Fee Based- “What’s in a name?” Advisors in the Financial Services Industry are known by several different terms like Financial Adviser, Broker, Registered Representative, Investment Adviser and Registered Advisor. The only one of these terms that is specific to being a fiduciary (and not a salesperson) is “Registered Advisor.” In general, advisors are compensated in three ways.
1. Commission-Only As it sounds, they charge a commission every time they transact a trade. Usually, Commission-Only Advisors collect about 2.00% to 3.00% annually on average. This can and does amount to thousands of dollars in charges per year.
2. Fee-Only This sounds like the ideal way for investors to compensate for the advice and management they receive. As most “Fee-Only” Advisors are Registered Investment Advisors or (RIA’s) they are fiduciaries by law and must act in your best interest like you would expect from your Attorney. Most Fee-Only advisors charge a fee based on a percentage of assets under management or sometimes a flat annual financial plan fee which can be a few hundred to a few thousand dollars. Most Fee-Only advisors usually required a financial plan before they give any recommendations. 3. Fee-Based Fee-Based Advisors are compensated by a combination of Fees and sometimes Commissions. On the average, Fee-Based advisors collect about 1.50% to 2.00% annually. ECRFA is of this type because we feel it better serves our clients. The only difference with Fee-Only is when it comes to Insurance products. But the facts are most Insurance companies are commission based and, as an industry, very few offer no-load insurance products. Clients should be informed that a load insurance product may offer better rates and terms than a competitors no-load product. We do not require a client to pay a fee for an financial plan or an annual financial plan update.
Advisory Fee Structure As a fiduciary, El Camino Real Financial Advisors are compensated for their services on a fully disclosed basis, in writing, by any or all, of the following methods:
Assets Under Management Most accounts are managed on a non discretionary basis, meaning all investments are bought and sold always with your prior consent and approval. After our initial interview, your advisor will provide a written proposal with his or her investment selections and if with your approval manage your portfolio on a continuous basis. Most account portfolios are comprised of no load and load waived mutual funds, exchange traded funds and some stocks or other types of investments. Finally, accounts are assessed an annual fee based on the assets held under management and usually billed on a quarterly basis. Example: $100,000 account billed at 1% equals .25% quarterly or $250 for a quarter. Now consider the average commissioned mutual fund would charge a 5% commission or $5,000 for the same account.
Hourly Consulting Sometimes clients may only seek investment advice and not management of the account. Hourly fee based consulting usually will be more appropriate for clients who want the financial planning process without professional management. Fees are set by each advisor prior to your initial consultation and will included an estimate of the scope and time needed for completion.
Commissions Based Your advisor may be compensated by a commission or a sales charge when utilizing insurance products. These products include, but are not limited to: annuities, long term care, life and disability insurance. Your advisor will disclose in advance any investments which charge commissions.
The Costs Fully Disclosed and Transparent Our fees for financial planning and investment management services are outlined in detail in our firm's disclosure statement. Please contact us at ECRFA to request a copy for your review. When we meet with you, we will make sure that the scope of services for your plan are fully defined and fees are clear before any financial commitment is made. El Camino Real Financial Advisors is a dedicated Investment Advisory and Financial Planning firm. Through the financial planning process, we bring value to each of our clients. Please contact a Registered Adviser to discuss your individual needs.