Be careful about any advisor who is shy about the cost of their services.
This is our third article in a series discussing our approach to the Institute for the Fiduciary Standard’s Best Practices. Previous articles are 401(k) to IRA Rollovers and Fiduciary Standards and Communicating Fiduciary Advice – on our website. Retirement account rollovers were used to illustrate the importance of having an advisor who actually puts their clients’ best interest first. The way your advisor communicates with you, including about fees, is important for helping you understand issues that may color their advice in their favor.
Until recently we have been concerned that a 60-day delay in implementing the Department of Labor’s Fiduciary Rule would foretell its demise. We are relieved that the delay will not be extended beyond June 9, 2017, when the provisions are scheduled to be effective. Any advisor, to any retirement account, will be required to operate by the standards of the DOL Fiduciary Rule. This is a huge step forward for retirement accounts. The Fiduciary Best Practices are still very important. Many investment decision do not involve retirement accounts and many financial decisions do not involve investments. This article addresses Best Practice Item 4, which concerns the fees you pay for financial advice:
- Provide a written statement of total fees and underlying investment expenses paid by the client. Include any payments to the advisor or the firm or related parties from any third party resulting from the advisor’s recommendations.
Your advisor provides a good faith estimate of fees and expenses in writing during the starting phase of the engagement when the investment policy is agreed to. Thereafter, your advisor will offer to all clients and will provide, upon request, an annual good faith estimate in writing of total fees and expenses incurred by each client and paid to the firm or related parties because of my advice.
Resource Advisory Services never receives any compensation from any provider of investment products or services we recommend to clients – in keeping with the NAPFA Fiduciary Oath as published on our website. We also adhere to the related CFP® Fee-Only method of compensation.
From the beginning of Resource Advisory Services, complete fees transparency has been our policy. We abandon estimates of hourly fees for projects, because we do not want clients making these decisions without a statement of the actual cost. We are in this business and have the most control over our expenses. We should clearly state the total cost of our Recommendations Reports and put the amount in your engagement agreement. Guidelines for Recommendations Report Fees are available on our website.
We become quite specific about fees when we describe Ongoing Relationships within Recommendations Reports. At that point, we are able to give a clear statement for the first year’s most likely total fees – in dollars – with our estimate of the range that can be reasonably expected. The higher end of the range would imply greater wealth than expected, while the lower end would imply weaker results. Each Quarterly Report includes a clear statement of total fees paid to Resource Advisory Services during the preceding twelve months – also in dollars. Guidelines for these fees are at Retainer Relationship Fees on our website.
We are comprehensive financial planners. Transparency about fees means you should understand clearly what you will receive and what you will pay. We are a resource that provides advice and service – Resource Advisory Services. Although we manage investments, we believe investment management is no more that 50% of the value derived by our clients. Click “What to Expect” above for more.
There is more to money than money®.
Contact J. David Lewis with DLewis@ResourceAdv.com. He is a passionate advocate for fiduciary, fee-only financial planning and has been associated with financial services since childhood in a banking family. He founded Resource Advisory Services in 1985. National Association of Personal Financial Advisors (NAPFA) was formed only a few years before. Lewis became a NAPFA-Registered Financial Advisor in 1986. From September 2013 through August 2016, he served on its National Board of Directors.