Service Model Update

Daniel YergerFinancial Planning 3 Comments

Hello everyone! This week is not our usual broad educational content but instead is to notify and educate you on changes we’re applying to our service models. If you’re an existing client, please read thoroughly. If you’re considering becoming a client, this should be a helpful tool for you to understand our service model. As always, a fair disclaimer to give is that we aren’t the most expensive, nor are we the cheapest option. Instead, we aim to charge commensurate with the value of our ongoing service and the complexity of each client’s situation.

A Brief History of Our Service Models

Prior to full independence in 2019, when affiliated with Waddell & Reed, we offered two core services: Financial Planning for a one-time fee, typically between $1,000-$3,000, and ongoing Investment Management for between 1-2% of the assets managed. When we made the move to full independence, we adopted a complexity-based subscription model for Financial Planning and set Investment Management fees at 1%. The complexity model stuck with us for the first year. However, we quickly found that despite the intention that it address the nuances of each client’s situation, it often ended up being more confusing than helpful and that despite best efforts, it often failed to address the full complexity of a client’s needs. At the start of 2022, we shifted to a flat 0.25% of Net Worth Fee with a $3,000 minimum for Financial Planning and kept the Investment Management fee at 1%, which is the service model we use today with our individual and household clients.

Why We’re Making a Change Now

Back in August, we conducted a practice management exercise that we shared on our blog in September. One of our key takeaways was an indicator that one of our greatest struggles with clients was when our services were split. This was most obvious when an Investment Management client had Financial Planning questions that extended beyond their portfolio, or a Financial Planning client would have consistent and specific investment questions that were clearly pushing the boundaries of self-management of their investments. Ultimately, we found our greatest enjoyment is in working with clients with whom we have a comprehensive relationship. In that interest, we’re moving our service model to a fully bundled service model going forward, so we can ensure that we are able to deliver the full scope of value to our clients without restrictions that can chafe at the relationship.

Our New Service Model

Our new service model is a bundled combination of Financial Planning and Investment Management under a single 0.50% of Net Worth Fee with the existing $3,000 annual minimum fee. To help you evaluate the difference in your current fees vs. the new model, we have created a calculator to help you evaluate the differences. For those who want to make a move to the new service model, the service model will be available on January 1st, 2023, though you can start the enrollment process early. Below are a few important notes regarding the change to the service model, and one final section of service model updates follows.

  • The current Financial Planning service model bills in advance by the month. Our new model will bill Financial Planning fees in arrears in order to align it with our Investment Management service, which currently bills in arrears.
  • For those clients who currently self-manage their portfolios but for whom the new model pricing would be advantageous, moving onto our new service model does not obligate you to let us manage your assets directly. It simply ensures that we are fairly paid when directly or indirectly managing your portfolio through advice. You are welcome to manage your investments under the new model or delegate it to us, as the cost of doing so will be included in the service model going forward.
  • For those clients who only use MY Wealth Planners for Investment Management, we will not be able to change the current 1% of managed assets fee down to the 0.50% level. Both SEC and Colorado regulations limit management fees to no greater than 3% of assets managed for only Investment Management, and with the $3,000 minimum fee, we cannot ensure that all current and future clients would have the requisite $100,000 of investable assets required to meet that threshold. In order to ensure we can continue to serve both Financial Planning and Investment Management clients, we will have to keep the 1% of managed assets fee for Investment Management-only clients.

Ultimately, a change to the new service model should result in lowered costs for the majority of clients who are currently using both financial planning and investment management, and allows clients only engaging in one model access to both services at a reduced cost compared to the traditional model. As always, our services are extremely competitively priced compared to the competition.

Updated Billing of Investment Management for All Clients

To date, we have billed investment management on a monthly basis based on the value as of the month’s end, with proration of cash flows. This meant, for example, that you would pay 28/365ths of 1% of the value of an account for February, 31/365ths of 1% of the value of an account for March, and so on. While this billing system is reasonably easy to understand (“I pay a fraction of 1% based on the number of days in the month based on the value at the end of the month”), it fundamentally creates an inaccuracy which can result in an effect akin to overbilling or underbilling based on the values of the investments on the last day of the month. A last-minute spike in account value can result in “overpaying” for the month, and a last-minute drop in account value can result in “underpaying” for the month. In order to ensure that the cost of our services matches the value of the investments on a day-by-day basis, we will be switching from a “month-end” calculation of fees to an “average daily balance” calculation of fees. Essentially, this means our billing system will record the value of the assets we manage on a daily basis and will accrue 1/365th of 1% as a fee (or 0.5% for those on the new bundled service), which will then be added up and billed in arrears on the 1st of the following month. This ensures that you don’t run the risk of under or overpaying given sudden changes in market value at the end of the month. This change will take effect on January 1st, 2023, and is required of all clients. We will send all clients an updated services agreement before the end of December reflecting this change and ask that you sign off to affirm your receipt and understanding.

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