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September 27, 2022 at 01:26 PM
Related: 10 Hard Questions That Reveal Why Investors Need Advisors
Some people shop on price alone. This makes sense when you are buying a single-use product, like soda or orange juice. It makes less sense when buying a service such as power from your electric utility, because service is part of the equation. If the power goes out, you want to know there are crews making the necessary repairs in the background.
This can become a problem when clients consider investing with an advisor as a transaction, expecting the lowest fee possible, yet feel all the other advice and support they request — the “aftermarket service” — to be free.
Lawyers get a bad reputation because it’s assumed they bill by the hour. Have you heard this joke? “A guy asks a lawyer: “What’s your cheapest fee? The lawyer answers, “$400 for three questions.” The guy replies, “Kind of steep, isn’t it?” The lawyer answers: “You’re right. You have one question left.”
Many financial advisors use a wrap fee or asset-based pricing structure. This usually covers most fees a client might otherwise encounter if they were paying on a transactional basis. What is the client actually getting, assuming they are receptive to advice?
Consider a simple transaction to buy stock. It might make sense to try and pay the lowest fees possible. If you jump ahead a couple of decades to estate planning and still own that stock (with a big unrealized capital gain), you have hopefully been working with an advisor who can help you preserve that wealth for future generations.
Click through the slideshow to see all the ways a good advisor brings value to the table.
Slideshow
