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Flat fee for service 'new normal'

Financial advisers should consider regarding flat fee for service arrangements as the "new normal", according to US-based financial advisor consultant, Bill Bachrach.

In a new analysis of evolving adviser remuneration development, Bachrach said he had never believed that a person who gets paid a commission or an asset fee is more or less ethical than a person who gets paid a fee for their advice.

"People are ethical or unethical, not compensation methods," he said.

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However he claimed there was a "simple elegance" about the flat-fee-for-advice financial advisor because the arrangement was totally transparent.

Bachrach said that where flat fee for service was concerned, there was never any question about how an adviser was being paid and whether there was a potential conflict of interest and this made it very easy for clients to understand.

"It makes the "product" the advice rather than the product being a financial plan, investments, insurance, annuities, tax returns, and/or legal documents," he said.

Bachrach said that whether advisers liked it or not, there could be a perception that if if they got paid by a product or service provider they might be influenced by higher compensation or better perks.

"Consumers and the regulators naturally ask questions like, 'Was that the best product for the client or was that product recommended because it paid a higher commission, a bonus, or to qualify for the trip to Hawaii?'" he said.

Bachrach said the premise of the fee only model was that the advisor was being paid for their advice and received no compensation from any other product or service provider.

"If you choose to be fee-only I recommend the flat annual rate over hourly," he said.




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