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Typical Compensation Arrangements

On June 30, 2020, Regulation Best Interest or "Reg BI" rule took effect. The rule intended to put a clients interest ahead of the financial professionals own.

Concering compensation arrangements, there are typically 3 options to choose from: Hourly Fees, Fee-Based, and Transactional arrangements. 

Factors used to help determine the most reasonable arrangement include things such as: 

  1. Purpose of the investment?
  2. What investment assets meet my needs?
  3. What is the time horizon on the investment?
  4. Do I need continuous monitoring?
  5. Do I prefer a "Buy and Hold" strategy with occasional reviews for purchases of providing buy, sell, or hold recommendations?

You will pay fees and costs whether you make or lose money on your investment. Fees and costs will reduce on the amount of money you make on your investment over time. 

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Option 1: Hourly Fees

Option 1: Hourly Fees

With hourly fees, you are on the clock for services and the fee is a set amount based on the aggregate number of hours of service provided for such as:

  • E-Mails
  • Quarterly and Yearly Reviews
  • Purchases
  • Exchanges
  • Redemption's
  • Withdrawals
  • Phone Meetings
  • Retirement/401k Reviews

You will typically also pay other fees, depending on your account type. These fees include custodian fees, account maintenance fees, transactional fees, and other ancillary fees.

Accountants, Attorneys, and Doctors typically charge $250 to $500 an hour for their services, so please make sure you understand what fees and costs you are paying. 

Option 2: Fee Based Arrangement

Option 2: Fee Based Arrangement

With a fee-based arrangement, the fee is a percentage of all assets in your account changed on an ongoing basis.

If you pay an asset, the fee is charged on the contribution amount in addition to any earnings.

There could be several different fees involved in a fee-based arrangement:

  1. Product Level Fees (0.25-0.40)
  2. Ancillary Charges ($45 annual fee and $.75 paper statement fees)
  3. Program Fees (an inclusive fee (or wrap), including assets-based fees, fixed fees, set up fees, etc.)
  4. Advisor Fees (Typically 1.0-2.0%)
  5. Asset-based fee (the fee is a percentage of all the assets in your account, charged on an ongoing basis)

If you pay an asset-based fee, the more assets there are in your account, the more you will pay in fees. If you pay a wrap fee, this fee can be higher than a typical asset-based fee because it includes the custodial and trading fees for your account. 

OPTION 3

TRANSACTIONAL ARRANGEMENT

The "Buy and Hold" strategy is a transparent, transactional relationship. There is an up front sales charge any time you make a purchase. The up front sales charges correlates with specific breakpoints seen below:

BreakpointSales Charge
Less than $25,0005.75%
$25,000 but less than $50,0005.00%
$50,000 but less than $100,0004.50%
$100,000 but less than $250,0003.50%
$250,000 but less than $500,0002.50%
$250,000 but less than $500,0002.00%
$500,000 but less than $750,0001.50%
$1 million and aboveNAV
For example, say you have $100,000 in your IRA.
If you wanted to invest $100 into the account, American Funds would take out $3.50 at the time of the purchase.

NO HOURLY FEES


NO SPECIAL FEES, KICK BACKS, OR INCENTIVES


NO ADVISORY FEES


NO EXCHANGE FEES


LOWER YEARLY CUSTODIAN FEES (I.E. $10/YR)


NO REDEMPTION OR WITHDRAWAL FEES


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