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Searching for Value in Financial Services

Rolex or Timex?  Same number of syllables, big difference.  Both tell time, but one carries a status.  Financial advisors sell both a service and an image as well.  You can get dirt-cheap services from certain firms, but there is no status.  You can also go to a storied investment firm in a high rise downtown complete with mahogany desks, but it’ll cost you.  Where you go depends on where you find value, and financial advisors are masters of creating the perception of value.  As consumers, we should ask ourselves how we define value.  Define it wrong and you’ll expect too much or pay too much or vice versa for what you get; you'll never be happy.  If we all wanted cheap, there would be no such thing as luxury cars or jewelry.  The crowd who does want cheap is happy driving old used cars and wearing cubic zirconia, jewels.  The crowd who wants expensive wears the latest fashions and drives fancy cars.  Both groups find value in those choices.  It’s a conundrum for advisors: to whom do you want to appeal?  Does it give off a good or bad sign if I’m driving a Hyundai or a Porsche?


Where do you find value?   Many advisors will give the sales pitch along the lines of “We’ll do everything for you.  We’ll work with your accountants, lawyers and be the quarterback of your financial team.  All it will cost is 1.25% of your assets annually.”  They handle it all for $12,500 on a $1 million portfolio or $125,000 on a $10 million dollar portfolio.  But what are they really doing?  Are they managing your financial plan, monitoring your investments, and making sure you’re on track to achieve your goals?  That’s the core part of the job.  Some groups might create Wills, trusts, and do your taxes.  However, it’s unlikely that would be wrapped up in that single 1.25%.  Likely they are just doing asset management and making sure the other boxes in your financial life are checked.  Maybe you find value in that.  Maybe the advisor has a corner office with a nice view and mahogany tables.  If you feel like a bigshot or a somebody when you walk into that firm, there’s certainly value to that.

1.25% is expensive in my mind but all too common of a fee for a full service advisor.  According to, average advisor fees in 2020 looked like this with the average fee of 1.02%:


At $30 Million mil you get a price break to 0.59%, but that still costs $177k in annual fees.  Break that down hourly at $500/hr, and that’s 354 hours of work your advisor is billing.  With 2000 hours in a work year, is your advisor dedicating nearly 20% of their time to your account?  I doubt it. 

I’ve heard attorneys and CPAs laud advisors for “finally figuring out how to charge clients.”  These professions charge billable hours.  If you have a question and make a call, you get charged for 15-30 minutes.  A financial advisor is quick to say something like “feel free to call any time and I’m not going to bill you.”  Do the math though.  If you have $1 million invested at 1.25%, you’re actually paying much more whether or not you talk to your person than you would if you were just billed 15-30 min at an $500/hr.  It’s a perception of value though.

I struggled with this when creating a fee schedule for ZWM.  I thought it would be revolutionary if I switched to just charging clients hourly.  Nobody to my knowledge is doing that. I had to back track on that idea though.  My clients have anywhere between $50k and $5 million invested.  If that $50k client is being charged $300 per hour--my hourly rate which is right in the middle of going rates near as I can tell--and I’m putting in an hour per month, that’s $3600 or 7.2%. Regulators may not like seeing that!  What if they wanted a complete financial plan on top of that, do I charge extra?   Based off a percentage of overall assets it quickly becomes expensive.

So, the hourly rate doesn’t work for the smaller accounts.  What about the big ones?  This is the larger account that is indifferent to paying 1.25%.  In fact, they might not even know how much they are paying.  My assumption is that this client wants things out-of-sight-out-of-mind.  In this case, If I’m sending them bills for $300 here-and-there throughout the year, that might just be one more aggravation.  And, if it creates aggravation to where they aren’t calling and utilizing my service, the professional relationship falters.  That pay as you go perception limits them from coming in. But if they do the math, it works out in their favor, by a wide margin. 

A personal experience with value is the American Express Platinum Card,  I pay roughly $700 per year in fees just to have the card.  That’s steep, I realize this.  There are many perks that probably add up to about $200-$300, but the one that keeps me coming back is the airport lounge access.  I know that if I’m at an airport with an AMEX lounge or a reciprocal one, I can hang out and have food, drinks, maybe even take a shower…all for free.  I do leave a tip though! If I calculated the cost of eating and drinking at an airport for me and my family while waiting for a flight, is it $700?  Some years when we travel by plane a lot, yes, it is!  If we have a long layover or a flight is delayed, the service becomes invaluable.  Years where we don’t fly as much it would be more cost effective to see and experience the $100 tab at a crappy restaurant for a couple drinks and some shitty nachos a few times a year.  The value is not having to worry about it.  Advisors bank on this behavior.   If anyone reading this is a psychologist, there has to be a cognitive bias associated with this behavior, I just can’t find it! 

Seeing fees is another thing that ties in closely with this mindset.  I know of someone who hates paying fees but needs advice and hand holding.  Their advisor retired and they weren’t very happy with the new guy.  They have $5million in mutual funds where they paid an upfront commission and are being charged roughly 0.8% per year.  That’s $40k in annual fees. I offered to work with them for $10k/yr and they wouldn’t do it.  Why? Because those 0.8% fees are baked into the returns of the funds.  They are never seen.  If I charge $10k per year in overt fees which you are billed, you see it and feel it, and it doesn’t sit well.

Nevertheless, regular hourly billing probably won’t work for the large client due to the “nickel and diming” effect.   Reluctantly I stuck with the % of assets charge, but I set a cap on annual fees.  I view this as the best of both worlds:  I can take on smaller clients and charge them a reasonable amount, and I can take on mid to larger clients and provide tremendous value with a flat annual fee.  If you haven’t looked at my site, I charge 1% on the first $250k and 0.5% on anything above that.  Fees are limited to $10k per year per family which is defined in the advisory agreement we enter.  This means that if you have over $1.75million in assets invested, I don’t charge you more.  You pay a flat fee of $10k whether you have $2 million or $20 million.  Some of my peers are quick to point out “So if you land a $100million client you’re only going to charge $10k or 0.01%? You’re thinking too small!” 

The reality is that I don’t operate in the $100 million realm.  I don’t even operate in the $20 million dollar realm.  I wish I did.  If you have that kind of cash lying around and happen to be intrigued by any of my ramblings, I’d love to work with you!  And yes, I would charge a $10k flat fee.  Now, as with any client, if I felt that I was doing a lot more work than my $300/hr, we would have a discussion.  The value isn’t there on my end in this case. 

Having done this for a while, if I’m doing asset management and creating a financial plan, aside from more zeros, there really isn’t THAT much more work involved in managing that money.  It certainly isn’t 10X more work to manage a $100k portfolio vs, a $1million one.  Why should fees be 10 X more? Moreover, I’ve seen $30 million dollar portfolios and they are no different than portfolios I manage. 

I’ll put my portfolios (and my backyard BBQ skills) up against anyone.  The portfolios are all regularly reviewed and slightly changed according to a variety of risk metrics. They are globally diversified and match the risk level a client wants or needs. This is what the big firms do too. The difference is that the big financial firms will not work with you unless you have at least $250k.  At that level you’ll likely pay around 1.25%.  Below that level you could find an independent agent, but they would likely charge you that same amount or put you in a commission based product paying 4-6% upfront AND have annual fees of around 1%.  This is why I don’t mind taking on the $50k client, I know how much they are going pay if they work with someone else.  I can make $500/year in this case or watch them pay at least that amount plus $2500 upfront (5% X $50k).  Plus, smaller accounts were my bread and butter for a long time.  I enjoy working with these clients and want to continue to do so. 

My perception of value varies.  When it comes to ZWM, service equal to or better than you’ll receive elsewhere at a fair price is the cornerstone.  You won’t get the high rise view and mahogany desk in my office, but it also isn’t in a strip mall next to a Dollar Tree.  My ideal client has about $2-5 million in investable assets, enough to live mostly worry-free but not so much that they can piss money away in fees.  $10k per year is a lot, but it is very reasonable in the grand scheme of things.  More importantly, I like clients who see the value in the service, regardless of account size.  I’ve talked to a lot of people with $500k who wonder if they are big enough to work with an advisor.  In short, yes they are, and I feel I’ve created an excellent product and experience for them. 

If you’re looking for an advisor, does their value proposition align with yours?  Value is different for everyone but creating a perception of value never sat well with me.  I view my fee structure as tangible value.   I’m no Porsche and certainly not a Hyundai, maybe I’m around a Toyota to Lexus? My initial question: Rolex or Timex?  My watch is neither.  It’s a brand that you’ve probably never heard of, but it meets what I wanted: it’s self-winding, Swiss made, has a good weight, looks good, and it keeps good time.  It was $1000, well short of a Rolex and much more than a Timex. So it definitely wasn’t “cheap” but it still gets complemented regularly.  That, to me, is value.

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