Trusting someone with the important task of guiding your financial plan isn’t easy. Add the sometimes-questionable and potentially biased fee structures of some financial institutions, it’s no wonder potential clients often come to me skeptical of costs in their search for an advisor.
Generally, firms build their fee structure in an attempt to match the complexity of services provided, allowing them to bring in appropriate talent to remain competitive.
In this article, we’ll cover Plancorp’s fee structure and philosophy while touching on other fee structures you may encounter in your search for an advisor.
As the old saying goes, follow the money. It's imperative that you ask and understand exactly how a firm makes their money and from whom before you become a client. In this case, following the money can help uncover what incentivizes an advisor so you can be aware of potential biases, building confidence in the advice you get.
(The good news: registered investment advisors like Plancorp are required to publish their fee schedules in what is called a Form ADV, which should be publicly accessible. So, if you’re looking to cut through the noise and get a straight answer, we recommend taking a look. Here’s a direct link to our ADV.)
Plancorp’s Fee Structure
At Plancorp, we are fee-only advisors, meaning the only way we are compensated is directly from clients for a set fee. Most commonly, we use an Assets Under Management (AUM) fee structure, which we believe keeps us most closely aligned with our clients. It’s also the most common fee structure used across Registered Investment Advisors (RIAs).
Worth noting: you may also hear the term "fee-based," which isn’t quite the same as fee-only. Fee-based structures often have at least one aspect that is commission-based. Fee-based firms charge a flat fee for some services, usually at an enticingly low level, but make up for it with hidden commissioned costs elsewhere in your bill.
AUM fees typically range between 0.50%—2% depending on how much is managed and usually cover a broad scope of services that, while not unlimited, is quite flexible.
At Plancorp, wealth management clients under an AUM fee structure can expect additional services like estate planning, tax planning, and insurance planning in addition to expected services like investment management and retirement planning.
By utilizing the AUM structure, we are able to avoid a ‘billable hours’ culture where every phone call needs to be tracked and invoiced or the one service most relevant to you costs extra. We view AUM fees as a ‘proxy’ for our overall value in the relationship—which consists of providing that broad range of financial planning services beyond investments.
We diligently assess the state of the industry and our competitors to ensure that our pricing is not only competitive but fair to our clients.
With an AUM structure, two factors are at work: your balance managed and the rate applied. Hence, you’ll pay more when markets are up (because you have a higher account balance), and less when markets are down (leading to a lower account balance). But it's also important to understand that because of our graduated fee schedule, the more your assets grow, the lower the rate applied on that growth is.
Our fee schedule begins at 1% on the first $2 million of assets we manage and is tiered from there so the rate decreases the higher your assets grow.
Plancorp’s fee structure is as follows:
$0 - $2,000,000: 1%
$2,000,001 - $4,000,000: 0.80%
$4,000,001 - $6,000,000: 0.60%
$6,000,001 - $10,000,000: 0.50%
$10,000,001 - $25,000,000: 0.45%
$25,000,001 - $45,000,000: 0.40%
$45,000,001 - $75,000,000: 0.35%
> $75,000,001: 0.30%
While we do not have a minimum account size for new clients, we do have a minimum annual fee for our services—$12,000—which lines up with an billed asset level of $1,200,000.
If your investable assets are well below that level, it’s our fiduciary responsibility to inform you that you'll likely be better suited working with a firm that has a more affordable fee structure, and we are happy to make recommendations.
Plancorp’s Fee Philosophy
At its core, our fee philosophy is to incentivize a genuine care for what’s best for the client (not what lines our pockets) and to remain flexible and available when and how our clients need.
Although not a perfect correlation, we measure complexity by assets with the assumption that a client’s need to tap into the deeper tax, estate, and investing strategies will increase in line with their net worth.
As outlined above, we operate on a graduated fee schedule, meaning the rate a client pays drops as their assets grow. Therefore, this model is smarter if you’re managing larger amounts or plan to grow your money significantly.
Beyond that, we believe our independence is the key factor in what makes us successful because it builds trust. To maintain that, we do not receive any income in the form of commissions or kickbacks from any of the funds, products, or services we recommend.
Our only incentive is to provide advice that puts clients' needs first in the hope that trust fosters a long-term relationship.
Other Common Fee Structures
Flat Fees
Flat fees are another common structure, with the financial advisor billing an annual fee regardless of the asset size.
This fee can range from $2,000 to $10,000 or more annually, depending on the complexity and scope of services.
In a flat fee structure, it is important to define and understand the scope of services offered, as these will necessarily be much more limited than under an AUM fee arrangement.
Hourly Fees
Hourly fees may be charged for specific services or consultations. In this case, there should be an ‘a la carte’ pricing menu.
Hourly fees typically range from $150 to $500 per hour depending on the complexity of the services and the qualifications and certifications of the financial advisor performing the services. You can expect to see higher fees from CERTIFIED FINANCIAL PLANNERS (CFP).
Project-Based Fees
Project-based fees may be charged for specific projects like an initial financial plan, retirement planning, or tax planning.
You may see this in combination with hourly or flat fee structures, as part of the pricing menu, for the larger and more in-depth items.
These fees can generally range from $1,000 to $5,000 or more, depending on the project's complexity. The call out we make for those considering a project-based fee is the lack of cohesion that can come from addressing everything in a silo. Eventually the components of a well-rounded plan may not work together because they weren't crafted together.
Performance-Based Fees
Performance-based fees are a less commonly seen structure, but some advisors may charge fees based on the performance of their clients’ investment accounts.
This can involve a base fee plus a percentage of the investment portfolio returns above a certain benchmark.
Disclaimer: performance-based fees are often an additional cost saddled to those who want to pursue a more active investment philosophy.
Commission-Based Fees
Commission-based fees are more generally associated with brokerages, who may earn commissions on the financial products they sell, such as mutual funds, annuities, or life insurance products. While firms like this may say they still put your best interests first, the reality is they their financial incentives make that less of a sure thing.
Retainer Fees
Retainer fees are typically fixed fees charged by an advisor on a monthly or quarterly basis for ongoing services.
Retainer fees can range from $200 to $2,000 per month, depending on the services provided and are most commonly used for specialized services or those not often used, but critical like legal advising.
Which Fee Structure is Best?
At the end of the day, your choice of what firm to work with all comes down to trust, investment philosophy alignment, and fee structures, as well as the firm’s standard of care.
Consider the following questions as you decide what firm to move forward with:
- Is their financial advice going to be biased in any way? If they’re operating off a commission-based fee structure, it’s safe to assume there will be some level of bias or a conflict of interest in their investment advice and suggestions.
- What is their standard of care? There are two common standards of care in the industry (and they’re often connected to the firm’s fee structure): suitability and fiduciary.
Suitability Standard in Financial Advising
A suitability standard means that your financial advisor will make recommendations that are suitable for your needs, but perhaps not the best option with the best potential results. Commission-based fee structures are more common in firms with a suitability standard.
It’s also common to see suitability standard at larger brokerage firms as opposed to registered investment advisors (RIA) like Plancorp.
Fiduciary Standard in Financial Advising
A fiduciary standard, like Plancorp’s, means that the financial advisor must always operate in the client’s best interest, when it comes to recommended investment strategies and financial advice.
It’s more common to see fiduciary firms operate under AUM or similar fee structures. This allows them to remain unbiased and support of their client’s goals above the goals of the firm.
Beyond fee structures and standard of care, here are more suggestions of great questions to ask before you begin working with a financial advisor.
Next Steps
When entering into a wealth management services agreement, how much a financial advisor costs is just the tip of the iceberg of things to consider before making this important decision, especially if you have a high net worth.
Doing your due diligence ahead of discovery calls with firms is the best way to protect your assets, your goals, and your legacy. Our team has created a helpful guide to explore everything you need to know about wealth management.
