RTD has chosen to implement a flat retainer fee model, rather than the more common model of being paid on a percentage of assets where fees vary with each quarter. We believe the following to be some of the advantages of using flat retainers:
Reduction of Conflicts of Interest
While it is virtually impossible to avoid all conflicts of interest, we believe that fees that are not adjusted each quarter based on the assets managed reduces these conflicts. Decisions that may reduce the assets, such as “Should I pay off my mortgage?”; “Is this a business that I should invest in?”; “Please review an investment opportunity of which I have been made aware” may create conflicts for the advisor to provide objective advice since they have the potential to reduce the firm’s income.
Emphasis on the Holistic Nature of Financial Planning
We certainly understand that portfolio management is an integral part of any successful financial plan, but it isn’t the only element that contributes to success. The fact is that we coordinate and provide advice on many other elements of your financial life such as retirement planning, estate planning, income tax planning, risk management, cash flow planning, philanthropy, investments not actively managed by RTD such as 401(k) plans, and many other areas. While you may find our total fee similar in amount to firms that charge a percent of assets, we believe that a fee that is represented by only one element of your financial life, i.e. investments, may inevitably result in some of the other areas that are so important to your success being ignored. Someone once said, “Follow the money”.
Advisors Should Be Paid For What They Can Control
What if the market increases by 35% in a year, and your portfolio experiences a similar increase? While we would all be gratified that the markets cooperated and that equaling market returns can often be difficult, why should your advisory firm get a 35% increase for something over which they had little or no control? Of course, this also works the other way in a down market which is the time when your planning firm is arguably more valuable to you. At RTD, we do control your allocation, and the advice we provide in all areas of your financial life, and those services do not change simply because the markets are experiencing gains or losses. Nor should the fees you pay.
Advisory Firms Should Not Be Encouraged to Place Their Clients in Risky Portfolios
At RTD, we believe that clients should only be exposed to enough market fluctuations and volatility that are necessary to reach their goals. And since we are not being compensated as a percent of assets, we have little incentive to increase our clients’ levels of risk. We build portfolios and allocations with only one thing in mind – helping our clients reach their long-term goals by advising them on all aspects of their financial lives.