You Don’t Need a Pile of Dough to Get Fiduciary Advice
No longer do you have to be rich before you can access the quality advice you want.
Accessing sound financial advice is a major issue for many people, especially those under 50. As it stands today, you typically need a pile of money before you can get advice. That advice is usually in the form of someone managing your money, generally at a cost of 1% of what they manage. If you think this sounds kind of backward, you’re right. Shouldn’t advice be available to help you save and invest to build your pile of money? Do you wait until you’ve lost your excess weight before seeing a dietitian? Do you hold off on going to your doctor until you’re back to full health? Do you work out and get fit and then hire a personal trainer? Of course not. So why is financial advice any different? The answer is that most financial advisors today use an outdated fee model that is simply too lucrative to change.
There are more client-friendly methods to charge for advice. I know this because we’ve implemented one of those methods at Mountain River Financial. We combine modern technology and a little common sense to structure our fee so that our fiduciary advice is accessible to you regardless of whether you already have a pile of money to manage. No longer do you have to be rich before you can access the quality advice you want.
ISSUES WITH THE STATUS QUO
Here’s how it works. Unlike most firms, we don’t charge you a fee based on how much of your money we manage. That method is called Assets Under Management (AUM) pricing and it’s the standard fee structure most advisors use. Why don’t we use this method and why should it matter to you? Two reasons. First, AUM fees are typically quite expensive for you as the client. Second, firms that use AUM pricing usually have a minimum account size required to work with them. The minimum varies, but it’s usually around $250,000 (not counting your 401k/403b/457 assets). As a result, younger professionals, who often earn higher incomes and need advice on how to best utilize their income, can’t access the advice they need. These folks are left to their own devices to figure out how to create an appropriate emergency fund, reduce their increasing tax bill, plan for kids education, pay down student loans, save for a down payment, save for retirement, maximize employer benefits, invest prudently to build and protect long-term wealth, plan for specific goals, choose the right accounts to invest in, avoid disastrous and expensive investing mistakes, create a will and set up medical/financial directives in case something terrible occurs, coordinate all these wants/needs…etc.
ACCESSIBILITY & ALIGNMENT OF INTERESTS
To address these issues, we’ve set things up differently at Mountain River. When you work with MRF, you pay us a fixed monthly fee just like you pay for your cell phone bill or gym membership. The fee is calculated according to your net worth and reset annually to reflect changes in your net worth over time. This structure has two crucial advantages over traditional AUM pricing. The first is increased accessibility. As mentioned, since we don’t base our fee on how much money we manage, we can help you even if you don’t yet have a pile of money to invest. The second is a far better alignment of interests. Our fee establishes an incentive system that rewards or penalizes us according to how well we have helped grow your overall wealth, NOT according to how much of your money we manage. If your net worth increases, we earn more. If your net worth decreases, we earn less. We’re in the business of helping you build wealth and find financial peace-of-mind. We’re not in the business of managing as much of your money as possible. This seems like a no-brainer. Advisors should be paid according to how well they’ve done for their clients; not how good they are at gathering assets to manage. Unfortunately, that’s not always the case.
ADVICE BEYOND INVESTMENT MANAGEMENT
Advisors using AUM pricing are rewarded for managing money. As such, gathering more assets to manage naturally becomes their focus. We’re rewarded for making you wealthier. Accordingly, increasing your wealth is our focus. I can’t stress enough the importance of this distinction. Our fee structure encourages us to give you advice in areas other advisors won’t because it won’t increase (and could decrease) how much they earn. This includes advising on debt repayment strategies, creating emergency cash reserves, advising on your 401k/403b plans, buying property, maximizing your employee stock options or RSUs, choosing a mortgage…really everything that falls outside of investment management. Investment management is a critically important part of financial planning and investment management happens to be where most of our experience and expertise lies. However, true wealth advice doesn’t stop there. It’s just one piece of a larger financial picture.
If you want help building wealth, aligning your goals with your finances, and finding financial peace-of-mind, drop us a line. Helping people is what we do.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Robert Stromberg, and all rights are reserved. Read the full Disclaimer