When I meet people who ask me “what do you do?” I’m proud to say that I’m a CERTIFIED FINANCIAL PLANNER™ and work with clients on an hourly basis providing custom recommendations. Hourly planners are different ~ we work with our clients the way a lawyer or therapist does and charge by the hour. Our advice is always specific to our clients’ unique situations. Most financial advisors get paid on an asset under management (AUM) model where they take a percentage of a client’s assets.
Here is a fee example: Assume a 1% AUM fee on a $1,000,000 portfolio. The client pays that advisor $10,000 a year. We have seen many articles stating that, next to buying a home, paying a financial advisor is probably the most expensive thing a client pays for over the life of their relationship with that advisor. However, clients don’t usually write a check to their advisor. The fees get taken out of the cash in their portfolio. Sometimes an advisor needs to ‘create cash’ in your portfolio by selling investments to make sure they can withdraw their fee. When the advisor manages a client’s money, they may provide financial planning services (and a personalized financial plan) for no charge and will also take client calls/emails/meetings providing specific advice whenever the client requests it as the client is essentially paying them for 24/7, 365 financial advice with that AUM fee.
It is interesting that this week we got a lot of emails from clients asking, “what should I do with this crazy market?” Maybe we could just post a message on our website like “It is a roller coaster! Just stay the course!” That may seem a bit simplistic, but it is usually the non-emotional answer. A lot of bad things have happened over the last 25 years – 9/11, housing crisis, COVID, wars, inflation, political turmoil and yet the S&P 500 has a cumulative return of 458% over that period. All investing has some kind of risk associated with it. Even just staying in cash has both inflation risk and interest rate risk.
This week, our answer to everyone has simply been “stay the course” without even looking at a client’s holdings. We are always happy to open a client’s portfolio, review their specific holdings and provide custom recommendations. BUT that’s where we differ from an AUM advisor. When clients request that analysis, that is when our hourly clock starts ticking. Again, we bill just as a lawyer, therapist or CPA if a client had a specific question, they needed advice with.
Neither way is necessarily better, it is simply different.