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What Is Flat Fee Advising and Why It Matters

“You don’t get paid for the hour. You get paid for the value you bring to the hour.”

-Jim Rohn

When thinking about financial planning and what it means, this quote struck a unique chord and inspired the post for today. What does it mean to be a financial planner? How can certain types of financial planning offer more value and purpose, empowering the client to make the most informed, confident choices possible? 

In the financial planning world, there are so many unknowns. But one thing that should be known is the price you as the customer pay for the services you get. With us there isn’t a veil or an estimate, it is concrete and understandable. Our pricing provides clarity, transparency, and immense value. The type of practice I run and am passionate about is one that is flat-fee based. 

I’d like to take you on a journey to show you what flat fee planning means to me and how it can help you. 

What is flat-fee planning?

A flat-fee payment structure simply means that you as the customer are charged one fee for the services you use. It really is that simple. In our case at Mountain Pass, it can be a one-time fee or a monthly retainer for ongoing planning services. Think of it as an all you can eat asset management and planning model: you pay for the services you select not on the money you invest.

With a flat-fee structure, the client’s best interest is put first. This can be done because the payment structure isn’t determined by the amount of money the client has to invest. A flat-fee model looks at what is actually best for the client, not what is best for the advisor. 

But how does that make sense? As an advisor, it doesn’t cost me more money to manage a higher value portfolio than a mid-range portfolio. A flat fee will ensure that you as the client aren’t paying more money simply because you have more money. 

How is it different?

There are a few different payment models that can be used in financial planning. The most common are commission and AUM. Let’s take a look at these payment models to see how a flat-fee structure operates differently. 

  • Commission: Your advisor receives payment from the company of the product they provide you

  • AUM: This is a fee (often around 1% per year) on the number of assets being managed by your advisor

While there is nothing wrong with these payment models, it is important to understand how they operate and the many ways that they differ from flat fee. 

With a commission-based model, the advisor isn’t able to be as inherently objective as their primary source of revenue comes from the products they are selling. This model makes it harder for the advisor to provide objective advice, geared toward the client’s best interests. After the advisor receives their commission, what is the incentive to keep the standards high and continue to work hard for the client? There really isn’t a built-in incentive, like there is with a flat fee.

In an Assets Under Management (AUM) model, a fee is charged based on the number of assets a client is going to invest. This type of payment model often has a 1% (or comparable) management fee and is taken out as a percentage of the account asset’s value. For example, if you had $100,000 in your account, $1,000 would be taken out of it each year. But if you have $1,000,000 in your account, $10,000 would be taken out each year. As you can see, the more money you have, the more money the advisor makes.

Flat-fees are different because they will never be determined by the amount of money you have. With a flat-fee, you aren’t paying a percentage of your portfolio’s value, you are paying for the time and expertise of the advisor. 

Can it offer more value?

With flat fees, you can be more transparent, reduce your conflict of interest, and provide clients with more value. Here at Mountain Pass, we view flat fees as the most equitable option for the simple fact that you don’t have to pay more money just because you have more money. 

Sometimes with other fee-structures, it can be confusing to know exactly what you are paying for. But with a flat fee, you know both what you are paying and the services you will receive. 

We are passionate about providing our clients with the highest quality service at a fair price. We are always willing to work with clients to give them the most value out of working with us even to the point of altering our flat-fee structure for those who wouldn’t benefit enough from it. No matter how much, or how few assets you have, you deserve our best and that is what we will give to you. 

Would you like to learn how our services can help you? Give us a call; we can’t wait to learn more about you.