How much is a fair hourly fee?

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Rick Ferri
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How much is a fair hourly fee?

Post by Rick Ferri » Sun Mar 02, 2014 7:57 pm

I'm not in the business of hourly fee advice. This question is strictly out of curiosity.

Assume you or someone you know wants professional investment help and is willing to pay an hourly fee plus expenses (similar to the billing arrangements of an attorney). What do you think a fair hourly fee would be?

I'm going to throw out a number that I believe is a fair starting point for this conversation: $250 per hour.

Anyone else have an opinion?

Rick Ferri
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Re: How much is a fair hourly fee?

Post by dbr » Sun Mar 02, 2014 8:39 pm

That sounds plausible to me, but what kind of expenses could financial advising have?

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Re: How much is a fair hourly fee?

Post by DireWolf » Sun Mar 02, 2014 8:42 pm

I live in a very LCOL area in the Midwest, so I would consider $150-$200/hour reasonable.

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Re: How much is a fair hourly fee?

Post by pkcrafter » Sun Mar 02, 2014 8:45 pm

Rick wrote:
I'm not in the business of hourly fee advice
Not in the business of hourly fees? Of course you're not in the business of hourly fees since the Bogleheads think 12 bucks an hour is too high. :D

Ok, all seriousness aside, I think a sit down with a planner or advisor is going to run $500-600, but this includes the advisors time in writing up a plan with pretty charts.

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Re: How much is a fair hourly fee?

Post by docneil88 » Sun Mar 02, 2014 8:57 pm

Rick Ferri wrote:Assume you or someone you know wants professional investment help and is willing to pay an hourly fee plus expenses (similar to the billing arrangements of an attorney). What do you think a fair hourly fee would be?

I'm going to throw out a number that I believe is a fair starting point for this conversation: $250 per hour.
I think the appropriate number depends a lot on credentials and location. Still, $250/hour seems high to me assuming the advisor has average credentials and a rate that is median for the country. The US Bureau of Labor Statistics says the median pay for "personal financial advisors" (which probably includes both hourly and non-hourly advisors) is $67,520/year, assuming the advisor has at least a Bachelor's degree (source: http://www.bls.gov/ooh/business-and-fin ... visors.htm ). I'm guessing a full-time hourly advisor would spend about 15 hours/week (?) in paid meetings, and 25 hours/week (?) on administrative, marketing, and other activities that aren't paid (at least directly). I don't know the median or average expenses in the US (including rent). Suppose it's about $35K/year. Assuming the equivalent of 46 weeks of work a year, with 15 hours each week paid directly, I'd say about $150/hour would result in the median pay of about $68K/year. Please correct me if any of my assumptions are off. Best, Neil
Last edited by docneil88 on Sun Mar 02, 2014 9:00 pm, edited 1 time in total.

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Re: How much is a fair hourly fee?

Post by DueDiligence » Sun Mar 02, 2014 8:59 pm

Depends on quality of the advisor, but should be comparable to attorney fees, which clearly vary widely depending on attorney. Rick would be a real bargain at $250.
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terrabiped
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Re: How much is a fair hourly fee?

Post by terrabiped » Sun Mar 02, 2014 9:05 pm

$250 seems fair and reasonable to me, and I suspect a sought after advisor with national name recognition could ask for twice that.

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Re: How much is a fair hourly fee?

Post by neurosphere » Sun Mar 02, 2014 10:05 pm

I recently researched hourly rates for financial planners in New York City while doing market research and creating a business plan for my RIA. I looked at about 100 firms listed with NAPFA and with the Garrett planning network. I eliminated firms which were clearly AUM based firms. I also eliminated firms which had a distinctly non-Boglehead approach. Once I got rid of "fee-based" (i.e. those which were hourly PLUS commissions) and those with ADVs which advocated "stock picking" I was left with about 15 firms.

The cheapest was $175/hour, and the most expensive was $600/hour. The average was about $300. So yes, I'd say that $250 is fair price. Anyway you slice it though, hourly work is much much less lucrative that an AUM based practice.

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Re: How much is a fair hourly fee?

Post by berntson » Sun Mar 02, 2014 10:14 pm

Eh? What could possibly justify $250 an hour? I doubt that many advisors know more than the most experienced posters on these boards, and those posters give their advice away for free. Of course free is not a fair price, but I would think that $100 an hour could make sense. (Assuming that like lawyers, investment advisers could only bill around half the hours they actually work).

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Re: How much is a fair hourly fee?

Post by Random Musings » Sun Mar 02, 2014 10:35 pm

Hourly fee or AUM, it still generates $X a year net.

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Re: How much is a fair hourly fee?

Post by J295 » Sun Mar 02, 2014 10:39 pm

$250 -$350 is reasonable for a seasoned advisor.

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Re: How much is a fair hourly fee?

Post by steve_14 » Sun Mar 02, 2014 10:46 pm

There's no reason to theorize, simply look at what hourly planners actually charge. That's "fair", where the supply and demand curves meet. For an experienced planner in a high cost area, $250 is about right, eg : http://www.burgessfinancial.com/ charges $270. In a lower cost area, $150-200. Check the Garrett network for examples.

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Re: How much is a fair hourly fee?

Post by freebeer » Sun Mar 02, 2014 10:48 pm

Like others I don't think $250/hour is unfair and for you Rick it'd be a bargain. But I do think it's high except maybe in Manhattan, as it imputes roughly $500K/year compensation for the advisor. And unlike a lawyer who's had to go to years of law school and then pass the bar exam and so on the financial advisor biz is relatively open. I don't think our business pays our CPA $250/hour. And we're paying smart, accomplished software developers with computer science degrees more like $90/hour.

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Re: How much is a fair hourly fee?

Post by terrabiped » Sun Mar 02, 2014 11:42 pm

freebeer wrote:Like others I don't think $250/hour is ...as it imputes roughly $500K/year compensation for the advisor.
But it's not like a salary, it's more like a consulting fee. You might only spend a few hours working up a plan for a client and that's all they want. It seems like you would have to be off the charts successful at getting new clients to be billing 40 hours a week, every week.

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Re: How much is a fair hourly fee?

Post by freebeer » Sun Mar 02, 2014 11:52 pm

terrabiped wrote:
freebeer wrote:Like others I don't think $250/hour is ...as it imputes roughly $500K/year compensation for the advisor.
But it's not like a salary, it's more like a consulting fee. You might only spend a few hours working up a plan for a client and that's all they want. It seems like you would have to be off the charts successful at getting new clients to be billing 40 hours a week, every week.
Attorneys, accountants, and other client-oriented service providers regularly bill over 2,000 hours per person per year, = 40 hours x 50 weeks (see e.g. http://www.nalp.org/billablehours). You might not bill 40 hours every week but when you have a crunch you might bill 80 some weeks. I don't know why fee-based financial advising wouldn't have the same basic economics. I agree the gross hourly rate is not like a salary as there is overhead time and costs. But I still don't see why financial advisers should make more than attorneys (in lower cost areas). CFP certification requires 18 credits, that's less than 25% of what a reputable law school requires.

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Re: How much is a fair hourly fee?

Post by g koz » Mon Mar 03, 2014 1:05 am

according to an article in Oct. 2012 issue of Money magazine..

typical financial advisor charges around $1,000 for a one-time session (if charging a flat fee)..

if charging an hourly rate for a one-time session, $150 to $300 per hour is standard.

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Re: How much is a fair hourly fee?

Post by stlutz » Mon Mar 03, 2014 1:11 am

One thing to keep in mind is that the hourly financial planner still has fixed costs (office space etc.), so not all of the $x/hour ends up in the planner's pocket.

Obviously everyone has to decide for herself what is "fair", but the numbers that have been bandied about ($200-$400 per hour) seem reasonable to me compared to the cost of hiring other professionals (programmers, lawyers etc.).

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Re: How much is a fair hourly fee?

Post by manwithnoname » Mon Mar 03, 2014 2:23 am

I learned a long time ago that if my services were provided as tax advice I could charge 2X the fee charged for financial planning/investment advice. And I never had a client tell me that he could represent himself in dealing with the IRS without my assistance.

See Freebeer's post at 11:52 on 3/2.

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Re: How much is a fair hourly fee?

Post by Leeraar » Mon Mar 03, 2014 3:13 am

Yes,

EDIT: An hour at no cost before a commitment.

I would say $300 an hour for perhaps two hours of one-on-one, plus another amount to prepare a written actionable plan. Perhaps $1200 total. I would expect a checkup (at the same price) every three years or so.

This is not therapy. I expect the possible client will have done a lot of homework (what they have) before they show up for advice on what they should do.

L.
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Re: How much is a fair hourly fee?

Post by CdnAppraiser » Mon Mar 03, 2014 7:17 am

Rick Ferri wrote:I'm not in the business of hourly fee advice. This question is strictly out of curiosity.

Assume you or someone you know wants professional investment help and is willing to pay an hourly fee plus expenses (similar to the billing arrangements of an attorney). What do you think a fair hourly fee would be?

I'm going to throw out a number that I believe is a fair starting point for this conversation: $250 per hour.

Anyone else have an opinion?

Rick Ferri
Depends on where you live. The company I work for (myself included) provides real estate consulting services to investors, lawyers, etc and our fees range depending on geographic area. In metropolitan areas the consultants charge $275/hour and in my area (cities under 150,000 people) we charge $125 - $175/hour.

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Re: How much is a fair hourly fee?

Post by YttriumNitrate » Mon Mar 03, 2014 7:30 am

freebeer wrote:I don't think our business pays our CPA $250/hour. And we're paying smart, accomplished software developers with computer science degrees more like $90/hour.
Don't forget to factor in benefits, rent, and non-billable support staff into the analysis.

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Re: How much is a fair hourly fee?

Post by chw » Mon Mar 03, 2014 7:33 am

Rick, if you're asking in consideration of possibly offering planning advice in conjunction with the low cost investment services you offer, I would think $250/hour may be on the upper limit of a fair hourly charge. As a standalone fee with no ongoing charge for AUM, this rate could be reasonable. As some posters have mentioned however, the rate could be considered high depending on the area of the country- high vs. low cost of living areas.

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Re: How much is a fair hourly fee?

Post by LordB » Mon Mar 03, 2014 7:43 am

The people who are saying that the financial adviser is going to get rich off charging $200 an hour have no concept of the costs... I suspect a financial adviser would be lucky to get paid their hourly rate for 15 hours a week and is likely going to have to spend money on advertising and all sorts of other things that bring that $150k a year down to much lower. Now I'm sure there are some that manage more, but I would bet they are in the minority. Keep in mind each person probably only needs advice once a year for say 3 hours. That would mean they need 260 customers to fill a year. Now when you count time setting up appointments, getting to them (if in person), trying to find new customers, etc. that will take a huge portion of the week.

And honestly... if they are getting more than 15 paid hours a week that is probably because they have spent decades building up their customer base. There are probably others who get significantly less than the 15 hours paid a week.

Note: That 15 hours a week might even be high... I would bet the average is even lower for self employed people. Those part of a company probably do far more advising, but the company will have all sorts of other staff to get the business with additional costs etc.

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Re: How much is a fair hourly fee?

Post by carolinaman » Mon Mar 03, 2014 8:01 am

$200 to $250 per hour is probably reasonable, but a lot depends on what you get for your money. Is it an investment plan based upon my unique situation for X hours of work or is it just a sitdown and discussion of my plan and is off the cuff advice? I suspect the quality of what you get and the hours charged could vary widely. The better the adviser understands you and your situation, the better they can advise you.

I met with an attorney in my mother's small town to review my handling of her estate. I was well prepared and had a written summary of the estate situation along with a few questions. The attorney told me it would cost $100 as long as it was no more than 45 minutes. We easily handled the matter in less time but then he proceded to digress into a discussion of local politics for about 30 minutes. I had no interest in that but politely listened to him. When I got his bill, he charged me extra for that time.

Conversely, my wife had one of the best real estate attorneys in a major city change the deed of some property in her mother's estate. It required signatures of her and 5 siblings and was for property in a county 100 miles away. He charged her $400 ($200 per hour) and I know he had to have had 6 to 8 hours of work in it.

Those two examples illustrate the difference in fees and quality of advice one might get.

This is a predominantly DIY crowd on the forum, so the general response given to your question will be biased toward that. i am a DIYer too for investments but recognize there are times when people need professional advice, and if so, should be willing to pay to get it. A few years prior to retirement, I sought professional advice regarding my retirement situation. I was fortunate to get an adviser who was a friend of a friend to provide it gratis (I would have gladly paid for it, but he was willing to do it for free) and I also used the Fidelity retirement planning services at no cost since I am a Fidelity customer. These two assured me my plan was on track. Otherwise, I would have gladly paid $2k or whatever the going rate is for a review. That would be a cheap cost to assure that my plan was on track.

Disclosure: I was a consultant for 5 years and as a senior manager, I have hired many expensive consultants to provide services for my organization. Therefore, based upon my experience, I may have a more open mind regarding the value consultants and professionals can provide.

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Re: How much is a fair hourly fee?

Post by larryswedroe » Mon Mar 03, 2014 9:16 am

FWIW
Hourly fees confuse efforts with results (or value added).
Having said that, as the last person said it depends on the QUALITY of the advice as well as the breadth of the advice. Financial advice isn't a commodity where you will get the same quality from everyone.
When it comes to things that are commodity-like one should not pay much, but not when there are big differences in skills and potential outcomes. Example, when I have a minor medical problem like an earache or sore throat, I go to the local "doc in the box"---fast service and good service at relatively low fee and short waiting times. But when I have needed surgery I did lots of research on the quality of the physicians and was far more concerned about that then the price, which while important, was not the main driver. If you need help putting a budget together, writing a basic will or trust, help with credit card debt, those fallsmore into the "doc in the box" category. Developing an overall financial plan that gives one the best odds of success I would put more in the category of the surgery. Just my opinion, but based on 20 years experience including teaching advisors.
With all that said I would not recommend working on an hourly basis. If that is the type of service you are looking for I would vote for a retainer---have the person tell you what their total costs will be for the project--whatever time it takes to do it. That's the way I have worked with attorney's for example when addressing a major issue. The same with a CPA to do taxes. I don't care how long they take, I care about the quality of the advice.


Hope that is helpful
Larry

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Re: How much is a fair hourly fee?

Post by G-Money » Mon Mar 03, 2014 9:23 am

freebeer wrote:
terrabiped wrote:
freebeer wrote:Like others I don't think $250/hour is ...as it imputes roughly $500K/year compensation for the advisor.
But it's not like a salary, it's more like a consulting fee. You might only spend a few hours working up a plan for a client and that's all they want. It seems like you would have to be off the charts successful at getting new clients to be billing 40 hours a week, every week.
Attorneys, accountants, and other client-oriented service providers regularly bill over 2,000 hours per person per year, = 40 hours x 50 weeks (see e.g. http://www.nalp.org/billablehours). You might not bill 40 hours every week but when you have a crunch you might bill 80 some weeks. I don't know why fee-based financial advising wouldn't have the same basic economics. I agree the gross hourly rate is not like a salary as there is overhead time and costs. But I still don't see why financial advisers should make more than attorneys (in lower cost areas). CFP certification requires 18 credits, that's less than 25% of what a reputable law school requires.
They don't. But like those other professions, that $n/hour * 2,000 hours = the gross income. From that income, the professional must pay rent, staff, other overhead, and marketing. An owner would expect to keep 1/2 to 2/3 the gross (and from that, would need to pay for health insurance, other benefits, and taxes yet). A non-equity owner would expect to maybe 1/3 that (again, which will include health insurance, benefits, and taxes).

Also, I'd be surprised if hourly-based financial planners actually bill 2,000 hours.
Last edited by G-Money on Mon Mar 03, 2014 9:40 am, edited 1 time in total.
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Re: How much is a fair hourly fee?

Post by Leeraar » Mon Mar 03, 2014 9:36 am

larryswedroe wrote:FWIW
Hourly fees confuse efforts with results (or value added).
Having said that, as the last person said it depends on the QUALITY of the advice as well as the breadth of the advice. Financial advice isn't a commodity where you will get the same quality from everyone.
When it comes to things that are commodity-like one should not pay much, but not when there are big differences in skills and potential outcomes. Example, when I have a minor medical problem like an earache or sore throat, I go to the local "doc in the box"---fast service and good service at relatively low fee and short waiting times. But when I have needed surgery I did lots of research on the quality of the physicians and was far more concerned about that then the price, which while important, was not the main driver. If you need help putting a budget together, writing a basic will or trust, help with credit card debt, those fallsmore into the "doc in the box" category. Developing an overall financial plan that gives one the best odds of success I would put more in the category of the surgery. Just my opinion, but based on 20 years experience including teaching advisors.
With all that said I would not recommend working on an hourly basis. If that is the type of service you are looking for I would vote for a retainer---have the person tell you what their total costs will be for the project--whatever time it takes to do it. That's the way I have worked with attorney's for example when addressing a major issue. The same with a CPA to do taxes. I don't care how long they take, I care about the quality of the advice.


Hope that is helpful
Larry
So, let's see a defense of the "How much money do you have?" school of billing. Do AUM clients with $2 million get twice the value that those with $1 million do?

L.
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Re: How much is a fair hourly fee?

Post by Rick Ferri » Mon Mar 03, 2014 9:56 am

Per Larry's observation,

Managing portfolios with discretion requires daily oversight. Cash comes in and out, there is rebalancing, etc. Plus, the adviser is liable for client assets 24/7 and insurance costs are directly tied to the size of a portfolio. For these reasons, charge an AUM fee is appropriate.

The question is the cost of complimentary services; investment planning and other support, etc. Is an high AUM fee appropriate? First, someone must WANT those services in addition to portfolio management to pay an higher AUM fee for them. Second, it's questionable where it's fair to charge a $3 million client three-times as much for the same services as a $1 million client.

It think some small excess AUM fee is OK to cover a few hours per year of advice if the clients want this. Any excess hours should probable be charge separately, IMO.

I see the business evolving toward a low AUM fee for portfolio management and advice, plus an hourly fee for extra advice. That's fair to everyone.

Rick Ferri
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Re: How much is a fair hourly fee?

Post by SeattleCPA » Mon Mar 03, 2014 9:59 am

freebeer wrote:Attorneys, accountants, and other client-oriented service providers regularly bill over 2,000 hours per person per year, = 40 hours x 50 weeks (see e.g. http://www.nalp.org/billablehours).
We live in different universes... I don't know of any CPA who regularly bills at that level of chargeability. The AICPA's management of an accounting practice survey shows chargeable hours for partners running 1000 to 1300 hours a year. (For young staff who bill at much lower rates, hours per year look more like 1500.)

BTW, the 1000 to 1300 hours a year is my experience. Staff can bill more hours, but they're at lower rates.

Oh, one other point: A CPA will work more than 2,000 hours a year. But lots of that time won't be billable.

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Re: How much is a fair hourly fee?

Post by Johm221122 » Mon Mar 03, 2014 10:05 am

I would pay Rick or Larry $250 an hour to look at my portfolio/financial life(if I was in the market for advice) but I'm not very confident in there fellow counterparts.
John

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Re: How much is a fair hourly fee?

Post by steve_14 » Mon Mar 03, 2014 10:12 am

Rick Ferri wrote:Managing portfolios with discretion requires daily oversight. Cash comes in and out, there is rebalancing, etc.
Of course that depends on how complex a portfolio the adviser chooses to "craft". For example, very few advisers put their clients in three funds portfolios, though that's what many experienced folks here use. How many holdings does the typical Merrill Lynch client have? I shudder to think.

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Free advice.

Post by Taylor Larimore » Mon Mar 03, 2014 10:19 am

Bogleheads:

This discussion helps us appreciate the free advice we receive from professional adviser's like Rick Ferri, Larry Swedroe, Bill Bernstein, Allen Roth, Jim Dahle, Bill Schultheis and others.

Thank you and best wishes.
Taylor
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Re: How much is a fair hourly fee?

Post by gatorking » Mon Mar 03, 2014 10:25 am

Rick,
By throwing out a number you have caused "anchoring", so I suggest that your responses are biased by this.
http://en.wikipedia.org/wiki/Anchoring
"In another study by Tversky and Kahneman, participants observed a roulette wheel that was predetermined to stop on either 10 or 65. Participants were then asked to guess the percentage of the United Nations that were African nations. Participants whose wheel stopped on 10 guessed lower values (25% on average) than participants whose wheel stopped at 65 (45% on average).[4] The pattern has held in other experiments for a wide variety of different subjects of estimation."

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Re: How much is a fair hourly fee?

Post by Frank K » Mon Mar 03, 2014 10:33 am

Good topic! I'm an hourly fee-only planner in the DC area. I left another firm to start my own business. I charge $150/hr and I think it's too low. I had 36 introductory meetings last year and all but two of them hired me. I'm a terrible salesman (hence fee only :happy ) so it must be the rate.

BTW, many (most) bogleheads don't need professional help. However, all I see are portfolios stuffed with high cost funds and annuities.

Best,

Frank

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Re: How much is a fair hourly fee?

Post by Leeraar » Mon Mar 03, 2014 10:48 am

My company has an interesting (and quite effective) model.

Internal costs estimates are based on hours spent. Prices quoted to the client are per project, and obviously related to the client-facing hours. Project completion is based on measurable deliverables, not on hours spent.

For our consultants, administration, travel time, business development, etc., are not billable, but are subsumed in the handsome hourly client-facing rate they are paid.

L.
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Re: How much is a fair hourly fee?

Post by Daniel O » Mon Mar 03, 2014 10:51 am

Rick Ferri wrote:Per Larry's observation,

Managing portfolios with discretion requires daily oversight. Cash comes in and out, there is rebalancing, etc. Plus, the adviser is liable for client assets 24/7 and insurance costs are directly tied to the size of a portfolio. For these reasons, charge an AUM fee is appropriate.


Rick Ferri
Rick

I'm not familiar with the principle of an advisor being liable for client assets. Can you elaborate on that? Assuming the advisor puts me in what is generally accepted as a reasonable portfolio at a safe, insured custodian, what is the advisors liability?

thanks
~ daniel

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neurosphere
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Re: How much is a fair hourly fee?

Post by neurosphere » Mon Mar 03, 2014 11:03 am

Rick Ferri wrote: I see the business evolving toward a low AUM fee for portfolio management and advice, plus an hourly fee for extra advice. That's fair to everyone.

Rick Ferri
Yes, this. I written this before, but I think that financial planning services and investment management services are different enough, with different time-frames, that fees for these two services should be split up OR there should be an explicit agreement about the scope of financial planning which will occur during a period covered by an AUM fee.

I.e. for "0.5% AUM you will get investment management and X number of hours of financial planning or related discussions during each calendar year". I've seen too many cases where one had a "financial planner" under an AUM agreement who did not really provide financial planning services, and the clients didn't understand why they couldn't get the advisor on the phone for hours at a time to discuss the pros/cons of buying vs. renting a home, for example, or whether or not to recharacterize an IRA. It was because that's not what they were paying the advisor to do.

Neurosphere

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Re: How much is a fair hourly fee?

Post by JW-Retired » Mon Mar 03, 2014 11:14 am

Rick Ferri wrote: ..................
It think some small excess AUM fee is OK to cover a few hours per year of advice if the clients want this. Any excess hours should probably be charged separately, IMO.

I see the business evolving toward a low AUM fee for portfolio management and advice, plus an hourly fee for extra advice. That's fair to everyone.

Rick Ferri
This approach with the $250/hr fee for extra advice seems very fair to me. I certainly hope portfolio management evolves in that direction. Still, how do you overcome the investor preference for hidden fees? i.e., this "amazing phenomenon"....
Steve W wrote: On the other hand, financial planning in the retail space is tricky because I've found (as have Merrill Lynch, Edward Jones, etc.) that most retail investors would much rather pay a hidden $30,000 than a transparent $5,000. It's the most amazing phenomenon.
from http://www.bogleheads.org/forum/viewtop ... 1&t=105339
JW
Retired at Last

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neurosphere
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Re: How much is a fair hourly fee?

Post by neurosphere » Mon Mar 03, 2014 11:14 am

Frank K wrote:Good topic! I'm an hourly fee-only planner in the DC area. I left another firm to start my own business. I charge $150/hr and I think it's too low. I had 36 introductory meetings last year and all but two of them hired me. I'm a terrible salesman (hence fee only :happy ) so it must be the rate.
When you left your firm, did you have clients follow, and/or get referrals from previous clients? I assume so. I also assume you are one of the cheapest planner in the DC area, so your conversion rate (from initial visit to paid client) is likely a reflection of your rate. If it works for you, and you have the appropriate work/life balance you need with an income that's acceptable to you, kudos!

I'm willing to bet that, regardless of rates, most hourly planners starting their own firm without a previous client base could take 2-4 years to ramp up to "full" employment/hours. I'll bet a substantial portion never become profitable, and quit to do something else.

NS

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Re: How much is a fair hourly fee?

Post by Frank K » Mon Mar 03, 2014 11:48 am

neurosphere wrote:
Frank K wrote:Good topic! I'm an hourly fee-only planner in the DC area. I left another firm to start my own business. I charge $150/hr and I think it's too low. I had 36 introductory meetings last year and all but two of them hired me. I'm a terrible salesman (hence fee only :happy ) so it must be the rate.
When you left your firm, did you have clients follow, and/or get referrals from previous clients? I assume so. I also assume you are one of the cheapest planner in the DC area, so your conversion rate (from initial visit to paid client) is likely a reflection of your rate. If it works for you, and you have the appropriate work/life balance you need with an income that's acceptable to you, kudos!

I'm willing to bet that, regardless of rates, most hourly planners starting their own firm without a previous client base could take 2-4 years to ramp up to "full" employment/hours. I'll bet a substantial portion never become profitable, and quit to do something else.

NS
No client base. I took no one. The other firm was AUM and I'm not, strictly by the hour. Most clients found me via NAPFA website.

I work two careers (second is an airline pilot, I job I hate) and can only charge this low rate because of the steady airline pay. I'm happy with it. I realize a lot of folks need honest help and can't afford it. The most I've ever charged for a three meeting engagement is $1700. I do pro bono work for folks retirees who are running out of money. That usually entails getting them out of their high cost garbage and over to Vanguard along with a rational spending plan.

This provides the job satisfaction that is non existent in the airline world.

Frank

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Re: How much is a fair hourly fee?

Post by larryswedroe » Mon Mar 03, 2014 12:00 pm

leerar
I don't want to get into a long debate on this, with that said
As I said IMO one should pay for value received, not effort. The more assets one has the more value an advisor can add, and thus should be paid for that value added. If the value added cannot be justified then clearly an investor should not pay it. Now there are clearly economies of scale, which is why most who charge an AUM fee lower the fee as AUM grows. I would add this, that for many clients we spend far more time on issues not directly related to investing than we do on investing and portfolio performance.

I would also add that IMO an hourly fee is a bad model period. It discourages the client from calling when they might need help. It discourages the important conversations that allow an adivsor to learn how a client is feeling/reacting to the market news. It discourages them from calling when they need help keeping disciplined or help in dealing with the noise of the market. It's why I try to avoid working with attorneys on that basis. I hate picking up the phone knowing each time it costs me $x, and I don't want to even spend one minute asking how the person is doing or going deeper into issues that really might need it. It's just bad. Thus, IMO if going that route a better model is a retainer model which doesn't discourage that---but that gets you right back to basically an AUM model anyway (can equate the retainer to an AUM fee). There are some other issues like liabilities for trade errors (that do happen) which increase with account size as well.
I hope that is helpful
Larry

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Re: How much is a fair hourly fee?

Post by Leeraar » Mon Mar 03, 2014 12:45 pm

larryswedroe wrote:leerar
I don't want to get into a long debate on this, with that said ...
Larry
Larry,

I essentially agree with you, but:

I think that hourly (or project based) fees are good to create a plan, a specific deliverable. Here, "hours" are a surrogate for an agreed upon effort. They are not the "meter was running" model that the legal profession uses.

Beyond that, I agree that some kind of prepaid retainer is appropriate for ongoing maintenance.

I think that a one-time asset-based fee may be appropriate for executing a plan (moving assets, etc.), which is what estate executors and real estate agents do.

I do not have much opinion about ongoing fees for managed funds, but I think they could / should be low. Rick makes an argument about the cost of compliance, regulation, and liability, but I have no data on that.

By the way, my snarky comments are intended for those not in this conversation: AUM advisers who charge 1+percent and then also get a kickback from high ER funds, or hedge funds that want 2% plus 20% of gains.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

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Re: How much is a fair hourly fee?

Post by terrabiped » Mon Mar 03, 2014 12:56 pm

An hourly or project based fee might be a good way to get some new feet in the door. Once their feet are in the door, you can make the pitch for the red carpet level of service.

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Re: How much is a fair hourly fee?

Post by Toons » Mon Mar 03, 2014 12:59 pm

Out of curiosity can someone shed light on what I would be getting for a few 300 per hour conversations with fee :happy advisor,,I truly might be missing out on something.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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LH
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Re: How much is a fair hourly fee?

Post by LH » Mon Mar 03, 2014 1:02 pm

Rick Ferri wrote:I'm not in the business of hourly fee advice. This question is strictly out of curiosity.

Assume you or someone you know wants professional investment help and is willing to pay an hourly fee plus expenses (similar to the billing arrangements of an attorney). What do you think a fair hourly fee would be?

I'm going to throw out a number that I believe is a fair starting point for this conversation: $250 per hour.

Anyone else have an opinion?

Rick Ferri
So 40 hours a week. Say 2 weeks off, 50 weeks a year. 2,000 hours a year.

2000 hours x 250/hour = 500,000 a year for financial advising, as expenses are paid separately.

Half a million a year. Interesting.

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Re: How much is a fair hourly fee?

Post by G-Money » Mon Mar 03, 2014 1:06 pm

Toons wrote:Out of curiosity can someone shed light on what I would be getting for a few 300 per hour conversations with fee :happy advisor,,I truly might be missing out on something.
Probably not much that you haven't already read since you joined Bogleheads 5+ years ago.
Don't assume I know what I'm talking about.

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Re: How much is a fair hourly fee?

Post by Frank K » Mon Mar 03, 2014 1:27 pm

Toons wrote:Out of curiosity can someone shed light on what I would be getting for a few 300 per hour conversations with fee :happy advisor,,I truly might be missing out on something.
I think what you are missing is that the vast majority of folks don't know the difference between a stock and a bond. I've recently did pro bono work for two clients who were running out of money. Neither had heard of the 4% rule or knew what they were paying in investing fees. Both had expensive annuities with no living benefits.

Had I seen them before retirement they would have received a low cost asset allocation and a conservative projection of their financial life. I would have also counseled them on delaying SS and showed how that act alone extends portfolio longevity.

Both said that they wished they had gotten help before retirement.

Frank

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Re: How much is a fair hourly fee?

Post by Rick Ferri » Mon Mar 03, 2014 1:28 pm

Daniel O wrote:
Rick Ferri wrote:Per Larry's observation,

Managing portfolios with discretion requires daily oversight. Cash comes in and out, there is rebalancing, etc. Plus, the adviser is liable for client assets 24/7 and insurance costs are directly tied to the size of a portfolio. For these reasons, charge an AUM fee is appropriate.


Rick Ferri
Rick

I'm not familiar with the principle of an advisor being liable for client assets. Can you elaborate on that? Assuming the advisor puts me in what is generally accepted as a reasonable portfolio at a safe, insured custodian, what is the advisors liability?

thanks
Liable meaning a fiduciary duty involving care, skill, diligence as a prudent professional would under like circumstances. It also covers protection from fraud, misappropriation, errors and omissions, and other business elements. The law basically says that an adviser has to treat your money with more care than their own.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

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Re: How much is a fair hourly fee?

Post by JupiterJones » Mon Mar 03, 2014 1:39 pm

Wouldn't a "fair" fee simply be the fee that market will bear?

If someone sets their rate at $250 and get enough work as a result, then there's your answer.

If they get more work than they can handle, then $250 is too low. If they don't get enough work, then $250 is too high.

Those are my thoughts, anyway. Your bill for $4.17 is in the mail... :D
Stay on target...

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Re: How much is a fair hourly fee?

Post by G-Money » Mon Mar 03, 2014 1:50 pm

JupiterJones wrote:Wouldn't a "fair" fee simply be the fee that market will bear?
In the economic sense, yes. In the Boglehead sense, "fair" is the level at which a majority of posters--most of whom would never use the service if it cost anything at all--would not complain that the fee is "too high."

The latter is a much, much more stringent standard than the former. :)
Don't assume I know what I'm talking about.

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