I recently received a request from a reader to sit down to look at his financial situation. I get these from time to time, but I’m not comfortable acting as an untrained financial advisor, and I’m not even sure whether it is legal. But, it got me thinking about what model makes sense for financial advisors.
The dominant model that exists right now is based on hidden commissions from the products sold to clients. This works well for many financial advisors, but few clients would be happy about it if they understood how much they were paying and how much better their investments could perform with less expensive products.
If I felt the need to get advice, the model that would make most sense to me is something close to what is often called “fee-only”. However, I would only be looking to pay an advisor for the time he spends talking to me. I wouldn’t be interested in paying for several extra hours of the advisor’s time to produce a written plan for me.
I could envision bringing in documents containing all my financial details and talking to an expert for a couple of hours to get his opinion of what should be changed. Then I would go away and handle the changes myself. Every so often I would come back for another hour to discuss further updates.
For this model to work, the advisor would have to charge a high hourly rate. Perhaps $200 to $400 per hour would make sense depending on the advisor’s skill level. Even 3 hours at $400 per hour would be much cheaper than mutual fund MERs for portfolios over $100,000.
Are there any readers who have used an advisor on this type of basis? Was the advisor helpful or did he use the face-to-face time to pitch an arrangement that would get him more money? Did you follow up on the advice or was the cost of the meeting wasted?