pay for advice and management of accounts like a 401k or a 529 plan or an HSA. We help you with college planning at no cost, we help you with insurance planning, buying a home, tax-planning, estate-planning and anything that you need help with…financially speaking…all of that at no cost to your family.
0.95% for the first $250K
0.85% for $250-$500K
0.75% for $500-$1,000K
0.65% for amounts over $1,000K
And because we use a holistic approach to managing your family’s assets, we will include your 401ks in the investment mix so if out of the $250K of family assets you have under management with us and assuming half of that is in 401ks and the other half at Foliofn, your total effective fee drops to 0.475% of assets each year. For $500K, the fee drops to 0.45% and keeps dropping from there. This compares to an industry average of 1.5-2% of advisory fees with sometimes, a layer of investment product fees with the total cost approaching 3% each year for assets under management.
But, But, But…
There is this trend in financial services related advertising or commentary that suggests that only chumps pay fees for financial advice. The math many critics offer as proof is very simple, but also incomplete. If you pay $100 in fees, they point out, that’s $100 that won’t be compounding toward your long-term financial goals.
Let’s get it out of the way upfront – we are fee-based financial planners and one would correctly assume that this makes us biased toward folks having a planner, so you should probably take that into account. That being said, running a financial planning firm for about a decade makes us uniquely positioned to understand the personal finance needs that real people have in real life — needs that are completely discounted by the increasingly popular anti-fee rhetoric of many robo-advisers and personal finance bloggers.
And we don’t deny the fact that there is an opportunity cost to the fee you pay us. But the truth is, if you pay for anything — investment advice, coffee, or childcare — that is the money you will no longer have to invest for retirement. In other words, buy any item and that amount of money, plus years of compounding, will be removed from your potential retirement assets and future income.
Choosing not to pay $100 a month for coffee or $200 for those violin lessons or $450 for your kid’s after-school program or $750 for that monthly BMW lease or that $1000 a month more you pay for that McMansion instead of a comfortable home your family needs would free up a pile of money that could go into your portfolio and improve your current retirement savings and your income in retirement.
Of course none of these items — the coffee, the violin lessons, the car or the bigger house — will help you manage your financial affairs any better. So why isn’t the low-fee crowd calling you a chump for spending money on coffee and childcare and all the other extraneous expenses?
By focusing solely on the opportunity cost of the fees you pay us, they are ignoring whether you are receiving any value for the dollars you spend on financial advice. Although there is certainly plenty of worthless advice to be had at a premium, before you dump every ounce down the drain like yesterday’s cold coffee, let’s take a minute to look deeper and cut through the hype.
A recently updated Vanguard study attributed very little investment performance benefit to working with an adviser. This is not a surprise. But even Vanguard, outspoken proponent of low fees, found that investors did obtain broad benefits from the planning, portfolio construction and wealth management process along with the behavioral coaching offered by a skillful adviser.
Vanguard’s study indicated that an adviser who helps a client find and use lower cost investments tools can add nearly 0.5% to long-term performance, managing asset allocations between taxable and non-taxable accounts can add up to 0.75%, intelligent rebalancing can add 0.35%, and thoughtful withdrawal strategies can add another 0.7%.
Some people pay a small fortune nursing their coffee habit but scoff at the notion of paying a fee for financial advice or planning.
By far the biggest value was realized from an adviser helping clients write, understand, and stick to their financial plan. Behavioral advice alone can add 1.5% to a client’s long-term performance, according to Vanguard’s study.
Are you really a chump to pay our blended average of about 0.5% for advice that may improve your long-term outcomes by as much as 3% each year?
When you’re trying to figure out if you can swing that expensive vacation to Machu Picchu without having to work another year before retiring, who will run the lifetime cash-flow numbers? Which account should you draw on first in retirement? When should you take Social Security? How will you factor in all the different variables? When you have a question — any question — who will you trust? And who will ask you the hard questions when your investment behavior threatens to derail your long-term financial plans? Losing a spouse brings a flood of emotions that can make tasks like managing financial obligations seem almost impossible. Who will be there to help you deal with that challenging time to keep the process organized and to make the next financial steps as easy to understand as possible?
Meanwhile, the Vanguard study found that a “suitable asset allocation” adds only minimal value. Asset allocation is often the only thing you’ll get from robo-advisers. They will ask you eight to 10 “risk-tolerance” questions and poof – “suitable asset allocation.” In other words, you will pay next to nothing for something that, according to Vanguard, has little demonstrated value and none of the benefits a good adviser can provide.
Cheaper investment advice isn’t better. It is just cheaper.
Wanting practical guidance and reassurance does not make you a chump — especially when you consider the long-term financial gains a good adviser and a planner will provide.
There. Need more convincing? Talk to us.