It takes little to no additional work to manage a portfolio valued at $500,000 vs. one valued at $5 million, so why are investment managers charging 10 times more for the $5 million portfolio through a 1 percent assets under management (AUM) fee?
That’s just one reason why the next generation of high net worth investors is looking at the advantages of retainer fees for financial advisors.
Retainer fees are fixed fees for financial advisory services, a departure from the current practice, in which advisors are paid a commission on the portfolios they manage.
With commission fees, the manager is compensated by selling stocks, insurance, mutual funds, etc. to their client. The more products they sell, the higher their commission.
The danger is that the client may be buying proprietary products that return the most money back to the manager’s firm, but don’t meet the client’s long-term financial goals.
Financial managers working on commission may also overlook other options for their clients outside the portfolios they manage.
Financial planners using a retainer fee, on the other hand, continually work with the client to find products and strategies that best fit the client’s financial objectives while providing the flexibility to adapt to an uncertain market.
The retainer fee approach has been embraced by Fred Hubler, president of Creative Capital Wealth Management Group in Valley Forge. His firm charges a flat quarterly retainer fee.
The firm’s services are available to clients even if none of the client’s assets are managed by them.
“Sometimes where you have your money is where it might belong, but that doesn’t mean you don’t need advice you can trust,” Hubler said.