When it comes down to it, every profession on earth is fee-for-service. That includes white collar professions, blue collar professions, and even the world’s oldest profession. Whether you are having your knee replaced, your taxes done, or your house repainted, you know what you’re paying for what you’re getting. Financial planning and the financial advisory “professions,” however, have models that:
- Charge you each time you buy something – commission.
- Build an annuity from your money by charging you a percentage of your money every quarter – “fee only” assets under management (AUM).
Wealth Logic is deeply committed to the hourly model. No matter how good people are, they’re still human, and human nature is wrought with the unintended consequences that arise from incentives which have inherent conflicts of interests with clients. There’s no escaping the reality that any time a dollar changes hands, conflicts occur. Though not conflict-free, an hourly model reduces conflicts, and allows for:
- Recommending that you stash your cash in a high paying money market account rather than leave it in a custodial money market account paying 0.01% APY (low-hanging fruit).
- Looking at your mortgage objectively as being merely the inverse of a risk free bond (since it has no impact on the value of your house) and explaining the folly of borrowing money at 4% while lending it out at 2.1%.
- Finding high-paying CDs backed by a U.S. Government agency which have easy withdrawal penalties. This can give you an intermediate term Government yield, but the small penalty gives you only short-term interest rate risk. It’s like having a free put option to sell back to the bank.
- Looking more objectively at rolling your 401(K) or defined benefit pension plan into an IRA. In some cases, 401(K) plans give even lower costs or a great stable value option. There is also the possibility of pension plans having some great options given your life expectancy.
One of the foundations of Wealth Logic’s philosophy is that investing is simple. Taxes, however, are not. Some client situations can involve tens of millions of dollars and be quite simple, while others can involve large tax bills (gains, AMT, Medicare tax) and require the portfolio to be built with that in mind. Locating assets in the right tax wrappers (taxable, tax-deferred, and tax-free) is also critical, along with withdrawal strategies that might involve paying less taxes sooner than more taxes later. This could include multiple Roth IRA conversions with possible recharacterizations giving a free look into the future.
Though good planners can add value in helping with issues such as retirement planning, tax planning, risk management, and estate planning, we believe charging on a percentage of assets makes little sense. The task of portfolio construction and tax-efficiency can be complex to set up. Wealth Logic helps clients navigate through the complexities of reaching simplicity. Once that simplicity is achieved, Wealth Logic then provides its clients with the rules to more simply manage on their own without continuing to pay us.
In short, many experts think a balanced stock and bond portfolio may earn a two percent real return above inflation. Wealth Logic believes you should give away as little of that to expenses (fees and taxes) and emotions as possible.
Forbes: Save $52,000 on Financial Advice
Wealth Logic recognizes, and is often baffled by, the fact that most consumers prefer to pay for financial advice in other ways, despite those ways typically taking a greater bite out of client returns. We believe the hourly model is the most transparent and painful way to pay for advice, as you will write a check out for the advice received. But you will do so with the knowledge that Wealth Logic is not profiting from the recommendations in any other way.
Wealth Logic, LLC will also occasionally work under a fixed-fee arrangement for institutional reviews or expert witness testimony.
We believe the hourly model “hurts so good!”