I was traveling back home on the Long Island Railroad and noticed a law firm associate trying to remember what he did for the day, filling out his timesheet. You could see the pain on his face and how he combed through his phone to remember what he did for the day and how many billable hours he worked.
There has to be a better way to bill for a living, but the law firm structure is based on the billable hour to support its bloated overhead even it does more harm to their clients.
When I started my own law practice, my goal was to move away from the billable hour because I thought and still think that clients want to know bottom line how much my work is going to cost them and not have sticker shock when they see my bill at the end of the month. Since I didn’t have a large overhead, a flat fee for me was the best place to go especially since my legal work working for third party administrators was a flat fee.
For many plan providers especially financial advisors, remuneration was based on assets. Registered investment advisors would get paid their flat level and the broker would usually resort to the different trails that mutual funds pay. Is there a better way to be paid?
A lot of advisors are pushing for a flat fee or other alternative arrangements such as a per participant charge.
For the provider offering it, their flat fee must be an accurate assessment of their work with a profit margin or they’ll cut their throats. A lot of thinking and math has to go into quantify a flat fee when the advisor has always charged an asset based fee. For the plan sponsors, a flat fee is a great fee to digest and understand, but they have to be wary whether they are actually paying more than the advisor charging that old asset based fee. It can be a double-edged sword for everyone involved if one or more parties aren’t careful.
While I charge a flat fee, I’d be hard pressed to find a law firm attorney (not a TPA attorney who has no attorney-client relationship) who charges less (especially by the billable hour), but all plan sponsors have a duty to determine whether my fees are reasonable too. Plan sponsors can’t take my word for it, their fiduciary duty depends on them not.