Pasadena Financial Planner -- Pasadena, California | A Fee Only Financial Planner for Those Who Are Not (Yet) Rich

A Fee Only Financial Planner for Those Who Are Not (Yet) Rich

Most investment planning services firms focus on the interests of the wealthy, while the financial services industry and full service brokers hide fees within excessively costly and supposedly “free” financial products sold to the affluent middle and upper middle class

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Using hundreds of thousands of what the securities industry calls “producer” employees, the brokerage industry sells investment products and services to clients for transactional fees, asset holding charges, and many other more or less visible investment costs. Governed by the Securities and Exchange Act of 1934, as amended, the legal standard of client care by these brokers is the “suitability” of an investment to a client. However, there is huge latitude in what a suitable investment is and how much it can cost a client.

From the brokerage industry’s perspective, the wealthier the client is the better. Greater assets yield more revenue and higher profit per hour spent with clients. For example, Morgan Stanley’s 2007 compensation plan for their personnel serving retail clients eliminated all compensation for household accounts below $50,000, and it reduced compensation on household accounts under $75,000, unless these client accounts were being charged a percent of assets fee. Clearly, the message to Morgan Stanley sales personnel was and is to chase wealthier fish. Similar messages are given to broker producer employees in all brokerage firms across the industry.

Post-Credit Crisis Notes Concerning:

Financial Planning Fees

NOTE: Best individual financial planning and investment practices persist and shouldn’t vary because of financial crisis. The detailed article below was published before the financial and requires little updating. Given the more recent financial crisis, the update comments in this box were authored more recently to emphasize the enduring wisdom contained in the detailed original article below.

As the financial crisis arose and subsided, those who occupied many of the musical chairs of the financial industry changed. However, the financial incentives and compensation practices of the industry changed hardly at all. Since increasing industry concentration had never been challenged before the financial crisis, we were all faced with the “too-big-to-fail” conundrum. The professional — supposedly “smart money” — financial industry created a toxic financial environment for everyone, but they just “had” to be bailed out by taxpayers, so that all of our houses would not burn to the ground collectively.

Subsequently, little if anything has changed — even with passage of Wall Street reform act in 2010. Before most of the country had realized just how persistently bad things would become in the general economy, the securities markets turned around in anticipation of future improvements. And, huge Wall Street bonuses started all over again. Yet, it was the taxpayer bailout money that keep the financial industry and the general economy away from the precipice of another great depression. Thus, financial market expectations rose off of extremely pessimistic depression expectations, allowing the industry to restore its profitablity and fat paychecks.

Concerning how the financial advisory industry deals with the “retail public,” which is discussed in this article, little has changed. If anything the industry’s pursuit of the rich has intensified, while services to the middle class have declined. In summary, if you don’t have substantial investable assets, then expect little attention and overly expensive commissioned products. If you do have substantial investable assets, then hold on to your wallet with both hands! You will be asked to pay a substantial percentage of your assets year after year with no reliable assurance that these fees will improve your welfare in the long-term.

Most registered investment advisor compensation is proportional to client assets — the more assets you have the better for your financial adviser

Another large segment of the financial services industry that serves the public consists of about 100,000 independent investment advisor consultants, who are regulated at the federal and/or state levels. Governed by the Investment Advisers Act of 1940, as amended, and by state laws, these advisors have a seemingly more stringent standard of client care. However, again there is huge latitude in what constitutes minimally acceptable advisor service quality and how much advisory services will cost a client.

Most registered investment advisors deliver services that are charged as a percent of client assets under management. However, often many of these same advisors obtain additional revenues from the securities and insurance industry, when they sell commissioned financial products to their clients.

The wealthier the registered investment advisor’s client is, the better it is for the advisory practice. The greater the client assets under management, the more total revenue for the advisory firm and the higher the client service profit per hour will be.

The economics of the financial consulting industry create a mad dash to catch the wealthy

Whether served by a broker or by an independent financial advisor, if an individual wants personal professional attention, that individual must already have substantial assets that can generate revenue to compensate the advisor. If clients are to be given personalized attention and the valuable time of the advisor, each client must generate several thousand dollars in fees annually one way or another.

The math is simple. For example, if average client servicing requires 20 hours of attention yearly and a profitable hourly rate is $150 per hour, then the required average revenue per client is $3,000 per year. If $3,000/per year is the client revenue minimum for a practice, then the client needs to have $300,000, if the fee is 1% of assets per year. The lower the assets, then the higher the percentage necessarily must be.

Since clients usually balk at much higher percentage fees, the revenue requirements of advisory practices mean that people with less assets will not get personalized services. Clearly, the vast majority of Americans do not fit the industry’s economic profile of a profitable advisory client.

This is why there is so much effort to obscure and hide the true financial and investment costs that clients actually pay. The more the true cost can be hidden and the services promoted as supposedly “free,” then the easier it is to profit from the client, while probably not serving his best interests.

The Pasadena Financial Planner breaks out of this chase-the-rich compensation model

My financial and retirement planning services will be valuable and cost-effective to you. My financial consultant fees will be reasonable, clearly understood, and determined in advance. I can provide you with comprehensive, reasonably priced financial, investment, and retirement planning services on an hourly, fixed fee, or retainer basis. I never charge any fees in relationship to your assets.

For a better understanding of how I operate see: Financial Planning in Pasadena


See: Independent Pasadena Financial Advisor >>>


Pasadena Financial Advisor


Larry Russell, Managing Director

MBA – Stanford University, MA – Brandeis University, and BS – M.I.T.

Lawrence Russell and Company Pasadena, California 91103

(626) 399-9579

A California Registered Investment Adviser — Certificate 133101


A truly independent financial planner and fee only investment advisor

(Regarding how I am compensated, I perform services only on a hourly fee or fixed fee for services basis, and only under a contract that we agree upon. You do not have to pay any asset fees. In addition, to avoid any conflict-of-interest, I never accept compensation or commissions of any type from the industry.)

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