I visited a close friend in Indiana, my home state, a while ago. We talked about money and how best to navigate personal finances. They mentioned a financial advisor recommended a life insurance policy, and they wanted my opinion on it. I looked at the policy and asked them why they felt they needed a whole life policy. I also ran some numbers to calculate the expected internal rate of return (fancy finance language for how much the policy was going to pay the policy owner after accounting for payments). After running the numbers and answering some questions, my friend felt relieved. We both understood that this policy didn't make sense for them. They said something to the effect, "Yeah, I didn't think this policy is best for our situation, and I am happy to hear you agree."
On reflection, it became clear that many consumers must purchase financial products that do not make the best sense for them. And consumers are likely influenced by someone with the title "financial advisor," who is a salesperson incentivized to sell a specific product. Don't get me wrong, we still need insurance brokers, but what they have to sell may not be best for everyone. The sales model focuses on masking financial advice when the engagement is about selling a product. This apparent conflict of interest is why people distrust anyone who calls themselves a financial advisor.
It is this very conflict of interest I wanted to avoid when I established Pursuit Planning and Investments, LLC. I chose to make my firm a fee-only firm, where financial planners employed by the firm must act as true fiduciaries. Under this model:
Advice is the core of all client relationships.
Planners work for the client's best interest.
Advice is accessible and affordable for Millennials and Gen X.
What is the Fee-Only, Fiduciary Planner Model?
The financial advisor business model has changed over the last several decades. From the client's perspective, these changes provide more options, transparency, and services that used to be accessible only by those with a lot of wealth. The fee-only, fiduciary model makes it easier for young professionals, startup families, and recent university graduates with professional degrees to get the advice they need for where they are in life.
The fee-only fiduciary planner gets paid to provide advice to their clients, whether in financial planning, asset management, or both. Understanding the fiduciary standard is vital. When acting as a fiduciary, an advisor must always put the client's interest above their own. Fee-only advisors get paid exclusively by their clients and do not receive commissions or kickbacks for recommending certain products or services.
Trust is at the core of all financial planning relationships. As an investor and saver, you want to find an advisor you can trust and work with who provides a transparent fee structure that you understand.
Advice is The Center of Any Relationship
While investment management and insurance sales have been the industry's focus for years, proper holistic financial planning was often only available to investors with lots of wealth. Today, the fee-only model brings advice back into the mix and makes it more available. More advisors are tailoring their service offerings and client relationship models to focus on a more comprehensive, accessible form of advice rather than strictly focusing on one aspect of the client's financial life.
Financial advice is more than asset picking, portfolio management, or insurance selection. Holistic financial advice helps clients better manage their financial wellness and integrate disparate areas of their life into one cohesive strategy. Financial advisors work with their clients to integrate and optimize the following areas:
Goal Planning
Budget and Cash Flow
Education Planning
Student Loan Management
Mortgage Analysis
Major Purchase Planning
Debt Analysis
Career Planning
Employee Benefits
Risk Management
Retirement Planning
Estate Planning
Income and Tax Planning
Investment Advice
Under the fee-only model, advice is tailored to help you grow and build wealth as you move towards your goals. In other words, a financial planner now may act as a guide, helping you understand the alternative decisions and potential consequences you need to navigate. The financial advisor can help you make informed strategic decisions about your situation and help you update your plan as the broader economic environment changes. The fee-only model allows the advisor to tailor their advice to what you need in your current life stage.
Working for Your Best Interest
One of the most significant benefits of working with a fee-only fiduciary is the lack of conflicts of interest. The definition of fiduciary is "a person who holds a legal or ethical relationship of trust with one or more other parties." While it may be surprising, not all financial advisors are fiduciaries.
When advisors earn their income from recommending certain products over others, there's an inherent conflict of interest. The concern is that it's tough to know as an investor if the product is truly in your best interest or if it generates the most commission for the advisor. Fee-only helps remove this conflict of interest.
Convenient and Affordable
Before the fee-only model, advisors were limited in the services they could provide. Now, they have much more flexibility. No matter your stage of life, chances are, there's an advisor out there whose pricing and service model fits your needs.
So, what does fee-only look like in practice?
One of the most popular pricing models is the monthly subscription model. Clients have an ongoing, comprehensive relationship with a financial advisor. This allows an advisor to provide financial planning without a client needing investable assets. For instance, their assets may be in their 401(k), but they still need advice across many other areas. This is especially common for Millennial and Gen X professionals.
For investors who prefer one-time advice or DIY their finances, project-based models allow a saver to get personalized advice in a few critical areas of their life for a flat, transparent fee. There are also fee-only models based on assets under management. The advisor charges a percentage of the assets they manage and provides targeted financial planning services in the agreement.
The Takeaway
It's easier to invest now than ever, but creating a successful financial plan remains complex and should be rooted in your situation and goals. Fee-only, fiduciary financial planners can help you build your wealth at any stage of life, for any pursuit– and you'll know they are acting in your best interest.
Pursuit Planning and Investment, LLC is a fee-only fiduciary financial planning firm in Portland, Oregon. Our planners sign a fiduciary oath and do not receive a commission for selling products. We offer virtual financial planning services for Millennials, and Gen X. Feel free to review our services and place a commitment-free 30-minute discovery meeting on the calendar. Plan your pursuit!
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