When I was a law firm associate, my most painful part was filling out my timesheet. Trying to fill it out before I’d get in trouble with the powers that be was the worst part of the month.
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 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 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. I’ve seen way too many advisors who charge a too reasonable flat fee and learn to regret it because they price themselves too low for the work involved.
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 must determine whether my fees are reasonable too. Plan sponsors can’t take my word for it, their fiduciary duty depends on them to not take my word.