Impact – Wealth Management


Why you should consider a FLAT FEE advisor

How much are you paying your advisor?  For many people, their investment fees are one of their biggest budget items.  And yet, hardly anyone knows how much they’re actually paying!  Sadly it can sometimes be difficult to figure out.  There are often many “layers” of fees.  Investments themselves have “internal fees” and usually your financial advisor charges an additional fee.  In this blog we’ll break down the two most common ways that financial advisors charge, and we’ll introduce you to a new way of charging for financial advice… the FLAT fee.

You can learn more about how your financial advisor is charging you by checking out our blog post “Decoding Financial Advisor Fees

Commission Based Advising

When I joined the financial services industry in 2005, most financial advisors were working exclusively on commissions. Commissions were largely hidden from the client, so no one really knew how much they were paying their financial advisor. In most cases commissions were paid to the advisor by the product company only one time… usually at the point of sale.

If you were a long term investor that planned to leave your money alone for a number of years, this strategy could possibly have been a good strategy for you because you were charged only once.  But this created a problem for your advisor… the only way that your advisor would get paid again was to sell you more or different investments (which may or may not have been in your best interest). Because of this conflict of interest, there was a lot of mistrust in the industry. You probably felt a little suspicious every time your advisor would “recommend” a new investment.  Advisors (even good ones) were seen more as slickster salesmen than professionals.

Fees on a Percent of Assets

While there are still some advisors who work on commissions, over the last two decades the industry has mostly switched over to an asset based fee model.

Today many advisors are charging clients a fee based on the number of assets a client has. If you google “how much should I pay my financial advisor” you will find that the general consensus is that a 1% fee is typically acceptable.

Much of the value that a financial advisor provides to you is in broader planning (income tax planning, estate planning, retirement income planning, and protection planning) not just in the selling of investments.  With this model, your advisor had a way to get paid for the professional services they provided and not just for selling investments.  Much better, right?

“We sit on the same side of the table.”

“When I do better, you do better.”

“When the markets are down, we’re paid less. Our interests are aligned – conflicts of interest are removed”.

These are the things that fee-based advisors tell clients. I know because I used to say these same things. But some things always bothered me.

The Problem with the Fee Based Model

  • When the markets are down you aren’t always charged less. Most advisors work on a sliding scale… the more assets you have the lower percentage you are charged. If your portfolio happens to be close to a fee “breakpoint” then it is possible that if your account goes down, your fee goes UP and you are actually charged MORE.
  • The work that I do for my clients with one million dollar portfolios is no different from the work that I do for my clients that have five million dollars… yet with a fee-based model the fee is substantially higher for the client that has five million.
  • In spite of disclosing fees, most people pay no attention to how much they are ACTUALLY charged. The fees come out of the accounts automatically so no one has to send a bill and write a check. Fee based advisors claim to be transparent, but how transparent is a fee that changes every quarter?

This model is extremely lucrative for financial advisors and unfair to clients. I wasn’t the only one thinking it either. The Wall Street Journal recently published an article titled “Say Goodbye to the 1% Asset Management Fee?” and Investment News “Asset-based fee models are lazy – and flawed

What other professional service do you know of that charges based on how much money you have or the hypothetical amount of value that they’re bringing?

Doctors? Lawyers? Accountants? No one.

If financial advisors want to be viewed as professionals they need to charge as professionals.

Imagine going to the doctor for an operation and being told that in order to decide how much it will cost you, you’ll need to disclose how much money you have.

Most professionals charge a fixed rate or an hourly rate for their services. The fee that you pay is related to the complexity of service that you are provided and has nothing to do with how many assets you have.

Financial Advisors will argue that the more money that you have, the more complex their work is. That is a categorically false statement.

While it is true that sometimes wealthy clients have a need for complex planning, there is no direct correlation between assets and complexity. Clients with lesser assets also have many complex problems and often create more work for the advisor than wealthier clients.

Breaking Down the Fees

The average attorney in the United States charges about $350 per hour. Let’s assume for a minute that your portfolio is worth $2M and you are paying a 1% fee. Your annual cost is then $20,000. If your financial advisor charged the same way that an attorney does, they would have to bill you for more than FIFTY SEVEN hours each year to total a $20,000 charge. There are only around 2000 working hours in a year (assuming your advisor is in the office full time).  There is a really good chance that your advisor has more than 35 clients!!

It is extremely likely that you are paying your advisor far more than you pay for other professional services such as doctors, lawyers and accountants.

A New Alternative: Flat Fee Advice

About a year ago I started searching for a better way to do business. If I claimed to do what is in my client’s best interest how could I in good conscious charge based on assets? I entertained the idea of creating an hourly fee structure, but I didn’t want my clients to avoid calling me for the “little things” or hurry out of my office to reduce their charges.

I have long been a believer that having true and deep relationships is what really helps me create value for my clients. I have always said that the more I know you the better job I can do for you. An hourly fee definitely doesn’t line up with this approach. After hours of research and consideration I arrived on a structure that allows the highest level of personal and professional service at a fair and reasonable cost to my clients.

Impact Wealth is not a “discount” firm. We believe in providing the highest level of planning and investment service. We do not believe in price discrimination. We are professionals and we charge as professionals.

At Impact Wealth Management we help you choose the level of service that is right for you and you pay a FLAT FEE for that service.

If you’d like to learn more about how we serve our clients, give us a call, we would love to talk with you about it.


Impact Wealth Management LLC is a fee-only Registered Investment Advisor (RIA). We are based in beautiful Sioux Falls, SD and regulated by the State of South Dakota. Throughout this site, we went out of our way to present unbiased data believed to be from reliable and respected sources. However, its accuracy, completeness, and relevance are not guaranteed and no responsibility is assumed for errors or omissions.

Leave a comment