Which Is Better for the Management of My $5 Million Estate – An $8k Flat Fee or $35k Asset-Based Fee?

In a fee-only relationship, fees are often paid quarterly and are drawn directly from the portfolio balance. Fee-only advisors typically calculate the percentage fee using a tiered or scaled system – as assets under management increase, the percentage fee generally decreases. (And if you need help finding an advisor to work with, try SmartAsset’s free tool matching tool.)

While factors such as experience, credentials, firm size and brand can influence pricing, service delivery will likely serve as the primary difference between the two advisors under consideration. Let’s walk through a few key areas within “service” to evaluate and some questions that you can ask yourself and the prospective advisors.

Sometimes, advisors who charge a flat fee provide only a financial plan for you to follow. This means they might not manage your assets on a daily basis. If that is the case, how will you manage your investment accounts? Will the advisor outsource it? If so, what additional fees are associated with the engagement, and how will the advisor ensure the investment strategy is aligned with the plan they created?

If the advisor doesn’t outsource portfolio management, will you have the capacity, interest and capabilities necessary to do it on your own? Given how fees are structured with fee-only advisors, it’s likely that they will manage your investments directly. Still, it’s important to understand what those services entail and how the strategy aligns with your overall financial plan.

Managing estates and estate planning, as seem to be central to your situation, tend to be complex, with several generations to consider. While it’s not always the case, larger asset pools like yours can increase the complexity of services that are required to meet your needs. You will want to understand how well-equipped each advisor is to help you address the complexities unique to your situation.

A good question to ask is: “Can you describe how and when you make adjustments to our plan and portfolio (if directly managing your assets)?” Similarly: “What influences your decisions as an advisor and team when making these adjustments?” This will help inform you of how the team is structured and what drives their decision-making process.

With any advisor, you will want to know often they’ll be meeting with you. How many sessions do you get with each advisor per year? What deliverables do they provide you with? How hands on with implementation are they?

In other words, do they provide a plan and leave you to implement each piece, or do they do most of the subsequent execution for you? At the high end of touch, do they effectively serve as an on-call, outsourced CFO? Who is the primary point of contact and how much support do they have behind the scenes? Lastly, ask yourself what level of accessibility you need and how much help you’ll need with respect to implementation, considering the level of complexity and customization required to execute your plan.

When thinking about the differences in services, remember to keep them in the context of your goals for managing your estate. Are you seeking to protect and preserve the estate for transfer to the next generation, generate retirement income or fund philanthropic goals? It’s possible that it’s a combination of a few of these, but which advisor and fee structure would ultimately best advance these goals?

If you determine that the advisor with the higher fee provides the right services for your needs and goals, then the fees could be justified. (And if you want to expand your search for a financial advisor, SmartAsset’s free tool can match you with up to three fiduciary advisors.)

Ultimately, the choice comes down to your personal priorities, which of course include fees. While it’s imperative to assess how well each each advisor’s services align with your needs, it’s equally important to consider various subjective factors that go into the decision. How did you feel when meeting with them? How would you compare the level of trust established with each advisor? What are their motivations and do they align with your goals? Finding the right fit both functionally and emotionally is vital since successful advisory relationships tend to be long-term in nature.

A useful practice to help gather your thoughts and make an unbiased choice is to list your priorities, assign weights to each, and score each item on a scale of 1 to 3 or 1 to 5. You might pick a tiebreaker if the weighted scores come out equal. This exercise could help you to remain objective and avoid making a decision that is motivated by the wrong factors.

• There’s a lot that goes into finding a financial advisor. You’ll want to work with someone who offers the specialized services you need, like education planning or alternative investment management, for example. You’ll also want to find someone who clearly communicates how their fees work and how much you’ll pay for their services. Also, look into the legal and regulatory history of the advisor and/or their firm. Disclosures on an advisor’s record can be a significant red flag, but not always. To help you navigate this process, we’ve created a comprehensive guide for how to find and choose a financial advisor.

• Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

Jeremy Suschak, CFP®, is a SmartAsset financial planning columnist who answers reader questions on personal finance topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Jeremy is a financial advisor and head of business development at DBR & CO. Additional resources from the author can be found at dbroot.com.

Please note that Jeremy is not a participant in SmartAsset AMP, nor is he an employee of SmartAsset, and he has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.

Photo credit: ©iStock.com/fizkes, ©iStock.com/hobo_018

The post Ask an Advisor: I’m Hiring an Advisor to Manage My $4-5 Million Estate. Should I Choose the $8k Flat Fee Over a $35k Asset-Based Fee? appeared first on SmartReads by SmartAsset.