saluki9
Thinks s/he gets paid by the post
- Joined
- Feb 23, 2005
- Messages
- 2,032
That amazes me. The typical rube I run across is paying 1.5% in fees just for the FA and then they are put into high fee mutual funds that charge another nominal 1.5%. For a $1MM portfolio that works out to $30,000 per year. Yet these people that need the help won't pay $1,000 once or twice per year to have someone look over their portfolio allocations, insurance coverage, etc?
I can't help but think that if your assets are under about $5MM you fall into the cookie cutter approach. There would be slight shifts based on size of expected pensions, inheritances, business, real property holdings but overall the adjustments are pretty obvious and minor.
I guess that business model doesn't work because so much money can be made from the clueless. Once they realize they aren't getting much value for their $30,000, they realize they can usually do it themselves.
I will agree that when the amount of money becomes substantial -- $20MM+ or so -- the complexity grows when other family members, commitments and goal are factored in. If I ever find myself in that area, I'll let you know.
Ever hear the phrase "don't hate the player, hate the game" (OMG, I can't believe I actually used that in adult discourse" but in this case it's true.
Using your hypothetical $1M portfolio generating $30,000 in investment fees. Did you know that in a typical wirehouse (ML, Morgan Stanley, etc) that the broker would only see about $4,500 of that 30K? the whole system is just set up wrong.
You are correct about many people using some strange mental accounting when it comes to fees. I'm in the process of helping a friend get established in the fee based business. He way trying to set up a pricing model for his new clients and he came up with the idea of charging 85bps as his starting fee. He then said he thought about using a reduced charge of 40bps for people who would pay cash for a financial plan of $1,000. For most people it would be a huge savings.
people went NUTS! They would rather pay several times the price just so they don't have to write a check.