One of the biggest concerns of people who need financial advice is the matter of advisors’ fees. While cost is a fair consideration when it comes to choosing an advisor, it’s equally — if not more — important to begin by examining your goals and objectives and the components that will help you get there.

This approach, “begin with the end in mind,” which was popularized in Steven Covey’s book The 7 Habits of Highly Effective People, can better position people to select a relationship that best supports their goals.

Once you’ve determined the components that are most important, the issue of cost, value, and fee structure becomes easier to navigate.

Ask the right questions

Matt Camrud, CFP®, a Senior Lead Advisor at Brighton Jones, advises people who are searching for an advisor to look for value in excess of the fee through several factors. For example, whether you want to spend time on investment management and whether you enjoy placing trades and the many tactical aspects of executing your financial plan. For more on this, read Questions You Should Ask When Choosing a Financial Advisor. Another component to consider is whether your emotions factor into your decisions. For people who invest in a volatile market, this understanding is crucial.

You’ll also want to consider what type of relationship you want to have with your financial advisor. Think about which service components are most important to you. Essentially you want to make sure your advisor provides above and beyond value so you can execute on your long-term wealth plan. Examples of attributes you may want to prioritize include:

• Proactive, thoughtful advice tailored to your specific situation
• Availability to answer your questions quickly as they arise
• Preference to working with a sole practitioner or a firm, and whether you prefer a national team or a local office
• Whether you need additional services in areas such as estate planning, private equity, real estate, philanthropy, legal and tax planning, and if you would find it helpful to have a professional to coordinate these services

Once you understand what you’re looking for and what you need, then move on to cost.

Weigh percentage-based and flat-fees

Advisors typically operate using two common compensation arrangements: percentage-based and flat-fees.

Cost will vary based on the specific services you need and the complexity of your situation. The dominant fee structure in the wealth management industry is percentage-based. Financial advisors charge a percentage of your assets under management, which we’ll refer to as AUM.

This percentage fee is based on the accounts for which your advisor is providing oversight. These advisors tend to be more involved when managing assets in a portfolio and are incentivized to help you succeed as they benefit from you doing well and conversely feel the pinch when your accounts are hit.

At the other end of the spectrum are flat fees. For flat fees and hourly rates, charges depend on a number of factors, including years of experience of the advisor, complexity of the matter, and general overhead of the advisor.

Working with a flat fee advisor typically requires individuals and families to take a more active approach than they would working with an advisor under the AUM model. For example, they may receive a plan that they then execute on their own, which adds in another cost: time.

Factor service and value in your decision

Before making a final decision, make sure you know exactly what service level and value you expect to receive for the cost, and that you have confidence that service level and value will be delivered.

By carefully considering the outcome you want to achieve — “begin with the end in mind” — you can ensure that you receive the value you expect from your wealth management provider, regardless of the payment structure.

Get to know Brighton Jones

As a registered investment advisor, Brighton Jones is a fiduciary and upholds a legal duty to act in your best interest. We are employee-owned, and founded by Charles Brighton and Jon Jones in 1999. Since then, we’ve become one of the largest and fastest-growing wealth management firms in the Pacific Northwest. We manage and advise on more than $17 billion in assets and have helped more than 4,000 individuals and families live a richer life.

We are a fee-based firm that charges a percentage of assets under management, meaning we take into consideration our clients entire balance sheet to help them align all of the moving pieces of their financial picture towards their goals. The fee we charge includes portfolio management as well as short- and long-term financial planning and vocational freedom analyses. Additionally, it covers proactive tax planning as well as consultive services with our in-house specialists spanning from strategic philanthropy, advisement on private investments, real estate as well as tax, and estate planning.