Fees: Is Cheaper Better?
So you don’t like to pay fees? We get that. Neither do we. We understand that for the most part people do not like to pay fees for many services but going to see the doctor, lawyer, accountant, mechanic, etc. is necessary to find a solution for what ails you. Like those other professions, we charge fees for an exchange of value. That value relates to what is arguably the most important element of your life: YOUR MONEY.
In 1987 Terry P. Welsh founded AFA with the conviction that charging fees, as opposed to the traditional commission based brokerage approach, was in the best interest of the clients. Terry understood that most investors were not even aware of what they were being charged and in addition to being better informed, he wanted to remove the conflict of interest inherent in selling a product to a client by sitting on the same side of the table as his clients. In addition, charging fees would give him access to the many investments that did not compensate him and provide options that would be better for clients than simply limiting the choices to companies that paid him to sell their services.
With that belief Terry took AFA into what was considered unfamiliar territory at the time. This approach has since become more prevalent. In the more traditional approach there is a belief that the investor is getting something for nothing. Now let’s be clear, nobody works for free. In the world where charges are hidden or characterized as something other than what they are we at AFA do not like surprises and we know that clients do not as well. When products are sold there is an exchange of money for services that is often not clear as to how it impacts the investor. Terry has always believed that clients should be informed about all elements of life and through the fee based approach he could clearly inform clients about what the exact charges would be.
Penny wise, pound foolish. – Robert Burton (1577-1640)
We are sensitive to expenses and take that into consideration as we give guidance. Yet, we do not adhere to the simplistic philosophy that “lower expenses translate into higher returns.” Some investment companies and advisers use this theory as a marketing gimmick to entice investors. We have done the analysis and can prove that the investment with the least expensive cost is often not the best one. Focusing on one variable will hinder your ability to reach your goals. Rather than find the cheapest option we prefer to find those investments that are best suited to your needs. We charge for that and believe that this best serves our clients’ needs.
We encourage clients to take a look at the fees that they are being charged by their current advisor and compare them to our schedule. We are confident that our charges are competitive and are worth what we charge. Perhaps more importantly we encourage investors to compare the level of service that is provided for that fee. We simply do not hold your funds in an account, let them sit idle or have a computer do periodic trading. We believe that you should be aware of the value of what we provide.
We charge based on the amount of assets upon which we give investment advice and for helping guide the many important areas of your life. The fees we charge act as a retainer. Here is what is given for the consideration that we receive:
1) Honest, caring, experience and objective advice.
2) An analysis of your existing financial accounts and a plan that is created relative to your goals and risk disposition. We often find that clients have little understanding of the risk that they have in a portfolio and have learned that “higher risk and higher return” generally leads to heartburn. We want to make sure that you understand exactly what you are getting involved in and are comfortable with the process before we proceed.
3) A financial planning process specific to each client that will help you create the picture that you want life to look like and a plan that will help determine the probability of making that happen
4) Advice relative to the various elements of the financial planning process including but not limited to: real estate (purchases and re-fi); taxes; investments; insurance; estate planning; wills, etc.