I worked for a couple of law firms for a couple of years and it wasn\u2019t my cup of tea. I\u2019m not a big fan of any business that is predicated less on the quality of service and more on how much you bill.\u00a0 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.<\/p>\n
For my national ERISA law\/ retirement plan practice (cheap plug here), I bill 95% of my work through a flat fee.\u00a0 I like it because the client doesn\u2019t 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.<\/p>\n
Luckily, financial advisors don\u2019t 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.<\/p>\n
I\u2019m not saying that all advisors should utilize a flat fee. Unlike a lawyer\u2019s 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\u2019s 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?<\/p>\n
Again, it\u2019s 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.<\/p>\n
As with any business decision, an advisor considering a flat fee needs to determine where it makes sense and where it doesn\u2019t because you don\u2019t have to pick an asset based fee vs. flat fee, you can offer a mix of both.<\/p>\n
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