235 | Funky Fees

A fee on managed assets creates some funky dynamics.

At low asset levels, it undermines the advice and makes a client feel weird.

How can the advice be valuable if it’s free?

How can this be a viable business model if I’m not paying anything?

At high asset levels, it still undermines the advice and overcompensates the advisor.

So I guess accumulating “more” is the only objective?

If it’s the same portfolio, why does managing $1,000,000 cost more than $100,000?

If it feels funky, it probably means there is a better way.

144 | You’re Paying for One Thing

You’re paying me for one thing – to help you do something that you have been unable to do yourself.

It’s up to me to understand what you’ve tried to do or want to do.

It’s also up to me to help you figure out how to do it.

But I’ll spoil the ending…

There’s a good chance the way to do it has already crossed your mind or is simpler than you imagined.

This creates a tension – why am I paying for something simple or that I “could have done on my own”?

But just because it’s simple doesn’t mean it’s easy – you’d have done it by now.

And a mental list of hypothetical solutions isn’t the same as knowing the solution – it just seems that way once you’ve heard it.

If the simple answer brings you relief, then we’ll be a good fit.

If it leaves you underwhelmed, then it’s probably going to be a tough go for us.

123 | Thoughts on Our Pricing

Of course there is a fee for our services.

There are two primary reasons that we charge a fee - credit to Carl Richards for saying them so concisely.

The first is that clients who pay for advice actually pay attention to advice.

Paying is an expression of enrollment in the process. And enrollment in the process is the leading indicator of future success.

The second is that making a profit gives us "permission" to continue doing this high impact work indefinitely.

Without some profit, the work would be a hobby, which is only sustained by outside resources. That is no way to run a business or even a household.

Our fee is a simple, flat fee that everyone can understand.

That is rare in the industry.

It's scaled loosely based on complexity and ability to pay, so that we can serve a diverse group of clients forever.

That is rare in the industry too.

You will not find many people who have thought more intentionally about client-centered pricing than we have - just ask them.

118 | You Get What You Pay For

Some people want investment management and nothing else...and that's OK.

When this is the case, it might make sense to pay an AUM fee.

But when it comes to money, so many people have a feeling in their gut that investments won't and can't address, and that’s where the narrative starts to break down.

The disconnect between this feeling and the solutions that financial advisors have been offering for a couple of decades is a primary reason we've grown so skeptical of financial advice.

Investments don't address the Sunday Scaries. Investments don’t address a disappointing spending decision. Investments don’t address the stress of running life without an emergency fund or having your wings clipped by debt. Investments don’t help you get on the same page with your spouse or give you the courage to make a change.

But the fee and the way advice has been marketed - comprehensive, holistic, personalized - implies that they should.

Deep down we desire so much more in our relationship with money, but we’ve been trained to pay for investment advice and then hope everything else takes care of itself.

It’s time to start paying for the things we want, and trust that the investment advice will take care of itself.

Our fee is a simple, flat fee that is loosely based on complexity and ability to pay, but is never based on a percentage of assets under management.

116 | Home-building Plumbers

I'm elaborating on a good friend's riff that I read here.

Even if a plumber was the best contractor in the city, it would be weird if they said, “I’ll do the plumbing for $400,000 and, while I’m at it, I’ll build you a house for free.“

But that’s what happens every time we pay a fee for assets under management, but receive help on everything else related to money.

If it were just math, it wouldn’t matter.

But it’s not just math.

As Carl Richards would say, the way we bill tells a story.

And the plumber giving away free houses tells a story that makes the plumbing seem more important than the rest of the house.

If you want a house, you pay for the house and sub out the detailed work.

If you want help with your "money life", it probably makes the most sense to hire a contractor instead of a plumber.

Our fee is a simple, flat fee that is loosely based on complexity and ability to pay, but is never based on a percentage of assets under management.

115 | All Roads Lead to the Biggest Rollover

Everyone is susceptible to the siren call of “more”, and there aren’t many things that call an advisor louder than a big rollover check, the sale of a business, or a substantial inheritance when they’re charging a fee for assets under management.

It’s why financial advice has become so tethered to the highest net worths and the most assets.

It’s easy to say the advice is the same but behind the scenes, the highest net worths are either getting all the attention or they're overpaying.

And the lowest net worths find the attention is waning or the offering is becoming less and less relevant over time.

Once an advisor's fee is tied to assets managed, it’s hard to measure success without tallying up assets gathered, and it’s hard to look at potential clients without seeing different-sized dollar signs floating above their head.

Our fee is a simple, flat fee that is loosely based on complexity and ability to pay, but is never based on a percentage of assets under management.

114 | The Ultimate Conflict of Interest

If you're a good saver, I will encourage you to keep it up or maybe even help you slow it down.

If you need to save, I will help simplify the logistics of saving and inspire you to actually make it happen.

I don't want you to save out of fear, save to create a war chest for doomsday, save because you don't have anything better to do, or save so I can get paid more.

I want you to save because your savings rate reveals so many over critical things - your ability to live within your means, your ability to control lifestyle creep, your ability to say yes to unexpected things, your ability to pivot to something different, your ability to manage expectations, and your ability to keep living the life that you desire to live.

I want you to save...

Because that is how you experience financial well-being.

Saving is hard enough on its own.

If you saving increases my fee, are we actually pulling the rope in the same direction?

Our fee is a simple, flat fee that is loosely based on complexity and ability to pay, but is never based on a percentage of assets under management.

106 | A Crumbling Pillar: Assets-Under-Management Fees

Paying for advice based on a percentage of assets is an enormous improvement from paying commissions and sales charges when you buy specific investment products, but it still leaves a lot to be desired.

It doesn't take a PhD to see the incongruence of charging fees for one thing and delivering the value on everything else.

There is still an awkward conflict of interest when it makes sense to save more or consolidate assets.

There is still the reality that some people pay a lot more than others for the same experience.

It takes advantage of the "out-of-sight-out-of-mind" nature of deducting fees from an account that is rarely reviewed in detail.

It leads us to believe that investments must matter more than they do, because no matter how much we try to discuss everything else, the way you’re billed tells a story that is nearly impossible to re-frame.

The pillar of the industry is crumbling and we're building a new one - our fee is a simple, flat fee that is loosely based on complexity and ability to pay, but is never based on a percentage of assets under management.