If you’ve decided to hire an investment advisor in Austin to help manage your wealth, one of the first things you should discuss with potential advisors is how they will be compensated. We recommend this because not all financial advisors treat their clients the same.
At Beck Capital Management, we believe that the relationship with our clients is based on trust—and that trust starts with online transparency.
In this blog, we’ll explore why you should consider working with a fee-only financial advisor in Austin, particularly if you’ve accumulated substantial assets and need sophisticated tax-managed investment strategies.
Understanding How Financial Advisor Compensation Works
Financial advisors can be compensated with fees, commissions, or both. When advisors receive both, they may describe their compensation model as fee-based. The commission side of their business model may apply to selling investment products, insurance products, or both. Each model affects how advisors prioritize your financial goals, with fee-only being the most transparent.
Fee-Only: Advisors under this model charge clients directly for services, typically as a percentage of assets under management (e.g., 1% of portfolio value). Fixed, subscription-based, and hourly fees are also available, but they are often asset-based.
The asset-based model is most popular because it aligns the advisor’s incentives with your investment results. Compensation is tied to your asset amount. It also avoids potential conflicts of interest when financial advisors are paid commissions to sell you investment and/or insurance products.
Fee-Based: Advisors may combine fees and commissions when they sell products, such as life insurance or mutual funds. For example, they might charge a 1% management fee on a $500,000 portfolio ($5,000 annual fee) plus earn a commission on an annuity sale. This hybrid approach can introduce potential conflicts of interest when advisors sell products that pay bigger commissions.
For your information, advisors do not act as fiduciaries when they sell products for commission. The fiduciary role is limited to advice and services paid for with a fee. Fiduciary is the highest ethical standard in the financial service industry. Fiduciary advisors must always put their client’s financial interests ahead of their own.
Commissions: As noted, advisors can also be paid commissions by a third party—for example, a mutual fund or annuity company. For example, they might earn a 5% commission on selling a $100,000 mutual fund investment product ($5,000). This model can incentivize the payment of higher-commission products over your needs, potentially leading to conflicts of interest when a financial advisor prioritizes a need for income over doing what is best for clients.
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Understanding Fiduciary Duties
As mentioned in an earlier section of this article, understanding fiduciary duties is key to knowing how financial advisors may provide advice and services that impact your financial interests.
A fiduciary duty requires financial advisors—Registered Investment Advisors (RIAs are firms) and Investment Advisor Representatives (IARs are professionals)—to act solely in your best interest, putting your financial goals ahead of their own, even if it means forgoing increased compensation. This includes a requirement for full transparency about fees and potential conflicts of interest because that is in their client’s best interests.
In contrast, a suitability requirement for commission-based stockbrokers mandates their recommendations to be suitable based on their knowledge of client circumstances, goals, and risk tolerance.
However, these advisors are not required to put their clients’ financial interests ahead of their own, so they have a lower ethical standard than a fiduciary. It is important to note that what is suitable for an investor may vary by financial advisor and firm.
Choosing an advisor who acknowledges their fiduciary duty may provide more trust, especially when clients have more complex financial needs and larger amounts of assets.
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Ten Reasons to Partner with an Austin Fee-Only Financial Advisor
- You pay a quarterly asset-based fee directly to the advisors for their financial knowledge, advice, and services. Advisors are not being paid by third parties to sell you their products.
- You should know exactly what you’re paying, with no hidden fees, commissions, or transactions that impact your net returns. For example, you might pay a fixed fee for a financial or retirement plan and an asset-based fee for investment advice.
- Since fee-only advisors cannot receive commissions, they have no incentive to sell commission products. This helps ensure that recommendations—such as low-cost index funds over expensive alternatives—appropriately fit your needs.
- Fee-only advisors must act in their client’s best interests under a fiduciary standard. This standard, mandated for all Registered Investment Advisors (RIAs), means they must prioritize your financial well-being, disclose all fees, and avoid self-dealing. Compare this to commission-based advisors, who operate under lower standards. The fiduciary standard can help create confidence for RIA clients.
- Beyond investments, we believe a fee-only investment advisor in Austin should also address tax-management strategies, estate planning, and retirement goals, creating a more comprehensive roadmap. For instance, the advisor might suggest a Roth IRA conversion to help reduce future tax burdens after you are retired.
- Managing your investments, taxes, and legacy plans can be overwhelming and complex. A fee-only financial advisor is best suited for managing the heavy lifting. They allow you to focus on your career or family while they act as your planning and investment department.
- While upfront fees might seem higher, avoiding high-commission products—like loaded mutual funds with high marketing fees—means more of your money is invested on your behalf, compounding your returns over longer periods.
- High earners with equity compensation, business owners, or affluent retirees benefit from unbiased advice tailored to their financial needs, such as managing stock options or creating trusts to transfer more assets to heirs.
- With no incentive to churn accounts for commissions, fee-only advisors focus on sustained growth and managing risk, to help you pursue financial independence.
- By providing clear, knowledgeable insights, fee-only advisors can give clients the advice they need to accumulate and preserve more assets for their future use.
The Beck Capital Management Difference
As Austin investment advisors, we are fee-only, fiduciary advisors. Our team of professionals leverages decades of experience crafting personalized plans that focus on accumulating and preserving wealth based on a financial plan that targets financial independence during retirement.
Third parties do not pay us commissions. Our success is directly tied to the results we produce for our clients.
Our focus is on full transparency and client-first advice to serve a diverse clientele, from high-net-worth individuals with complex needs to families building legacies for future generations.
Our Austin portfolio managers invest client assets using a rigorous, analytical approach, to help ensure their portfolios are designed to meet their long-term needs for financial independence.
If you’re ready to experience financial advice that puts you first, we invite you to connect with us today.
Don’t leave your future to chance or potential conflicts of interest. Contact us today to schedule a complimentary consultation and discover how our Austin investment advisors can develop a custom-tailored plan for you and your family.
