We are often asked “how do you get paid?” The answer to that question is very simple: we earn our compensation based on the assets we are hired to manage; in other words, we are a fee-only advisor.
As a fee - only advisor we do not accept nor participate in any commission- based revenue that may be associated with an investment we utilize for our clients; that helps keep us unbiased, removes conflicts of interest and keeps us objectively focused in our investment selection process. By not accepting commissions we can lower the investment costs for our clients; whereas, fee-based or commission-based advisors do accept commission or incentive- based compensation. So, why should that matter to you? Perhaps this example will help point out the differences.
A private placement Real Estate Investment Trust (REIT) has an 8% selling commission available to advisors and brokers. Remember, a fee-only advisor, does not accept nor participate in commissions. Instead of taking an 8% sales commission, the fee-only advisor negotiates with the REIT to have the selling commission applied to the purchase price of the REIT units. Clients of the fee-only advisor are now able to purchase the REIT units at a price of $9.20 versus $10.00. Clients of the fee-only advisor get more shares, more annual dividend money and an immediate unrealized gain of 8.69% from the get go of the investment. The advisory fee, based on assets under management in the REIT, is still earned by the advisor; however, a look at the tables below illustrates the significant advantage to the client of a fee-only advisor.
*Assumes an annual advisory fee of .80% on value of investment, $108,695.60 + annual dividend of $7,608.69 = $116,304.29*.8% * 3 (years) = $2,791.30
Fee-only based advisor clients receive $11,208.62 more than commission-based advisor clients in this example – that is a 6.96% greater return. Lower fees – more money to you, it just makes sense doesn’t it? That is one of the reasons we are a fee-only advisor. We appreciate the opportunity to work with you – Thank you!