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 ($475 monthly).
We find many people do not grasp the magnitude that an asset-based fee can impact their wealth over time so we have created this flat fee savings calculator:
What’s 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. You can read about our investment philosophy here.
What’s Included in Financial Planning?
The term “financial planning” can mean very different things to very different people. While we cannot say for sure how most other firms implement financial planning, below is what meets our definition.
- Projections on future income.
- Distribution planning for tax-efficient drawdown of your portfolio.
- Social Security claiming strategies.
Tax Planning Strategies
- Roth IRA conversion optimization and implementation.
- Planning for opportune events to harvest capital gains/losses.
- Using asset location strategies to optimize after-tax return on investment accounts.
- Implementing recommendations for qualified charitable distributions and donor advised funds.
- Backdoor Roth IRA and “Mega” Backdoor Roth IRA recommendations.
- We do not provide tax preparation or bookkeeping services.
- We will review and recommend any necessary changes to disability and long-term care policies, as well as that permanent life insurance policy you regret buying 10 years ago.
- We do not sell insurance because it generally has commissions tied to it, and that would create a conflict of interest. We use outside insurance consultants to implement any recommendations from our advice.
We do not draft wills, trusts, or any other legal documents. We think estate planning is best left to estate planning attorneys. We will coordinate with your estate planning professional to ensure the following:
- Add appropriate trusted contacts to your accounts.
- Accounts and beneficiaries are properly titled.
- Gifting strategies are done in the optimal manner.
We can and have recommended corporate trustees to serve as successor trustee when requested. Referrals to estate planning professionals are available upon request.
Why Are Flat Fees Important?
Generally speaking there is not more time, service, or overhead involved for a $1 million client versus one with say $500,000. However if both clients are charged the industry standard of 1% annually, one of them pays $10,000 while the other pays $5,000. Assuming they are both receiving similar services, one client should not pay twice as much as the other. A flat annual fee can make more sense given that the services rendered are substantially similar. We don’t believe in charging someone more just because they can afford to pay it.
How much money one has should not be the sole determinant of their cost. It reminds me of 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?”
“It’s only 1%…”
A 1% annual fee may not sound like a lot. Stating your annual fee is only 1% a year has a different ring to it for a client with a $1 million portfolio, than stating “Your fee is $10,000…and will compound as your portfolio grows”.
As investors we want our portfolios to benefit from compounding interest, not our advisory expenses. Asset-based fees compound with portfolio growth and can make a significant difference in the long run. . The compounding effect of a 1% fee however, is quite ugly.
This chart below displays the cumulative fee 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 7% annually, the asset-based fee portfolio would pay about $280,227 more in expenses over those 20 years:
However, the difference in fees is not all that matters. The asset-based fee investor’s portfolio would actually be worth $428,874 less than the flat fee investor’s after 20 years, despite the difference in fees being ONLY $237,492. Why? The more you take out in expenses, the less money you have left to compound. While this investor paid an advisory fee $280,227 greater than the flat-fee investor, they cost themselves an additional $106,667 in missed compounding.
Why Do Asset-Based Fees Persist?
The short answer is “because it’s always been done this way”.
Also, it’s quite 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.
Fiduciary at ALL times
Meredith Wealth Planning adheres to a fiduciary duty at all times with all clients. This may be different at other firms, which will adhere to a fiduciary duty in some instances and not in others. It’s not always clear when they’re required to act in your best interests.
We believe the Meredith Wealth Planning business model eliminates many conflicts of interest which may exist between advisor and client at other firms. The fact that we must always act in your best interests, never receive commissions, and that we do not charge based on the size of your portfolio.