Ep. 243 – What Are You Getting for the Fee You Are Paying in Retirement?

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In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss what you should get for the fee you’re paying a financial advisor. When looking for a financial advisor, it’s important to ask yourself what you’re getting versus their fee.

Listen in to learn about the three major types of financial advisors and what each offers you. You will also learn about categories of our Wealth Integrated Management System: specialized investment strategy, a retirement-focused financial plan, tax strategy, estate planning, and other ever-evolving elements to cater to our clients’ needs.

In this episode, find out:

• Understand that there’s no better fee than another; it’s all about what you want from a relationship.
• The hourly rate advisor – offers a transactional type of relationship where you get to implement their recommendations.
• An asset under management advisor – they charge you a percentage of the assets they’re managing for you.
• Commission-based advisor in funds in the stock market and outside the stock market.
• Understand that with asset management, the lower the fee, the further it will be hands-off.
• The Wealth Integrated Management System – the four major categories and other ever-evolving elements.

Tweetable Quotes:

• “What we’re not saying is, this fee is better than that fee because it all comes down to what you want out of the relationship.”– Radon Stancil
• “There are a few different types of advisors out there, and it’s up to you to do some research and vetting and understand what it is that you’re truly looking for.”– Murs Tariq
• “This wealth integrated management system is continuously evolving to take care of needs that are presented to us.”– Murs Tariq

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Radon Stancil:	Welcome everyone to the Secure Your Retirement podcast. I cannot believe this, but it is the first one of 2024, amazing that we’re here. And you know what? We thought what better way to start off 2024 than to kind of help you start thinking through how you might deal with an advisor, and how you pay an advisor. And so today we’re going to talk about what you are getting? What should you get for the fee that you’re paying an advisor? And there’s multiple different advisor types out there.
	There are advisors who just pay a fee to help you manage the money. There’s advisors who get paid a commission. There’s some who you would pay a financial planning fee to. And so there’s a lot of different things to think through when it comes to that. So what we’re not saying, and I want to make sure that we’re right up front on this, what we’re not saying is, this fee is better than that fee, because it all comes down to what do you want out of the relationship?
	I mean, we could liken it to anything. Is it better to say, I want a car? Say I bought a car and I only paid $5,000 for the car, well, if I say that, what do you immediately know? Well, you immediately know that I got a car that’s probably not going to give me everything that I would get, as if I said I just bought a $50,000 car. And so it’s easy to decipher, so sometimes people will ask, what is your fee? I’m looking for the lowest fee. Well, if you thought about that in any other type of world, and you say, “Well, what am I going to get? I want the least money I would ever spend on a car.” Well, you know what you’re getting for that. And so we kind of want to talk through … by the way I want to say this, there’s not anything wrong with having a $5,000 car. You just have to understand, what did I get? You can’t get a $5,000 car and expect what you would get with a $50,000 car. It’s not reasonable.
	So what we want to do is talk you through that and then you can make a decision, you know what, I’m the person who wants this or that. So why don’t we do this, Murs, if you don’t mind, can we kind of talk a little bit about maybe your perspective of what you see out there in this world? And I don’t know that we need to really go down the commission world. Let’s just kind of talk about the fee world, and the different types of fees. Maybe we can even talk about the amounts of those fees.
Murs Tariq:	Sure. Yeah. So like Radon said, there’s going to be a few different types of advisors out there, and it’s up to you to kind of do some research, do some vetting, and understand what it is you’re truly looking for first, and that’ll help you decide what type of fee you end up wanting to pay.
	So there’s a common one, and I’ll get to the most common type, but you’ve got in all essence, an hourly rate type of financial planner that you just go to them, they’ve got a set rate or a set fee to build out a plan, and then it’s your job. So maybe you pay them $1,000, 3,000, $10,000 to sit down with you, work through all the aspects of your financial situation, come up with recommendations, then it becomes your job, this is the key, it becomes your job to now go and implement all the recommendations that the planner made for you.
	That’s more of a transactional type of relationship. You may see that person once a year, or maybe once every five years to check in on the plan. So that’s more of a transactional type of fee, where you pay them, you get something out of it, and now you go do it yourself. Then you’ve got what I think is a common way to understand it is more of an assets under management type of advisor. So depending on the amount of money that they are investing for you, they’re going to charge you a percentage of the assets that are being managed. And that can range, that can be anywhere from, I don’t know, 0.3, 0.4% all the way up to 2, 2.5%. Just depends on the region you’re living in, the type of assets, the type of investment strategy you’re looking for, and that’s a pretty straightforward type of fee, where every month or every quarter your account is getting billed for whatever the fee arrangement is.
	And what we want to talk about is, specifically in that world is, well what are you getting for that fee? The advisor is getting paid to manage the assets, but what are you truly getting out of that type of relationship? Then on the side there is a little bit more on the, could be more commission based, it can be commissioned based on funds, in the stock market, it can be commissioned based outside of the stock market, like insurance products, life insurance, annuities, and stuff like that as well. So those are going to be, in my world, the three major types. But I think today what we really want to focus on, which I think is the most common fee, is the assets under management fee, and what are we getting out of that?
Radon Stancil:	Yeah, so I was actually having a conversation the other day with a lady who was not a client, and when they came in, I could tell that they just like to do things themselves. They love doing their own stuff, and so that would be like, again, I like to give you perspective. There’s people who say, I love doing my own taxes, they do everything at the house themselves, they paint their house, they do their yard, they do everything themselves, they just love doing everything. So the concept of saying, “Why would I hire somebody to come in and paint my house? I can paint it myself. I’m just going to spend all weekend doing it.” You asked me that. I absolutely detest, hate, cannot handle painting. I just do not want to do it, I would do anything else, but I don’t like painting, so I don’t want to paint.
	And so that’s kind of how this comes down to is, well, what do I want out of this? So what she said was, she said, “I’ve got my accounts at Fidelity. I have a contact that I can call there and I can just ask that person a question or two, but then do I want to pay them whatever, a percentage to actually build my portfolio for me?” She goes, “Why would I do that? I can do it myself.” Well, there’s a lot of people I know who would go, “I don’t want to sit there and worry about how to build a portfolio. I’d rather go on vacation or take a trip or rather go spend time with my kids or grandkids or whatever that is.” I’ll tell you, in the world we live in, it’s a lot of work, a lot of time and effort, to go out and build a portfolio, but that’s just one aspect.
	So if you thought about, how could I go get somebody just to give me a portfolio, a managed portfolio that goes and builds it for me, well that’s going to be a much lower fee than if I said, “I really want somebody that’s going to help me with financial planning, and do the money management.” That’s two different things there. So you might see some structures where I know some advisors, they say, “We’ll charge you five to $10,000 a year for the financial plan, and then we’ll charge you a fee for the money management as a separate deal.” And then there’s a lot of advisors who basically say, we’re going to combine all that together. So what I think would be good right now is, let’s say now we understand that you can go get the lowest fee you want out there, and if you do, it’s going to be the further you go in that direction, the further it’s going to be hands off. Just realize that.
	So now let’s go toward this whole idea of what a lot of people that come in to see us and talk to us about is, they go, “Look, I’m talking to advisors, and I see the fees out there as I talk to these advisors, and that fee in a very common world, is somewhere in the area of say 0.75 to 2%.” That’s that, and by the way the world works on this, is that the more assets, the lower that fee goes, then the reason why, it’s all dollars, it’s that we have a certain amount of work that has to be done, and this is common across the board for a lot of places. So what I wanted to talk to you about is, that sometimes people come in and go, “Well, your fee seems to be maybe a little bit higher than where I’m at right now, or what I was looking at over here at the bank, or what I was looking over here at this other institution.”
	We say, “Okay, well let’s talk about what we’re getting,” and so what are all those extra services? So I think what would be good for Murs maybe is that we talk about money management, and that’s one sliver of everything. But what we want to do is say, “Okay, well then if I went full service, more of a concierge type service, what would I get for that?” I’ll tell you that what we’re going to describe right now is what we call our wealth integrated management system, that basically it says, “Look, we want to take all of these different things that a person would have to think about and put it into a bundle, and then you can decide, well wait a minute, that’s obviously worth a higher fee. Or you could go, I don’t want that.”
Murs Tariq:	Yeah, so I would put us in the term of you’re working with a specialist, someone that specializes in a certain area of financial planning, for us, everything about our podcast, everything about the people that we work with, are close to or in retirement. So to us, a lot of times people come to work with us, they’ve already accumulated assets to a degree, and they’re really looking for strategies on, well, how do I retire? How do I come up with the withdrawal strategy? How do I look at taxes? What about my estate plan? What about long-term care planning? Do I need life insurance? How do I pay off my mortgage? All these different things you can see is way more than just, Hey, let’s put some money in the stock market. There are advisors out there for that. I would call that really more of the accumulation phase of your life, where you work with someone that helps you grow the money, but you get to a point where you’re looking at retirement, and maybe that accumulation advisor just doesn’t have the systems in place to be able to answer all the other questions that come with planning for retirement.
	So we call it an integrated wealth management system, and that is looking in four major categories, and there’s a lot of sub things outside of that. But the four is, well, how do we invest for a return? And in particular, the way that we like to invest is with good risk management in place. So a lot of our clients say this, “I’ve made some good returns. I’ve had some big years. I’ve also had some pretty rough years, like 2008, 2001, I don’t really want to go through that anymore. I’ve got so many years left of working, or I’m already retired and I’ve got what I’ve got and I want to make sure it’s going to last.” So the investment strategy is specialized there to a certain type of personality and profile.
	The second element is going to be all about a retirement focused financial plan. Here’s where we are today, here’s our projections on social security, our income coming in the door, our expenses going out the door, the assets we have to work with. How does all of this play out? Am I going to be okay? And very long conversations around all of that.
	The third element now jumps into tax strategy. Tax strategy, as you imagine, as you accumulate wealth, you’ve got dollars in different buckets of tax categories, like IRAs and 401K, that’s pre-tax. You may have some taxable accounts, that’s like a brokerage account. You may have some Roth money, and it continues to go. And so when we’re coming up with income strategies, if we’re going to be withdrawing, we want to pay attention to how we’re drawing, and what that’s going to cost us in taxes. Taxes today, and then also tax strategies for the future and for our legacy as well.
	Then the fourth element is all around estate planning, making sure that we’ve got the documents in place that if something was to happen, that the transition to our heirs or our survivors is going to be as smooth as possible. So we’re talking about wills, trust, power of attorneys, beneficiary forms, all of that. And then outside of that, we do have conversations around long-term care, life insurance, Medicare planning, which is a big one, and Radon, I’ll let you talk a little bit about what we’ve added from a tax and a Medicare perspective here recently, and it continues to go on. We’ve had conversations because it’s becoming so popular, this thing around continuous care retirement communities, and they’re expensive, and you got to understand what it’s going to cost and can you actually afford what I would consider to be a luxury in retirement.
	And so the system, this integrated wealth management system, is continuously evolving to take care of the needs that are presented to us from our clients. We’ve already got a lot of it figured out, but it’s never going to be fully done. There’s always something that we can add to the table to make sure we’re taking care of our clients better.
Radon Stancil:	Yeah, just on the tax side, this year we were doing all of our tax strategy meetings, and many times, quite a few times, Taylor, who is our enrolled agent here and certified financial planner, she found where there was a mistake made on the tax return from last year, and saved clients thousands of dollars. Many times because of the recommendation we made ahead of time before December 31st, as to how they dealt with certain aspects of their overall tax plan, again, thousands of dollars was saved. So I could have one person who, this is common, says, “You know what? My situation is simple. I just go to H&R block and I give them whatever. It would be a couple hundred bucks, right?” Well, yeah, you got your tax return done, but was there strategies that you could have employed that could have saved you a lot more, even if you’d have paid a higher fee?
	Now, that’s all built into our approach, by the way, you don’t pay all these extra fees, it’s all built in. On the Medicare side, we actually now have a Medicare specialist in-house, that his entire role is to help individuals figure out what they need for Medicare planning, as well as answering any questions around that, as well as assisting folks with onboarding, if you say, getting on boarded for social security. So that’s his entire role, we have an entire dedicated team member to just that, and we had a client event and I told them that we were hiring this person, and the whole place just broke out clapping. Why? Because they know that it’s needed, it’s confusing. There’s just tons of alphabet out there when it comes to Medicare. So the reason why we thought we wanted to do this, and we’re just kind of talking on the surface here, is that when you look, if you are looking, or you are with an advisor, ask the question, what am I getting for my fee?
	And if you ask the question that way versus, what is your fee? It brings a whole different thing. So if a person tells you, “Hey, my fee is only 0.25,” okay, what am I getting for 0.25? Because if I’m getting nothing for 0.25, why pay 0.25? Whereas if another person says, my fee is 1.5% and then you realize, oh my goodness, you’re getting so much. I can’t believe you’re getting all that for only 1.5. Does that make sense? So just wanted you to think through that, we wanted to just talk about that topic. We know that sometimes people in the beginning of the year, they start saying, “Hey, let’s go ahead and start, we got a goal. We want to either go find an advisor, change an advisor,” whatever that might be. By the way, if you ever did want to talk to us specifically about your situation, we would love to talk to you. You just go to the website, top right hand corner, click on schedule call, our calendar comes right up, we would love to be able to have the chance to talk to you. We hope you have a great week and a great year. We will talk to you again next Monday.