What’s Financial Advice Really Worth?

Let me say right up front that I “get it.” In an industry where the product is a client’s portfolio growth over 30 years or so, costs can be as important as performance to the outcome.

And I applaud advisors who actively work to keep their clients’ portfolio costs as low as possible, while still recommending high-quality investments. That said, I find a lot of confusion among financial advisors about their own compensation from their clients.

A good example of this is the considerable pushback I’ve received on my recent articles about the new business model that millennial advisors are using to attract millennial clients.  

The primary concern of most the feedback is the cost. That’s because the new millennial model is based on a “low” monthly fee (usually about $215 per client).

In return, clients get a financial plan, advice about where and how to implement the investment portion of that plan (Vanguard, for instance) and the ability to go online to schedule calls with their advisor when they feel the need for further advice.

The clients get the advice they need, at a price they can afford at one stage of life, and they don’t have to leave home to get it.

Pros, Cons

The advisors, with the prudent use of technology and no office visits, can handle about 150 clients (vs. the traditional 80), with little overhead. This translates into a very good living for someone in his or her 30s. (Do the math: $215 x 12 x 150 = $387,000 per year.)

This is too good of a living, according to some critics.

To support their concerns, some advisors point out that the $215 monthly fee would translate into a 1% assets-under-management fee on a $258,000 portfolio.

That’s quite high compared to today’s “robo advisor” depressed AUM fees. And, they continue, $258k is probably an exceptional portfolio for millennial investor.

While their math is correct, it seems to me that these critics are making two mistakes that continually plague independent advisors. Both involve value.