Compound Your Portfolio, Not Your Expenses

One simple, annual flat fee:

Instead of charging a percentage based on assets under management as is common, Meredith Wealth Planning has implemented a flat annual fee structure that does not increase or decrease based on the size of your portfolio. The current amount for new clients is $5,700.

We do not accept any commissions and adhere to a fiduciary duty at all times while serving clients.

What is included in the annual fee:

The flat annual fee includes discretionary portfolio management, ongoing investment recommendations on accounts that cannot be held under our management, as well as financial planning services.

What we cover in financial planning:

Financial planning can mean different things to different people, and 10 different advisory firms may have 10 different areas they specialize in for financial planning. To lay it out there, I will list below primarily what areas are covered in the offering from Meredith Wealth Planning:

Retirement planning:

• Projections on future income sources.
• Structuring the best method to distribute from your investment accounts.
• Social Security claiming strategies.
• Assessing savings rate versus projected future needs.

Tax planning strategies:

• Roth IRA conversion.
• Harvesting capital losses AND capital gains when it make sense.
• Using asset location strategies to optimize after-tax returns on investments.
• Qualified charitable distributions from retirement accounts.
• Backdoor Roth IRAs and Mega-Backdoor Roth IRA recommendations (when available).

Insurance:

• Review and recommend insurance policies in regards to life, disability, and long-term care insurance.

Estate Planning?:

Meredith Wealth Planning does not draft wills or trusts, or any legal documents for that matter. Our opinion is that estate planning is best left to estate planning attorneys and professionals that specialize in those areas. We will coordinate with your estate planning professional to make sure accounts are properly titled and beneficiaries are set up correctly.

We can and have recommended corporate trustees to serve as successor trustee when requested. We will also provide referrals to estate planning professionals upon request.

Why we charge flat fees and why it’s important:

Generally speaking there is not more time, services, or overhead involved for a $1 million client versus one with say $500,000. But if both clients are charged 1% annually, one of them pays $10,000 while the other pays $5,000. Assuming they are both receiving the same service, one client should not pay twice as much as the other. It may seem equitable as they are both charged the same percentage, but why should they be charged a percentage in the first place? A flat annual fee can make more sense given that the services rendered are substantially similar.

It’s hard to imagine many other services you pay for in the private sector where the sole determinant of your cost is based on how much money you have. Imagine shopping for a financial planner and one of the questions you ask is how much your advisory fee is annually in terms of dollars, and they respond with “how much money do you have?”.

It’s no different than the scene from National Lampoon’s vacation when the Griswold family is broken down at a remote tire repair shop:

Clark Griswold: “How much will it be?”

Mechanic: “How much ya got?”

How much money you have shouldn’t be the sole determinant of what you pay for a service.

“It’s only 1%….”

What we want as investors is for our portfolios to benefit from the wonderful nature of compounding interest, but we’d probably be okay if our costs didn’t. Asset-based fees compound and can make a significant difference in the long run. A 1% fee may not seem like a large amount, especially during a bull market. The compounding effect of a 1% fee however, is quite ugly.

Allow me to demonstrate, this chart below displays the comparison over a 20 year period of two $1 million portfolios, where one pays 1% annually of assets under management and the other pays a flat annual fee of $5,700 (the current flat fee for new clients of Meredith Wealth Planning). Assuming both portfolios earn a gross annual return of 6% annually, the asset-based fee portfolio would pay about $216,000 more in expenses over those 20 years:

Conflicts of Interest

One of the primary missions of Meredith Wealth Planning is to attempt and eliminate conflicts of interest that exist between the advisor and the client. Under an asset-based fee model conflicts still exist, and our belief is that a flat fee model helps mitigate some of them. Here are a few examples of situations where an asset-based fee advisor may be conflicted:

• Recommendations on a pension versus a lump sum payout.
• Potentially recommending riskier investments to try and grow assets under management more quickly, more assets = more revenue to the firm.
• Any time a client asks about withdrawing money from their account.

Why Do Asset-Based Fees Persist?

The short answer is “because it’s always been done this way”. A few other reasons:

• It’s lucrative. With equity markets expected to outperform inflation over time, asset-based fee advisory firms receive automatic raises.
• Shifting to flat fees would massively disrupt many major investment firms, as they use higher net worth clients to subsidize lower net worth clients currently.
• As stated above, “it’s just 1%” doesn’t sound too terribly bad until you look at the math and the inequitable nature of the fee.

Asset-based fees will be around for a very long time, but now clients can choose which fee model works best for them.