We all know that you can’t believe everything you see on TV – or read in the newspaper. 

I came across an instance like that with a recent article from the Wall Street Journal, which claimed that fee-based financial advisors might make recommendations based on their compensation structure rather than what’s in your best interest. Naturally, this kind of topic raises eyebrows and concerns.

As an advisor, I was intrigued since my firm uses a very low percentage of assets pricing model. The way we do it is quite different than the industry straight 1-2% approach. 

And although we would generally preach against fee-based service models, I knew that this article was missing the mark.

While the article suggests that advisors push decisions like starting Social Security early or holding off on paying off a mortgage because it benefits their fee structure, I would posit that the decisions around Social Security, mortgages, and other financial milestones are far more complex than the article makes it seem. These aren’t one-size-fits-all answers (nor should they be).

A lot of information goes into helping a client make this kind of call: Are they still working? When do they plan to stop working? 

The makeup of someone's assets, the tax treatment of those assets, current and expected income tax rates, what state someone lives in, are they simply trying to make it through their old age without running out of money or are they trying to maximize a larger estate? Their age and personal feelings and life expectancy also matter.

A good advisor focuses on your unique goals, your assets, and how to make everything work together. The fee structure is just a tool for compensation – it's not what drives the advice. 

Most clients working with an advisor are looking for well-thought-out and dynamic reasoning using their unique financial facts to make these decisions. 

Check out the full video to hear more about how fee structures can impact your financial planning journey, and be sure to explore our library of other financial planning resources for early-career physicians. 

Chapters

• 00:00:00 – Introduction to the Wall Street Journal article.
• 00:01:15 – Fee incentives and their impact on financial decision-making
• 00:03:06 – Fee-based vs. commission-based advisors
• 00:04:21 – Social Security factors and how they relate to advisor fees
• 00:09:55 – Mortgage interest rates, trends, and more
• 00:14:49 – What to know about buying annuities
• 00:17:10 – Final thoughts on fee models and the importance of financial planning

3 Key Takeaways

1. It’s easy to oversimplify the relationship between advisor compensation and client outcomes, but macroeconomic factors and individual financial plans likely have a far greater impact on your financial journey.
2. At the core, an advisor’s role is to provide objective analysis and allow clients to make informed, value-based decisions.
3. Decisions such as when to take Social Security or whether to pay off a mortgage involve many factors beyond advisor fees, including personal financial circumstances, tax implications, and long-term planning.

What Does Your Future Hold?

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