Our society has trouble talking openly about financial transactions, especially in the service industry. We like to pretend that service industry employees are giving us a gift of love rather than services for payment. We want to believe that the hair dresser is our confidant, the doorman is our friend, and the nanny is like a godparent. Being reminded of their financial compensation can make the relationship feel questionable; Are they just nice because I pay them?
Most of us would prefer to forget that we pay them at all, and we can thank the Victorians for this.
For the proper Victorian, acts of love and money should not mix. An 1887 article from “Good Housekeeping: A Family Journal” put it this way, “A gift should be an embodiment of sentiment, from which cost should be totally divorced as an element of weight, and with which no social compulsion should be linked, except the compulsion of a spontaneous expression of feelings.” The Victorians gave birth to the idea that “It’s the thought that counts” and this intense weight given to someone’s motivation to action, perhaps even more so than the act itself.
I imagine this is one reason why a 2011 survey found that 47% of surveyed investors prefer paying commissions compared to a fee based on assets, retainer fees, or hourly fees. Commissions are hidden out of sight, bundled into a higher expense ratio or slid away from an investment as it is purchased. You can forget that you’re even paying the professional at all and delude yourself into thinking that they are giving you this service as a gift of love alone.
Alas, we, and many others, believe the commission-based world is both more costly and provides a lower quality service than a fee-only model. Most if not all fee-and-commission based advisors have convinced themselves that they putting their client’s interests first despite the inherent conflicts of interest in the compensation methods of their companies. They sleep at night with an ignorant but clear conscience, many not even knowing how much their clients actually pay.
Then, there are fee-only financial planners like us.
We have one fee based on the amount of investable assets, and we are upfront and straight forward about our bill. Each quarter in our quarterly reporting we include a clear, itemized receipt showing precisely what was deducted from each account and the total.
Some of you may not know how rare this is in the financial industry. For any fee-based advisor, broker-dealer, or salesperson (88% of the financial services professionals), regardless of if they provide an invoice of what they deduct, they have hidden fees that they collect under the table. We don’t. All our fees are right there on our invoice.
We receive no other form of compensation.
We believe this policy helps mitigate the conflict of interests inherent when a firm receives compensation based on the sale of specific securities or investment products. We do not receive any payments or commissions from fund or insurance companies. Our only compensation is from the clients we serve.
Although this kind of honest conversion about compensation may ruffle Victorian sensibilities, I believe that it is actually the foundation of the trust we forge with our clients.
At Marotta, we believe in radical honesty. We try to put everything face up on the table so our clients can have confidence in us. We start this process on our website by openly and publicly publishing our strategies as articles on our website. We continue this into the client relationship by involving the client as deeply into the plan design process as they want to go. And yes, we include this honesty right down to how much we are compensated.
Before all, we are fiduciaries. As such, we can be your confidant, friend, or cheerleader even though we are compensated. The fiduciary standard is like the golden rule: do unto others as you would have others do unto you. That is why customer service is a core tenet of our work and our primary goal is to help our clients meet theirs.
Photo by Rose Erkul on Unsplash