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'Advice-Only' means that the fees are equal to the number of hours of effort that the adviser puts in for each client
- Oversimplifying, 'Advice-Only' means an hourly-fee-only fee structure
- 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)
- Because 'Advice-Only' is very new in India, to keep things simple for the client, many 'Advice-Only' SEBI RIAs (including myself) currently charge a fixed fee
'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 #5 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:
- "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"
- In this bit of a podcast, I have explained the conflict of interest involved in a RIA charging a client a percentage of the client's net worth
- This article explains why 'Advice-Only is the sub-set of Fee-Only that is in the best interest of the client'