Why We Charge Flat Fees
One question people often ask about 7 Saturdays Financial is: “Why did you decide to build a flat-fee firm?”
When I founded the company, I had a choice to make: I could follow the traditional path of firms that charge based on assets under management (AUM), or I could do something different.
I chose different. Here’s why.
The Math Doesn’t Add Up
Let’s jump right in with some real numbers.
Consider two clients: Mike, an entrepreneur with $500,000 in investments, and Sarah, a retired teacher with $2 million. Under the traditional 1% AUM model, Sarah pays $20,000 annually while Mike pays $5,000.
Does Sarah’s financial plan really require 4 times as much time or expertise?
Does her portfolio need 4 times the attention?
The answer is no.
Here’s the dirty little secret in financial services: Sarah is paying 4 times the fees, not because she has 4 times the complexity, but because she’s subsidizing the advisor’s time to service clients like Mike who aren’t paying as much. The clients with larger portfolios are essentially underwriting the entire business model.
This is why millionaires often overpay for financial services – they’re not just paying for their own planning, they’re paying for everyone else’s too. It’s like your doctor charging based on your annual income rather than the actual medical services provided.
A Better Way: Flat Fees w/ Complexity Adjustment
Think about how you pay for other professional services. Your attorney doesn’t charge based on your net worth, they charge based on the complexity of your legal needs. Your accountant doesn’t base their fee on your income, they charge based on how complicated your tax return is.
Financial planning should work the same way.
Some clients require deep planning across multiple areas: real estate tax planning, estate planning coordination, business succession planning, and complex investment allocation across various account types. Others have situations that are more “straight down the fairway,” and they don’t take up as much of the advisor’s capacity.
Let’s bring back Mike and Sarah to illustrate some specifics.
- Sarah: Retired teacher with $2 million in a 401(k) and Roth IRA, straightforward retirement planning, no debt, simple estate planning needs
- Mike: Entrepreneur with $500,000 spread across business entities, real estate, multiple non-retirement accounts, stock options, and a complex tax situation
Sarah actually requires less of the advisor’s time because she has a simpler situation. However, under the legacy AUM model, she’s paying 4 times as much because she has 4 times as much money.
Portfolio size is a poor proxy for complexity, and determining cost based on the portfolio’s value implies that a financial planner delivers no benefits beyond investment management.
Under a more logical flat-fee model, Sarah might pay $10,000 per year, whereas Mike would be quoted at a more appropriate rate based on his planning complexity, i.e. $20,000 per year. This additional cost reflects the extra time, expertise, and attention that his situation requires.
This flat-fee structure (priced in dollars) ensures you’re paying for the value you actually receive, rather than subsidizing someone else’s planning or being overcharged because you’ve been a successful saver.
Another Factor: Cost of Doing Business
The traditional wealth management model comes with a lot of overhead.
- Fancy downtown offices
- Layers of middle management
- Expensive primetime TV ads
Guess who pays for all of that?
At 7 Saturdays Financial, we made a conscious decision to keep things lean with no unnecessary overhead. This means a better value for the clients we serve. Instead of suits and skyscrapers, we focus on what matters: providing excellent financial planning and investment management.
In other words, our attention is on the steak. Not the sizzle.
What This Means For You
The reality is that many families are overpaying for wealth management.
Legacy financial firms depend on the high profits from their wealthier clients to subsidize lower-paying clients and to cover the monster overhead of running their business.
What’s more, many of these legacy firms are providing zero value beyond investment management. How often are they discussing critical topics like retirement income, proactive tax planning, or insurance needs?
If you’re approaching retirement or have already retired, a 1% advisory fee can consume 25% of your portfolio’s pretax income (assuming a 4% withdrawal rate). That means living on substantially less in retirement or working longer to accumulate 33% more assets just to cover management expenses.
That’s not a trade-off you should have to make.
Other Considerations
I’m not saying the flat-fee model is perfect. For families early in their wealth-building journey, it might be more cost-effective to work with a traditional firm. And there are many competent advisors doing great work for their clients under legacy pricing models.
But for the clients we serve – retired or approaching retirement with a sizeable nest egg – the flat-fee model often provides a better value.
The Bottom Line
When deciding how to structure our pricing, it was clear that 7 Saturdays Financial needed to be a flat-fee firm.
Could we make more money by charging 1% on client portfolios? Probably. But there’s more to life than extracting the maximum amount of profit, and linking advisory fees to portfolio value never made sense to me. A better approach is to determine pricing based on a client’s needs and complexity, not on how much money they happen to have.
Our goal is to help you make the most of your “7 Saturdays a week” – and keep more of your hard-earned money working toward that goal.
About the author: Allen Mueller, CFA, CFP®, is an “engineer turned finance nerd” and founder of 7 Saturdays Financial, a wealth management firm based in Dallas, Texas.
The core focus of 7 Saturdays Financial is helping high performers retire with confidence and make the most of their 7 Saturdays a week.
