I worked for a couple of law firms for a couple of years and it wasn’t my cup of tea. I’m not a big fan of any business that is predicated less on the quality of service and more on how much you bill. Billing by the hour leads to abuse, I know because I was told by a managing attorney once that I did my work too quickly and I should drag it out for billing purposes. My lack of billing is probably the reason I had no future there.
For my national ERISA law/ retirement plan practice (cheap plug here), I bill 95% of my work through a flat fee. I like it because the client doesn’t have sticker shock; the bill has an ending, which is open ended when billed by the hour, often predicated on how much the law firm can get you for.
Luckily, financial advisors don’t bill by the hour. Typically they charge a fee based on a plan assets. Some financial advisors have resorted to billing on a flat fee basis and other advisors considering the move. I applaud any flexible billing options and the advisors who do that.
I’m not saying that all advisors should utilize a flat fee. Unlike a lawyer’s billable hour, an asset-based fee knows an end, which is the limit on plan assets. For the advisor considering a switch to a flat fee basis, it’s all a numbers game. Developing a flat fee that will compensate you and not undercut yourself. This is advice from a former employee who undercut his own salary time and time again. In addition, do you have the clientele that will understand the value of a flat fee or have absolutely no interest in how you bill. Flat fee billing is also a nice marketing gimmick, can you market that effectively?
Again, it’s not for everyone. Probably a better fit for those getting into the 401(k) space for the first time rather than someone entrenched because a change to a flat fee can unwittingly give an advisor a huge pay cut.
As with any business decision, an advisor considering a flat fee needs to determine where it makes sense and where it doesn’t because you don’t have to pick an asset based fee vs. flat fee, you can offer a mix of both.