What is the cost of a Fiduciary Fee Only Planner for Established Physicians

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Steven Podnos MD CFP wrote:

The second model of flat fees is tiered to rise with AUM, etc.  So wealthier individuals pay higher fees with higher AUM-just not a direct proportion.  Again, the flat fee might exceed proportional AUM charges in “down” years.

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That is similar to ours, in a way, except as follows:

1. Basic Tier: $5k/yr - ongoing comprehensive flat fee financial planning, no asset management but portfolio advice (client implements) for all investments (including employer accounts)


2. Premium Tier: $10k/yr - same as Basic except investment management up to $1M + quarterbacking with client advisors (attorney and insurance, for example) + additional meeting before Initial Foundation Plan.


3. Concierge Tier: $15/yr - same as Premium but adds personal tax preparation and includes asset management above $1M. At the time, we have no cap on total investments managed, because we haven’t needed to for the reasons cited above - we just don’t see the added complexity for $1M versus $5M. I’m not promising that we won’t get a client with such complexity (15 different accounts with multiple transactions, comples trusts, 100+ real estate properties, etc.) that we won’t have to adjust on a per-case basis, but that would be disclosed in advance so the prospective client could make an informed decision.

To me, this is the most fair to both the advisor and the client.

I don’t think it will be possible to find a system that is perfect for everybody - you have to find what works for you and your clients and go with it. If Steven Podnos’s system works for him, I have no problem with it. Ours works for us, and everybody is free to set up their business in such a way as to profit from it and enjoy what they do. If it is a bad system, clients will leave and the business owner will make changes. That’s the supply and demand system I learned as an Econ minor in college 42 years ago. I don’t remember much else   .

[afan]

That is a straightforward pricing system. It could work well for someone who does not need investment management- 3 fund portfolio- but needs a lot of advice. At $250-$500/hour the Basic plan works out to 10-20 hours per year of advice. It still sounds like a lot to me, particularly not including preparing tax returns, but I will take your word that some people use it.

My bigger concern about the AUM investment management deals is that they distort the focus of the service. Since revenue is based on the amount of money under management, the advisor has a great reason to encourage the client to park more money with the advisor. The advisor also has every reason to focus marketing and work on investment returns.

But there is no evidence that the advisors can do as well as a simple 3 fund portfolio after fees. The advisor could add value by contributing non-investment financial planning. Advisors could compete on the quality of their financial planning, as opposed to investment management. They could focus on their own continuing education and market their training. This gets back to my lawyer example. I don't pay my lawyer a cut of my networth. I pay for a service and I select the lawyer based on reputation for expertise in that area.

Financial planners who have a lot to offer in expertise should be encouraged to continue to develop their knowledge. But to pay AUM for management bases the cost on something that has nothing at all to do with the quality of the noninvestment advice. If I need help on a tax question I want someone who is an expert in tax, not in investments. Same for Roth conversions, estate planning, or any other financial question. None of this requires expertise in investment management. The time my planner spends staying up to date on investment matters is wasted. But the planner has to be paid for this time and effort even if it cannot provide value.

 

[afan]

That doesn’t mean planning wouldn’t help you, just that you can get by fine without it. You are limited to the facts you know, but I think even you might be surprised by what you don’t know.

To be clear: There is a difference between "planning" and "hiring a financial planner"

I am well aware that there is a lot I don't know. That is why I read sites like this and bogleheads. But my interactions with planners so far have not given me any confidence that they have much to offer. Several have pitched their services but the answers I get to what has become my standard set of questions have not been impressive. Back to most wanting to talk about investments and imply that their active management will beat the market.

I say I want to work through a strategy to optimize the after tax value of inheritances to my heirs, who likely will have different tax brackets. This requires considering state and federal estate and income taxes for me and for them. I don't get anything to suggest they even understand the question, let alone know how to help.

I also used to have two insurance questions, one about disability insurance prices vs. the present value of benefits, discounted by the probability of collecting and the duration of the income stream. The other was about need for maintaining and options for getting rid of outgrown cash value life policies. One planner cheerfully agreed that the present value of disability insurance would depend on the probability of becoming disabled long enough to quality, but had no idea what those probabilities might be. When I raise options for life insurance they agree with my list of considerations, but seem out of their depth in providing any information.

When I ask about Social Security claiming strategies most agree that the probability of collecting influences the present value. But they have no idea what those probabilities are or how to calculate the present values taking those into account. They use calculators that assume a known age at death and cannot go beyond that.

So far with any of those questions I have yet to have someone say anything even interesting, let alone that would make me consider hiring them.

Most say that they don't provide tax advice, which makes them useless, since taxes are my biggest expense.

This is why I keep wondering what planners are doing when they are spending dozens of hours a year on a client. The answer appears to be none of the above.

If I could find someone who I thought could handle these introductory questions then at least I would consider paying them for advice.

Hiring someone to invest for me is not going to happen. I could imagine paying a flat fee or an hourly fee for advice. But so far I have not found one for whom I would be willing to pay.

I definitely plan. I just don't use a planner.

 

[jfoxcpacfp]

afan wrote:

That doesn’t mean planning wouldn’t help you, just that you can get by fine without it. You are limited to the facts you know, but I think even you might be surprised by what you don’t know.

To be clear: There is a difference between “planning” and “hiring a financial planner”

I am well aware that there is a lot I don’t know. That is why I read sites like this and bogleheads. But my interactions with planners so far have not given me any confidence that they have much to offer. Several have pitched their services but the answers I get to what has become my standard set of questions have not been impressive. Back to most wanting to talk about investments and imply that their active management will beat the market.

I say I want to work through a strategy to optimize the after tax value of inheritances to my heirs, who likely will have different tax brackets. This requires considering state and federal estate and income taxes for me and for them. I don’t get anything to suggest they even understand the question, let alone know how to help.

I also used to have two insurance questions, one about disability insurance prices vs. the present value of benefits, discounted by the probability of collecting and the duration of the income stream. The other was about need for maintaining and options for getting rid of outgrown cash value life policies. One planner cheerfully agreed that the present value of disability insurance would depend on the probability of becoming disabled long enough to quality, but had no idea what those probabilities might be. When I raise options for life insurance they agree with my list of considerations, but seem out of their depth in providing any information.

When I ask about Social Security claiming strategies most agree that the probability of collecting influences the present value. But they have no idea what those probabilities are or how to calculate the present values taking those into account. They use calculators that assume a known age at death and cannot go beyond that.

So far with any of those questions I have yet to have someone say anything even interesting, let alone that would make me consider hiring them.

Most say that they don’t provide tax advice, which makes them useless, since taxes are my biggest expense.

This is why I keep wondering what planners are doing when they are spending dozens of hours a year on a client. The answer appears to be none of the above.

If I could find someone who I thought could handle these introductory questions then at least I would consider paying them for advice.

Hiring someone to invest for me is not going to happen. I could imagine paying a flat fee or an hourly fee for advice. But so far I have not found one for whom I would be willing to pay.

I definitely plan. I just don’t use a planner.

 

It is very disappointing to me that you have had this experience. This is not a-typical and why so many consumers are jaded about our profession. You can find many “advisors” but few who have an interest in real planning, even fewer with the necessary knowledge and experience to go beyond the commonplace. I would say most physicians go their whole lives without ever interacting with the kind of financial planner who could fill the needs listed above. It’s a crying shame and mostly luck if you do find such a person.