Update: The below blog post was written in 2022. As of 2023, we here at Emancipare have decided to move away from asset management completely, and become an advice-only firm. We much prefer to teach folks to save money and mentor them to a simple method to managing their own money.
The thing we like about young people today is that they’re disruptive. They evaluate the status quo, and if it doesn’t make sense, it’s labeled “old school” and replaced by something new, innovative, and better. Taxis out, Uber/Lyft in! We love what they’ve done with flat-fee fixed-rate assets under management (AUM), and tossing aside the antiquated, expensive AUM rate tables! Read on to learn why that’s a great thing for both clients and advisors, in our view.
If an advisor is managing your assets, do you understand how much you’re paying? For example, if they’re charging the standard 1% AUM fee and you have $500,000 invested with them, you’re paying around $417 a month! It’s taken from your account quarterly, in most cases. If you have $1,00,000, that’s around $834/month! You don’t see it because it comes out of your investment accounts. The more money you have, the more they charge for essentially the same amount of work. It’s one of investing’s dirty little secrets. Some advisors charge even more than 1%. Add to that the fees you’re being charged inside the funds they’ve selected for you. Do they also earn commission on those funds (added expense for you)?
As long-time financial counselors at our company Money Coach Group (MCG), when we built our retirement/FIRE planning and financial advisory Emancipare, my wife and I wanted something extraordinary. we built MCG on the same principles we urged our clients to use for their personal finances – keep it simple, manageable, understandable, inexpensive. After we cleaned up their debt, we sent them to advisors/planners to invest and plan for the rest of their lives. BUT – the clients always came back and said they were confused and felt like the fees were high. So we built Emancipare to fill that void.
We set low fees for one-time fixed rate things like hourly charges, but when it came to managing assets for the clients that wanted that service, we went with the ubiquitous model of charging a percentage of the total amount of investments we were managing for them. Sure, we set our rate to half the typical going rate, but dang, it felt icky to have to pull out a calculator every time a client asked “What does that cost?” It also felt icky to have to tell them it would cost something different every quarter!
As well, we have a fiduciary obligation to always put our clients’ best interests first. That didn’t seem to jive with charging some clients more money for the same services, just because they have more money.
Other complications with charging clients that way for AUM were having an additional, complex agreement addendum, and forever finagling the rate tables to be fair to everyone – including those with smaller nest eggs and those with big ones. After all, it’s just about the same amount of work either way, so why up-charge the latter group just because they’re wealthier? This model is a key reason many advisors only accept high net worth clients, which upsets us because middle class working people get left out.
Searching for a better way, we combed Twitter’s financial community and listened to some podcasts on advisor fees. That’s when we caught wind of the AUM change in the air! It was refreshing to see that more progressive advisors are busting out of that old-school AUM rate table mentality and moving to flat-fee fixed-rate assets under management. The idea is to simply figure out what your time is worth, do the math as to how many clients you can handle, and just figure out what’s fair. Love it!
Now, as far as our particular rates, the worst problem is that folks see that we’re much lower and do the human psychological connection to quality. Bad connection! Here’s the low-down. We practice what we preach – we have no debt (thus no interest costs to pass on to clients), low overhead, and we’re fair. Our driving goal is to change lives, not build wealth. We already checked that box long ago – haven’t had a mortgage in like, forever, kids are grown and out.
Since covid, we’ve been almost all virtual, saving even more money. No pretentious, glitzy office cost to pass on to clients. When we do in-person meetings, we use the conference room or clubhouse for our community. We drive humble cars (OK, well Mrs. Emancipare does have a used Miata…). We favor experiences over material possessions. That means we can charge far less for the same (actually, better, in our opinion…) services.
Anyhoo, long story short (not), we just changed our AUM pricing model to flat-fee fixed-rate assets under management and couldn’t be happier! We also set up monthly payments for our other offerings. Keep your personal finances simple. Always make sure you understand the fees you’re being charged. They can be hard to spot, as they come out of your investment account, and tucked away inside the funds you’re invested in. Keeping those fees down, thereby driving more of your gains into your net worth, makes a huge difference over the long haul.
If you’re building for a future and want a definitive roadmap to get there and ethical, inexpensive guidance along the way, come visit us at Emancipare!
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Emancipare Investment Advisors LLC is a registered investment adviser domiciled in Pennsylvania. Check the background of your financial professional on FINRA’s BrokerCheck.