Interest fee

Does being fiduciary depend on the fee model?

The decades-old debate over which advisor compensation model provides the most conflict-free advice to investors was the focus of discussion at a roundtable sponsored by the Institute for the Fiduciary Standard this week.

The online discussion, part of the organisation’s month-long activities to commemorate ‘September in Trust’, highlighted the practices of three advisers who chose to deviate from the asset-under-management pricing model only to add fixed costs and fixed costs for the project only. hourly pay per mix.

Institute President Knut Rostad said his organization is independent of compensation, but thinks it’s important to explore the impact of fee models on the fiduciary relationship advisers have with their clients.

Almost all SEC-registered advisers (95.5%) charge asset-based fees. “These fees are structured as a percentage of clients’ assets under management, which increase as the value of clients’ assets increases and decreases as the value of assets decreases,” the Investment Adviser Association said in its latest overview of counselor practices.

But it’s important to note that only 17.4% of advisors only offer asset-based fees, the IAA said. Most advisors offer asset-based fees as well as other types of fees, such as fixed fees, performance fees, and hourly fees.

“On our end, we chose hourly financial planning because it’s the least conflicting model,” said Alex Offerman, financial planning partner at Model Wealth, Inc. in Naperville, Ill., whose firm charges $300 $ per hour to provide project oriented planning.

“Of course, there is an inherent conflict of interest whether it’s an hourly rate or an AUM-based rate. So we understand that and try to disclose that to customers during our first meeting,” Offerman said.

“We want to make sure we’re open to everyone as long as they can afford our hourly rate. It doesn’t matter if you have $100 million in assets or $250,000 in debt. It doesn’t matter to us. We just want to make sure we’re doing the best we can for that customer and that they understand the fees they’re paying us.”

Offerman’s company offers investment management for a fixed annual subscription fee to clients who have, alone or with the help of their previous companies, created complex portfolios that the individual will find difficult to manage.

Adam Cross, who started AMC Wealth in Chicago during the pandemic and built it into a team of seven, offers hourly fees and AUM, based on clients’ wants and needs. “By not limiting myself and offering services based on need and scope of engagement, I essentially eliminate all conflicts of interest,” Cross said.

Transparency helps. Cross advertises prices on its website, offering counseling starting at $200 per hour, up to $3,000 for 15 hours of coaching. The company’s AUM fees, which it says are best suited to “retirees and very wealthy families,” start at 1% on a $500,000 portfolio, drop to 0.9% for $2 million and 0. .45% for $10 million.

“Instead of offering options, I can ask a few questions and direct the customer to the appropriate department. I don’t lose sleep at night worrying about conflict,” Cross added.