Frisco Financial Planning LLC (FFP), a Dallas area financial planning and Registered Investment Advisor, has introduced an innovative investment portfolio management fee structure. The firm charges a "flat fee" for investment advice and execution to each of its investment management clients, independent of the size of the investment portfolio.
The traditional financial services "asset-based fee" model has several flaws: the fee is too high, it is tied to portfolio size, it increases too fast, and the model has inherent conflicts of interest. Frisco Financial Planning's flat fee model overcomes the above flaws and provides an affordable and objective alternative in investment portfolio management.
Dallas, TX -- Frisco Financial Planning LLC (FFP), a Dallas area financial planning and portfolio investment management firm, has introduced an innovative investment portfolio management fee structure.
The firm charges a "flat fee" to each of its investment portfolio management clients independent of the size of the investment portfolio.
"This flat fee structure is rare in the industry and we believe it delivers investment advice with the most value to the retirement planning client in the most objective way possible" says John Gay, President of FFP.
There are a number of flaws in the traditional financial services 'asset-based fee' model, the first of which is that the fees are arguably too high.
"The 'all-in' cost of paying an investment advisor who uses traditional 'actively managed' mutual funds can easily exceed 2% of an investment portfolio annually. When you consider that a typical retiree can only safely draw 4% in the initial year of retirement, you must conclude that the 'going rate' for investment portfolio management is too high," remarks Gay.
FFP's flat fee combined with the ultra-low cost of the exchange-traded funds (ETFs) used in its pre-retirement and retirement planning client portfolios makes the platform suitable for investment portfolios as small as $250,000.
"For comparison purposes, a typical retirement planning client with a $1 million investment portfolio would pay a total of less than 0.6% including our fee, the underlying investment costs, and brokerage firm transaction charges, and the cost as a percentage of portfolio size typically goes down as the portfolio grows," says Gay.
Asset-based fees are tied to the size of an investment portfolio which often has little, if anything, to do with the time, effort, or expertise required to engineer and execute an appropriate asset allocation and diversification strategy.
"It's no more difficult to manage a $3 million investment portfolio than it is to manage a $1 million investment portfolio; yet the fee charged by most fee-based financial advisors increases dramatically with portfolio size."
Additionally, asset-based fees tend to increase at an alarmingly high rate.
"The dirty little secret in the financial services industry is that by linking the investment management fee to portfolio size, the investment advisor is rewarded with a high average fee increase. For example, if a client's investment management portfolio increases by 8% a year, on average, so does their portfolio management fee," says Gay.
Asset-based fees also give rise to potential conflicts of interest; such fees give the portfolio investment manager an incentive to shy away from any retirement planning strategies that might decrease the size of the investment portfolio, such as paying off debts, converting a traditional IRA to a Roth IRA, or buying a fixed annuity, just to name a few.
"We frequently advise clients to pay down or pay off their mortgage when they reach retirement. The result is "win-win" since the client is advised objectively on their situation and our advice doesn't cost us in the way of a reduced fee," says Gay.
FFP's approach is a great alternative for investors with fee-based advisors as well as investors who don't have the time, expertise, or inclination to invest on their own.
"Many investors don't have an advisor. They are investing directly in one or more high-priced mutual funds with no guidance. In many cases, those investors can get personalized, professional investment advice and implementation at lower cost with us. It's a great mutual fund alternative."
About Frisco Financial Planning LLC:
Frisco Financial Planning LLC offers its services on a flat fee-only basis. The firm is paid solely by its clients and receives no commissions from the sale of financial products. As a Registered Investment Advisor governed by the Investment Advisers Act of 1940, the firm has a legal fiduciary duty to serve the best interests of its clients. FFP serves clients in Texas as well as a number of other states.
John Gay, CFP®, CLU, CEBS, has been giving investment advice for over twelve years. John has contributed to articles in the Wall Street Journal, Newsweek, Investment News, Kiplinger Personal Finance, and other local and national publications. John was named by his peers in the December 2006 issue of D Magazine as one of the best financial planners in the Dallas Fort Worth area.
Frisco, Texas is one of the fastest-growing cities in the country and is located twenty minutes north of Dallas near Plano, McKinney, and Allen.
© 2008 Frisco Financial Planning
This article has been provided by Frisco Financial Planning LLC for informational purposes only. It should not be considered individual financial planning or investment advice. You should consult your investment or tax professional prior to making any financial decisions. FFP is a Registered Investment Adviser in the state of Texas.