Mike Palmer Quoted in MarketWatch: Your Financial Adviser Is Getting 1% - But Is That Fair to You?
Fee transparency and value received are the keys to finding an advisor truly focused on financial planning and not product sales.
The common fee arrangement for financial advice has long been a percentage of assets under advisement due to its simplicity and alignment with portfolio growth. While Ark Royal Wealth Management does operate under the AUM model, they also want to be able to provide comprehensive financial planning to others who need planning but may not be able to transfer assets for managment.
Mike Palmer, CFP was recently quoted in MarketWatch (Your Financial Adviser Is Getting 1% - But Is That Actually Fair to You?) outlining how Ark Royal Wealth Management works to serve those with assets within a company benefit plan. “For someone with a majority of assets within a company benefit plan, those assets can’t be transferred for management to an adviser, but they require sophisticated planning to optimize taxes in retirement,” says Palmer. “Also, recommending someone do an in-service distribution of 401(k) assets just so the adviser can get paid on those assets is at odds with how we work. Doing that would effectively end that client’s ability to do backdoor Roth IRAs going forward, which is bad for the client,” he says. Palmer warns that an advisor recommending an in-service distribution may be doing so solely because that's how they get paid. "And losing the ability to do multiple years of backdoor Roth IRA contributions certainly isn't in the client's best interest."
Ark Royal works with clients "who need comprehensive financial planning but have assets within employee benefit plans like 401(k)s and deferred compensation,” says Palmer. Deferred compensation requires sophisticated investment management and coordinated tax planning but doesn't fit neatly within the AUM fee model.
What to Look For In a Financial Advisor
The key for any fee structure, Palmer says, is providing value for the cost. “The primary focus should be that the adviser is working in the client’s best interest. How they are compensated is a secondary issue, both fee models have a place,” says Palmer. Consumers can no longer rely on advisors who claim to be "fiduciaries" to always and only work in their best interest. Many advisors may be held to a fiduciary standard in one area of their work, while also selling insurance products, products that pay the advisor a commission and which don't require the advisor work in the client's best interest.
