How's Your Fee Relationship with Your Financial Adviser?

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Maybe you’ve been thinking of working with us here at Cedar Point Capital Partners, or you’re just trying to understand the benefits of working with a fee-only fiduciary adviser. In either case, let’s talk about it.

CedarPoint-Relationship Blog Square 700x700.jpgLike anything else in life, financial advisors come in all shapes and stripes, with different approaches to helping you save for your future.

Some sell insurance and investments, while others focus on converting corporate retirement dollars to new individual retirement accounts (IRAs). Some are affiliated with big brokerage houses like Morgan Stanley or Merrill Lynch, while others are self-employed or partners in a small firm (that’s us).

Some advisers, including Registered Investment Advisers (RIAs) like ourselves, adopt a fee-only model with clients. Others—mostly sales representatives with securities licenses—practice under a fee-based model.

The models sound similar, but actually represent totally different philosophies to investment and client service. Let’s walk through the differences.

Fee-only vs. fee-based wealth management

When it comes to financial management, most of us are familiar with a fee-based model, which has been the financial industry’s dominant paradigm over the past few decades.

In a fee-based structure, investment brokers or advisors can earn commissions for selling clients specific investment or insurance products. They can also be paid fees by clients for their advising services, creating dual revenue streams but also potential conflicts of interest.

One example of this potential conflict follows broker / dealer firms, sometimes known as brokerage firms. Broker / dealers have a conflict of interest to recommend securities products in which they earn a commission. These same revenue-generating products, however, may not ultimately be in the best interest of their fee-based advisory clients.

Fiduciary advisers like Cedar Point, by contrast, follow a fee-only model, in which our clients are the only ones who pay us—we don’t accept commissions or payments for selling our clients into specific investments or products.

This arrangement limits our revenue potential as a business, but it also allows us to avoid any conflicts of interest (whether real or perceived) and act solely in the best interest of our clients.

What is Regulation Best Interest all about?

A new rule from the Securities and Exchange Commission called “Regulation Best Interest” now requires fee-based brokers and advisors to ensure that they are recommending investments that are in the best interests of their clients—much as fiduciaries are legally and professionally obligated to do—and to disclose any potential conflicts of interest in the sales process.

But know that disclosure isn’t the same as eliminating conflicts of interest, it just warns us that they could be an issue at some point.

So, while brokers are still able to earn commissions and payments by steering clients into certain products, they only need to make the case that an investment recommendation is in their client's "best interest," no matter the commissions or fees that might be attached to it.

Is fee-only advising more expensive?

That’s the argument from the brokerage industry, although the more accurate answer is it depends on the scope of your needs.

As we mentioned, here at Cedar Point Capital Partners, we are paid solely by our clients – as opposed to brokers who can be paid by investment management firms, insurance companies, or other product sponsors. It’s not uncommon for the expenses related to these broker payments to be difficult to find, calculate, and understand.

For this reason, it is sometimes difficult to make an apples-to-apples comparison of fee-only advice with other business models.

While ambiguity exists for other business models, with a fee-only investment adviser you can expect transparency and clarity when it comes to costs.

Cedar Point Capital Partners (CPCP) offers various services, each with a unique fee schedule. Generally, though, you can expect fees to be charged as a percentage of your assets under management (AUM). (CPCP’s rate starts at 0.95% and falls to as low as 0.25% as your AUM increases.) **

We believe that the added trust and impartiality of a fee-only, fiduciary-grade model is important. It's so important, in fact, that we decided to establish Cedar Point Capital Partners to offer this sort of trustworthy life and capital advice to our clients.

We think you’ll agree it’s a better setup, too. Give us a call today for a free consultation, and let’s grow together.

**For more information on the services we provide, and fee structure associated with these services, please see Item 4 & Item 5 of our Form ADV 2A Brochure, conveniently posted at the bottom of this page.

The commentary on this blog reflects the personal opinions, viewpoints, and analyses of Cedar Point Capital Partners (CPCP) employees providing such comments and should not be regarded as a description of advisory services provided by CPCP or performance returns of any CPCP client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this blog constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Cedar Point Capital Partners manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.