Friday’s need-to-know money news

1412020991000-ATMToday’s top story: How to avoid ATM fees. Also in the news: The true cost of a bounced check, surprising ways to use your credit card rewards, and the pros and cons of college tuition insurance.

How to Avoid ATM Fees
You shouldn’t have to pay to access your money.

The True Cost of a Bounced Check
Fees upon fees.

7 surprising ways to use your credit card rewards
Thinking beyond miles.

Should You Buy College Tuition Insurance?
Protetcing your investment.

Tuesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: How to save money while repaying Parent PLUS loans. Also in the news: Why your dog needs liability insurance, where you’re paying more in fees than you should be, and how to itemize common tax deductions.

Got Parent PLUS Loans? Save Money With These Alternative Payment Plans
Repayment plans that could save you money.

Why Your Dog Needs Liability Insurance
Fido’s bite could cost you big bucks.

6 Places You’re Paying More In Fees Than You Have To
Fighting back against the nickel-and-diming.

The Right Way to Itemize These Common Tax Deductions
Don’t pay more than necessary.

How planners get paid–and how that can, should and will change

iStock_000014977164MediumThe best way to pay a financial planner is directly through fees you pay, rather than indirectly through commissions. That way, you don’t have to worry that the advice you’re getting is influenced by how much your advisor stands to gain by selling you certain investments.

But most fee-only planners have adopted the “assets under management” approach, where the fees you pay depend upon how much you invest with them. And people who think deep thoughts about the industry wonder if that’s the best way to go.

One of those deep-thought-thinkers, Bob Veres of the trade information resource Inside Information, moderated a panel exploring “alternative fee structures” yesterday at the annual conference of the National Association of Personal Financial Advisors, the biggest group of fee-only planners.

There are several problems with the AUM model. One is that the planner’s compensation is tied to the whims of the market—income goes up when the market’s up and down when the market’s down, something that’s beyond a planner’s control. While the complexity of planning tends to increase the more money someone has, planners can still wind up doing a lot for a client who isn’t charged much and “charging a lot and doing not a lot” for another, as one panelist put it.

Another issue is that the planner may be tempted to hoard assets, encouraging you to keep your money invested even if paying down your mortgage, buying rental real estate or investing in a start-up may actually be a better deal.

“AUM has too many conflicts of interest to be the long-term solution for the profession,” Veres declared. He qualified the statement saying it was only his opinion, but he’s got a pretty good track record of predicting financial planning trends.

For planners, the biggest hazard with AUM is that they are charging for what is essentially a commodity—investment management—and throwing in the real value, comprehensive financial planning, for free.

“We are the ones training clients to focus on investment management instead of financial planning” through the AUM model, said panelist and CFP Carolyn McClanahan, who charges a flat fee based on the complexity of a client’s situation. Other panelists based their fee on a client’s net worth or charged by the hour.

Investment management fees are about to get squashed, thanks to so-called “robo-advisors” that use computer algorithms to invest and rebalance portfolios. Start-ups such as Betterment and Wealthfront, as well as established players including Vanguard and Schwab, offer digital advice services for about 30 basis points, or .3 percent. That compares to the 1 percent or so charged by many investment managers (and fee-only planners). Yes, some people will still want a human to manage their portfolio, but in the future fewer and fewer will be willing to pay that premium for it, said McClanahan.

I still hear a lot of scoffing from planners who don’t think robo-advisors will affect their business. A conversation I had with a couple of women who aren’t planners, but who use them, will illustrate that many planners are more vulnerable than they think.

Both women acknowledged that their planners did a lot of work up front, setting up their portfolios and advising them on other aspects of financial life: insurance, taxes, estate planning and so on. But neither felt they were getting enough on-going service to justify their AUM fees, and both were thinking of jumping ship to a cheaper solution. After all, if all they were going to get was investment management, why pay three times more for it? That 30 basis point fee starts to look pretty good. Increasingly, those who charge more will face the burden of proving they’re worth it.

 

Tuesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: A security flaw in the iPhone could expose your information to hackers. Also in the news: How to transform your finances, reducing financial adviser fees, and what to do when your parents ask you for financial assistance.

Don’t Use Your iPhone Until You Read This
A security flaw is leaving personal and financial information vulnerable.

Transform Your Finances With One 3-Letter Word
No, it’s not “win” as in “win the lottery”.

Are excessive financial fees eating your returns?
Why it’s crucial to pay close attention to financial adviser fees.

6 Do’s and Don’ts for When Your Retired Parents Ask for Financial Help
The difficult questions to ask when roles are reversed.

Oklahoma requires students learn personal finance to graduate
High school students will have to have a working knowledge of personal finance.