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  • 0 Fee-only vs fee-based: what everyone is missing!

    When seeking help with your finances, you may be contemplating the merits of fee-only vs fee-based financial advisors. While there’s been much said on this topic, we feel other explanations fail to analyze past the obvious. There is an important aspect that is being overlooked by other discussions, which we’ll address in this article. Before you get started, we’ve written at length on the topic of financial advisor fees. You may want to give these blogs a quick glance if you haven’t seen them already. Low-cost ETFs: what you need to know Average financial advisor fees – are you paying more than you should be? Mutual fund fees can be sky high - know when you’re overpaying! What is a fee-only advisor? Before we get into the comparison, let’s talk about what a fee-only financial advisor is. A fee-only financial advisor does not accept commissions, and works only for the client. Usually a fee-only advisor charges a fee for the assets they manage. However, there are other types of fee-only arrangements whereby the advisor may be paid by the hour, or paid a flat fee. This type of compensation structure aligns the interests of the advisor with the client. As the assets grow over time, the advisor earns more money. There is no incentive to take undue risk for short term profits, as the advisor’s compensation would be impacted. A fee-only advisor usually works for a Registered Investment Advisor (RIA) firm, registered with either certain states or the Securities and Exchange Commission. They follow the fiduciary standard, putting the client’s interests before their own. What is a fee-based advisor? A fee-based advisor is also called a “hybrid advisor” because he or she wears two hats. The advisor may manage your assets on an ongoing basis for a fee, following the fiduciary standard. Or, they may earn commissions for trades recommended, following the suitability standard. Basically, the client gets to choose which way they’d like to be serviced. There are very important differences between these two ideologies. The most important difference between them is a fiduciary must act in the best interest of clients, while suitability only means their recommendations must be suitable. We highly recommend that you take some time to familiarize yourself with the fiduciary vs suitability standard. Fee-only vs fee-based advisors: the difference that nobody talks about We’ve found that when others discuss the topic of fee-only vs fee-based financial advisors, there is one little thing they tend to overlook. Although we ourselves are fee-only financial advisors in Philadelphia and we wholeheartedly believe that fee-only is better than fee-based, here’s the reality. The overall level of fees paid by the client is what matters the most. Fee-only or fee-based, the client should always strive to work with the advisor who offers the greatest value for the fee charged. The lower fees, the better! Because of the negative impact that high fees have on a client’s wealth in the long term, fees should be as low as possible, and this is generally conducive to working with a fee-only advisor. We have written on this topic at length; please refer the blogs in the beginning of this piece, as well as our article on what financial advisors cost. There is an incentive for advisors earning commissions to recommend investments that come with higher fees, to recommend larger trades, and to trade more often. Mutual funds carry higher fees than ETFs, and in addition you are paying for their fund’s marketing expenses in the form of 12b-1 fees. It doesn’t seem like a big deal on paper, but small percentage differences in fees can add up over time. For these reasons, working with a fee-only advisor is more conducive to the client paying lower fees, which is healthier for the growth of their portfolio in the long run. Which ones take a smaller piece of the pie? Fee-only advisors do tend to charge lower fees, in general. Because they do not earn commissions for trades recommended, they tend to avoid mutual funds with high 12b-1 fees. The average fee that financial advisors charge is somewhere around 1%, and we charge far lower than that, around 0.5%, because we feel it is in our clients’ best interest to keep fees low. Does it really matter? Well, yes. The type of financial advisor you work with has a huge impact on the standard of care you receive, the fees you pay, and the decisions that are made regarding your wealth. All of this can have a huge impact on where you end up in the long term. Finding a quality financial advisor goes beyond the question of fee-only vs fee-based; it’s about what the service entails. Many wealth managers focus on what we feel is of less significance – achieving a certain return with the portfolio. While that is important, what we feel is of greater value is behavioral coaching. What is the value of financial advice? We can recount numerous times when we have helped our clients avoid making major blunders. These setbacks can be very costly. Most of the time we are able to add value to our clients by preventing them from falling victim to the behavioral biases that many investors succumb to if operating on their own. If you are managing your own finances, be aware of the inherent psychological traps that you could inadvertently fall into. They range from holding onto losing positions for emotional reasons to making choices based on too narrow a data range. Work with a fee-only fiduciary advisor We hope that our blog on fee-only vs fee-based financial advisors has been helpful to you. Whichever way you choose to go, ask yourself if the advisor is going to provide the best value for the price paid, if that price is reasonable, if the standard of care with which they will handle your wealth is what you truly desire, and if you feel their services are going to truly make an impact on your long term outcome. In our experience, fee-only fiduciary financial advisors line up best with all of these ideals. And we thought we might mention… We are a fiduciary financial advisor in the Philadelphia, PA area, but we work with clients across the country. We provide fee-only, objective advice to our clients. If you would like to discuss a possible relationship, contact us.  

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    0 How to find a good financial advisor in Philadelphia, PA

    As a national wealth management firm, we serve clients from our local Philadelphia, PA area as well as across the country. In this blog we’ll provide you with all the information needed to make a smart decision about how to find a good financial advisor in Philadelphia, PA, from what questions to ask to what resources to consult with, and more. Should you chose a local or national financial advisor? There’s no easy answer to the question of whether it makes sense to work with someone local, a financial advisor in Philadelphia, PA or its surrounding areas, or not. Let’s look at the pros and cons.Here are the benefits of working with a local financial professional: You can meet in person. You’ll be able to sit across the table from them and make eye contact. For some people, the physical interaction is important. If they are involved with the community, the wealth manager may be familiar with local goings on, people, and resources that you may find useful. You may feel more comfortable working with someone you’ve met. They may be intimately familiar with certain aspects of local finance, such as location specific tax rates or legal requirements, that may be relevant to you. On the flip side, it may not be as beneficial for the following reasons. If you are relocating in the future (or are likely to), having a person geographically close to you at this particular point wouldn’t make a difference in the long term. By restricting your search to only local candidates, you may be ruling out advisors who are more skilled and knowledgeable, or who are a better fit for your personal situation. Technologies such as Zoom, DocuSign, etc., have made virtual relationships much easier. Firms who embrace technology and are able to accommodate out of area clients may be more efficient overall and deliver a higher quality experience. These are all factors to consider. At the end of the day, what matters most is the trust you have in the advisor, who they are, and how they conduct their business. We have worked with clients in our local area as well as across the country, and we have found that what matters most to our clients Is getting the right fit. Wealth management is a person-to-person business, and the interpersonal dynamics have to make sense, both in terms of your bond with the advisor to your level of comfort with the team that supports you.So, let’s talk about that for a moment. How do you make sure you’re getting high quality financial advice. What common characteristics do the best financial advisors share? There are so many different kinds of financial advising firms to pick from. What makes a good one? We see three main tenets that separate the best investment advisors, financial planners, and wealth managers from the rest. #1 Low costHigher cost does not necessarily ensure higher quality.Research shows that keeping advisory fees to a minimum improves investment performance. High management fees and related expenses can reduce creation of wealth in the long term.An advisor’s fees should be kept to a fair and reasonable level. They may not seem like a big deal, but they add up. We’ve gone into detail about the impact of advisory fees on our website. #2 Fee-onlyFee-only advisors have chosen to do business this way because it makes the client’s success the only objective. Fee-only advice is objective and conflicts are minimized.We are a fee-only advisor. We receive no compensation other than from our clients. We are not paid by commissions, revenue-sharing, or hidden fees.Fee-only advisors differ from fee-based advisors in several ways, the most important being that fee-based advisors are allowed to wear two hats. Fee-based advisors can accept fees in certain situations, and in others they can be paid by commissions. It’s important to know if you are dealing with a fee-based advisor because your best interests may not come first in situations where they are bound by lower standard of care – which we’ll discuss in the next section. #3 FiduciaryOnly a small portion of financial advisors uphold the fiduciary standard of care.Fiduciary advisors: Must disclose all conflicts prior to the engagement Must act in the client’s best interest at all times, even if it is a disadvantage to them financially Must fully disclose how they are paid Must maintain a Code of Ethics Most advisors follow suitability, which is the lower standard of care. No requirement to disclose conflicts of interest Are not mandated to act in the client’s best interest Must only ensure that an investment is suitable when recommended This is a critical distinction. We recommend that if you want to work with one of the best financial advisors, you ask all candidates if they follow the fiduciary or suitability standard of care. Resources to use to find a financial advisor in Philadelphia, PA There are several ways to find a financial advisor in Philadelphia, PA. Most people consult with their networks and ask for recommendations. There are also social media networks such as LinkedIn and Facebook where financial advisors post content.If you are looking for a fee-only advisors, which we think is the best type of advisor to have handling your wealth, here are resources that may be of help.Garrett Planning networkThis website houses the names of fee-only advisors. You can filter by services and specialties. There are also several articles on the site written by financial advisors.Fee-only networkThis is useful if you are focused on a particular geography and wanted to find a financial advisor in Philadelphia, PA. You can search this directly by zip code or address. You can even find one in your neighborhood, should you so desire.NAPFAThis is a great tool if you are looking for a financial planner. The National Association of Personal Financial Advisors, or NAPFA, has a planner search tool as well as many other educational resources that may be helpful. Questions to ask a financial advisor When you meet with a financial advisor, it’s important to make sure you get the information you need (instead of what they want you to know).Here are some questions to ask, whether you are looking for a financial advisor in Philadelphia, PA or any location in the United States. Get responses in writing and/or record the session, if possible. What are your educational credentials/licenses? What standard of care do you follow, and what percentage of the time are you required to follow it? How are you paid: fee only, commission only, or fees and commissions? Do you engage in revenue-sharing, or compensated for making referrals? Can I have a list of all of the fees I will pay for your services? Are you affiliated with any bank, brokerage firm, or insurance company? Can I have a copy of your Form CRS? Do you have any regulatory disclosures? (check this with their Form CRS and ADV to make sure they’re telling the truth) Who will be my day-to-day contact and what is their experience level? How many clients do you work with, what are their defining characteristics, and what types of services do you typically provide to them? Can I have a copy of your business continuity plan? Who custodies the assets? (you want to see an independent, third party here) As you can see, there is quite a bit of information to gather. Any advisor who refuses to provide this information or makes insufficient effort should be eliminated entirely from consideration. Conclusion We are a financial advisor in the Philadelphia, PA area, but we work with clients across the country. We provide fee-only, objective advice to our clients. If you would like to discuss a possible relationship, contact us.