Last Updated on 01/09/2023 by Carl-Peter Lehmann
Understanding Fixed and Flat Fee Financial Advice. The world of financial advice is undergoing a significant shift. More people are seeking advice and guidance that is truly impartial and unbiased, rather than feeling like they’re being sold to. This trend is driving a move away from commission-based and AUM (Assets Under Management) percentage models toward fixed and flat fee structures. In this article, we explore the numerous benefits of this refreshing approach, contrasting it with traditional fee models and why we think flat fee wealth management services are the way forward.
What Are Fixed and Flat Fees?
Fixed Fee Financial Advisor: Charges a set fee for specific services, such as R15,000 for a comprehensive financial plan, which may or may not include the implementation of financial products based on your needs.
Flat Fee Financial Advisor: Charges a standardized monthly rate, like R2,000, for ongoing advice, implementation, and services tailored to the complexity of your financial situation.
5 Reasons Fixed and Flat-Fee Financial Advisors Make Sense
1. Transparency and Predictability
Fixed and flat fees offer clarity from the get-go. This predictability is invaluable for budgeting and planning. In traditional AUM models, there’s often no correlation between the fees paid and the scope of work performed or the quality of advice received.
2. Impartiality and Unbiased Advice
Fixed and flat fee models remove financial incentives that might compromise the advice you receive. Whether you need access to some of your invested capital or are considering other financial moves, your financial planner can discuss these options freely, without feeling financially compromised.
3. No Conflicts of Interest
A fixed or flat fee structure enables comprehensive discussion about your entire balance sheet, not just the aspects that a commission-based advisor can make money from.
Property as an Example:
If you’re considering property investment, an AUM-based advisor may discourage you because real estate falls outside of managed portfolios. Fixed and flat fee advisors don’t face this conflict, making them more likely to consider all beneficial investment avenues.
4. Cost-Efficiency Over Time
Reduced fees have significant long-term implications. Paying 2% less in total fees over 40 years could increase your retirement pot by over 60%.
A Real-World Example:
Consider a R5 million investment. A 1% p.a. AUM fee would cost R50,000 in the first year alone. Compare that to the fixed or flat fee model, and the savings become evident.
5. The Advisor Isn’t the Investment Manager
Financial planners and advisors offer advice, but they don’t control market performance. Does a 20% market rise warrant a 20% increase in fees, as seen in AUM models? Likely not. And the converse is true if markets fall in value.
Henceforward’s Flat Fee Wealth Management Models: A Closer Look
After understanding the universal benefits of fixed and flat fees, let’s take a closer look at Henceforward’s tailored offerings:
– For Retirees (Starting at R2,500 per month): Ideal for those who’ve amassed a significant nest egg (typically upwards of R5 million) and are looking to manage their wealth for a comfortable and secure retirement. This includes all the ancillary services like estate planning, cashflow modelling etc.
For Professional Millennials and Wealth Accumulators (Starting at R2,000 per month): Perfect for professionals and entrepreneurs focused on financial freedom, growing their balance sheets, getting out of debt and wanting to take care of loved ones (partner, spouse, children etc.).
For Family Office Clients (Starting at R10,000 per month): Suited for high-net-worth families with diverse portfolios and more complex balance sheets, including businesses, trusts, and multiple investment streams. The focus often becomes the transfer of wealth and succession planning, with balance sheets upwards of R50 million.
Conclusion
Fixed and flat fee models align your financial success with that of your advisor. At Henceforward, we’ve structured our fees to cater to various financial situations, ensuring that you’re not just another portfolio but a valued client with unique needs and goals. Do reach out if you have any questions. We’re happy to schedule a no-obligation call.
