One-rate tactic is less expensive for many clients, reduces conflicts: FFP. Frisco, Texas-based Frisco Financial Planning (FFP), a portfolio-management and financial-planning firm, has selected a flat-fee payment structure over the more common fee-on-assets-under-management approach of most advisor firms.

"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," says FFP's president John Gay. "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."

Comparison

For discretionary portfolio management -- with ETFs as the principal instrument -- FFP typically charges its clients a start-up fee of $950 and $950 a quarter thereafter. The firm says this fee structure makes most sense for portfolios of $250,000 and larger.

"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.

In contrast, asset-based fees draw from the size of the portfolio, which may or may not reflect the time and effort needed to construct and execute 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," says Gay.

The flat fee also avoids conflicts of interest, adds Gay. Asset-based fees, on the other hand, give advisors reason to steer clients away from strategies that may be beneficial to the client -- like paying off debts, or buying a fixed annuity -- but decrease the size of the portfolio.

"We frequently advise clients to pay down or pay off their mortgage when they reach retiremen," says Gay. "The result is 'win-win' [because] the client is advised objectively on their situation and our advice doesn't cost us in the way of a reduced fee."

Frisco, FFP's hometown, is in the Dallas-Fort Worth area. -FWR

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