'Advice-Only' means that the fees are equal to the number of hours of effort that the adviser puts in for each client
- 'Advice-Only' includes (a) the gold-standard of transparently disclosing the Hourly-Fees and (b) the silver-standard of disclosing Fixed-Fees without disclosing the underlying hourly fees
- This is how a doctor or a lawyer charges their clients
- This is almost the opposite of fees that are a percentage of the client's assets under management (fees that are a percentage of the client's assets under management are usually extremely high fees)
'Advice-Only' Financial Planning fees are transparent & cost-effective...
- ...Ironically, that is why there are only 13 established Advice-Only Financial Planners in India (see the FAQ page, FAQ #3 for details)
- Jason Zweig, who wrote the chapterwise commentary in Benjamin Graham's book 'The Intelligent Investor' explained this in his weekly investment column in The Wall Street Journal and this is in the context of the United States:
- "...asset-based fees [i.e. percentage of AUM fees] raise conflicts of their own, since your adviser’s income is directly proportional to the amount of your money that he manages. Rolling over your 401(k) into an IRA when you leave a job or retire may be a good idea, but it also can raise tax complexities. In some cases, you might be better off leaving your 401(k) in your former employer’s plan. Because your adviser won’t earn any fees on those assets, he might urge a rollover instead..."
- "Advisers who charge for their services through an investment-management fee while appearing to give financial planning away [for free] have trained the public to believe investing is arcane and expensive, while financial planning is mundane and unimportant. The opposite is closer to the truth: Investment management is a commodity whose market price has dropped close to zero, whereas the advice and judgment of a good financial planner can do wonders for your net worth"
- "Think of any field worthy of being called a profession, and its practitioners tend to charge clients on a fee-for-service basis. They base their billing on what they did for you, not on how much money you have. Your lawyer won’t take 1% of your estate for drafting all your legal documents; he bills by the hour or a flat one-time fee. Your doctor doesn’t take 1% of your net worth even for curing you of a potentially fatal disease; she charges you for the procedure. Financial advisers, too, should charge for advice directly—instead of indirectly under the cover of investment-management fees"
There are only two Financial Planners in India who follow the gold-standard of Hourly-Fees
- As mentioned earlier, 'Advice-Only' includes (a) the gold-standard of transparently disclosing the Hourly-Fees and (b) the silver-standard of disclosing the Fixed-Fees without disclosing the underlying Hourly-Fees
- I am the First Hourly-Fee Financial Planner in India i.e. first financial planner in India to transparently disclose my hourly fees on my website
- Currently there are only two Hourly-Fee Financial Planners in India
- Hourly-Fees are the gold-standard in transparency and that is why there are only two Hourly-Fee Financial Planners in India
- There are an additional approximately 23 established and newer Financial Planners who follow the silver-standard of disclosing the Fixed-Fees without disclosing the underlying Hourly-Fees
- In this article in Mint, I explain why you should 'Avoid Percentage of AUA / AUM fees; ask Fixed-Fee RIAs to disclose the number of hours of effort; and all else being equal, prefer Hourly-Fee RIAs'
- That article builds on a previous article in Mint, in which I explain 'How to go about selecting an Hourly-Fee, else then Fixed-Fee RIA'
- This Podcast Video covers some of the points from both of the above two articles