Financial Planner: In-depth Advice, Including for a Reverse Mortgage, Justifies 1% Fee

A discussion in the financial planning community has emerged about the structure of compensation, exemplified by a recently-published story about the validity and justification of investment advisors charging a 1% fee on their assets under management for their advising services. However, one planner says that the in-depth advice his firm offers — which in one case resulted in a client getting a reverse mortgage — justifies this fee structure.

This is according to the story published this past weekend in The Wall Street Journal.

Beginning with the story of an investor who transitioned to advisors charging hourly as opposed to a 1% figure based on the assets managed, 62-year-old Keith Rudman describes a noticeable difference in the level of service he has received and the money he has saved by making such a jump.

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“They’re providing a ton more services than my old financial advisers and they’re charging me between a 10th and a 20th as much,” he told the Journal.

This is indicative of a growing trend, according to the article authored by Journal reporter Neal Templin.

“Mr. Rudman is among investors who are seeking — and finding — alternatives to traditional financial advisers who charge a certain percentage of assets under management,” the article reads. “Even as commissions on mutual funds and trading fees have dropped in recent years, the fees that registered investment advisers charge on portfolio balances have edged up. The average investor with $750,000 paid 1.04% of invested assets in fees in 2020, up from 1.02% in 2015, according to Cerulli Associates, a research and consulting firm. Meanwhile, an investor with $10 million paid 0.62%, up from 0.54%.”

However, not all advisers are created equal and there are those who feel that the services provided — along with the depth of that service — is justified by a 1% fee. This includes for services which, at least in one instance, resulted in a client taking out a reverse mortgage loan.

“Advisers charging 1% counter that their fees are worth it for investors who want or need a high level of service,” the article says. “Milo Benningfield of San Francisco views himself as far more than an asset manager, saying he immerses himself in his clients’ financial lives. For example, he says he found a much cheaper reverse mortgage for one and secured a special loan for another so he wouldn’t have to sell stocks and pay capital-gains taxes.”

How consumers choose to manage their money can have potentially big implications for the impact on their financial security, the article says, and the emerging debate about compensation among financial advisors is just one such example which can illustrate that.

Read the article at the Wall Street Journal, subscription required.

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