Since the 2008 financial crisis, there has been a push for more transparency in the financial services industry. Many argue this pressure on the industry to be more transparent is long overdue. There were, and arguably still are, far too many advisors selling products or offerings that do not align with their clients’ best interests. From insurance products to alternative investments, many advisors are still charging high commissions to purchase investment products on behalf of their clients. However, the problem is usually not the product itself, but rather that clients are not being provided with all details necessary to make an informed decision.
When the Great Recession hit, many consumers became acutely aware of their financial situations. They recognized that not only did their homes decrease in value, but their “safe” investment products went down significantly as well. To make matters worse, many investors discovered that the financial advisor who had sold them the product was now nowhere to be found, which is also known as the “sign and recline” method of financial advising.
Commission-based advisors sell investment products that charge high up-front service charges. However, one of the main drawbacks of commission-based advising is that regardless of the performance of the asset, the advisor has already collected their fee. Although all advisors have a fiduciary responsibility to invest on behalf of their clients’ best interests, the advisor incentive for well-performing investments will naturally decrease. Since commission-based advising is still relatively common and traditional, for many advisors, this is all they have ever known. There is oftentimes no intentional wrongdoing, but we at Twin Rivers believe our clients will benefit substantially more from fee-only financial advising.
At Twin Rivers, one way we charge is using a tiered fee schedule, which ranges from 1.35% to 0.50%, depending on the total assets under management. As the assets grow in value, the overall fee charged to the client tiers downward. A tiered fee schedule aligns with the interests of both the advisor and the client. Whether the goal is growth or protection, the advisor is solely compensated by consistently managing assets in the client’s best interest.
Some firms charge a flat, asset under management fee, which can be negotiated based on the number of assets managed. For example, a firm may charge 1.35%, and if the clients’ portfolios go up in value, the advisor receives a higher compensation. If the portfolios go down in value, the advisor will then receive lower compensation. At Twin Rivers, we believe that this type of fee is not without conflict. Advisors could be inclined to make decisions based on their compensation, rather than the clients’ risk threshold and vision of the future. However, for some clients and advisors, this model is mutually beneficial.
Some Final Advice
Investors should be wary of “fee-only” registered investment advisors, who sell insurance products and receive a “fee” per the verbiage the vendor uses to describe their product. We believe advisors should provide clients, who are demanding protection over their investments a product without charging additional “fees.” And, if there is an additional cost to the client for the risk-less investment product, it is the advisor’s responsibility to be transparent. As they say – “nothing in life comes free,” especially something guaranteed.
At Twin Rivers, we believe fee transparency and honesty regarding available products will lead to more trusting and robust relationships with our clients. We know that statements provided by stockbrokers can be confusing and it is difficult for clients to receive a clear answer. If you have any questions about the fees your advisor or broker is charging you, please do not hesitate to contact our team at firstname.lastname@example.org.
Can We Help?
The Twin Rivers team wants to guide you on your journey to financial success. If you have any questions about the topics above or would like to discuss any financial decision you are facing, please do not hesitate to contact our team.