What are the conflicts under the typical Asset Under Management approach?
Imagine you are planning to buy a second home. You are looking for advice and guidance on how best to make this purchase. You tend to be conservative, and don’t love the thought of adding debt. The purchase price of the house is $1.0MM.
Your advisor makes money by charging a percentage of your account under their management each year, say 1%. You have a $2.0MM portfolio, they are earning $20,000 per year.
You are weighing the option paying for the property with funds from your portfolio versus taking out a mortgage and you call your advisor for advice. Can they truly give you unbiased advice when the decision you make will directly impact how much money they make?
By charging a flat fee based on your total Net Worth, we’ve eliminated this concern.
We’re not saying they are going to give you bad advice. We’re saying its harder for you to evaluate that advice when the question “what’s in it for them?” lingers.