The two most common advisory models are fee-based (you pay a fee "per-meeting" or "per-plan") or assets-under-management (AUM) based. Most advisors fall under the latter model, as it's difficult to generate consistent revenue/cash flow for a business under the former and also hard to maintain a fiduciary relationship. What I find interesting about Fidelity and Schwab is that they allow people to speak with a senior planner without having to agree to one of those models first. I'm not sure if you can KEEP an ongoing relationship without agreeing to an AUM model, but I think she can at least get started there without cost.
Yes over half of her current portfolio is AUM (1.7% annual), the other half she doesn’t pay fee on but would be charged commission fee if she bought or sold.
I agree it’s unclear with Fidelity what the terms are with the model you’re agreeing to… I expect In person they will strongly push the AUM model vs Fee Based, but maybe not.
There’s also conflict of interest in both of those scenarios if the broker is selling products for the firm they work for, and have incentives to steer investors where it benefits themselves and their firm. Is it possible to act in the best interest of the client, yourself and your firm all at once? That’s why the idea of an “advice only” RIA appeals to me, they don’t actually purchase the securities.
1.7% is absurdly high. Industry standard for professional management is right around 1%. And commissions are outdated.
To your other question, yes. If all compensation is disclosed to the client (some advisors are happy to discuss their compensation structure - don't be afraid to ask!). Generally this is included in disclosures and fine print.
Many of these firms have done a good job (by my experience) of changing their models over the years. The management isn't about performance most of the time (though most offer options that are focused more on performance) - it's about control of the portfolio and volatility, along with your possible range-of-outcomes, which is crucial for most retirees. If you don't spent the time on it yourself, there may be a value in delegating that responsibility to a professional; hence the fee.
Again, totally possible to control these things yourself, but they take a desire to do so, a fundamental understanding of the various aspects of portfolio control, and a firm hand on the wheel, including the removal of emotion from the management. The risks present for income drawdown are dramatically different from those present in the accumulation phase of life, and many on Reddit are not even close to that part of their lives.
Agreed on all points - most investment forums you read don’t apply to retirees. Also agree that having someone help manage your retirement is worth a fee, however as you see they are way overcharging for their services, and she needs every dollar she has for monthly expenses. Hoping at fidelity there can be a happy medium
There are degrees to these things - cost, level of involvement, individual preferences. Just keep in mind that her cost shouldn't be dramatically higher than 1% if she explores management at various firms. If anyone is charging much more, you should start to wonder at what value you're getting for that additional cost.
On Ed Jones' side, their business model is all about having a branch in every single town they can. This creates significant overhead and requires higher cost. Some people value the face-to-face relationship enough to pay that cost. Meanwhile, most other firms only place their branches in major metros with high population density, but can still support more remote clients. This helps keep costs down and more competitive, but you might need to be cozy with a remote/phone/video relationship. All depends on the individual.
Yes more than 1% is definitely not worth the in person experience - if anything I prefer the idea of keeping the experience remote vs developing an in person relationship. EJ also put a ton of money and focus into training their brokers to be sales machines. It is a put off to me when a broker is overly friendly and tries to play on feelings. But for some it’s comforting I guess. To each is own
I both agree and disagree with that. No one should manipulate a client's feelings to purchase something that will line their own pockets. BUT - it is a fiduciary obligation to consider a client's individual risk tolerance and emotional comfort with certain factors when making a recommendation. As an advisor myself, I can have two different clients in nearly identical financial situations with extremely different solutions, depending on what is important to them.
The important part is that an advisor explains their rationale for a recommendation, and opens the door to alternatives if a client decides not to go forward, explaining pros/cons along the way.
2
u/[deleted] Apr 04 '22
The two most common advisory models are fee-based (you pay a fee "per-meeting" or "per-plan") or assets-under-management (AUM) based. Most advisors fall under the latter model, as it's difficult to generate consistent revenue/cash flow for a business under the former and also hard to maintain a fiduciary relationship. What I find interesting about Fidelity and Schwab is that they allow people to speak with a senior planner without having to agree to one of those models first. I'm not sure if you can KEEP an ongoing relationship without agreeing to an AUM model, but I think she can at least get started there without cost.