How We Get Paid

The options for advisor compensation come down to project-based, hourly, commission, flat fee aka subscription, or a fee that is a percentage of assets under management (AUM). At Cone Wealth, we have chosen to use an AUM fee.

Why? Let’s go by process of elimination.

Project-based work is not as valuable to clients, because the output is usually a static financial plan or allocation. The problem is that circumstances are always changing, and assumptions underlying the plan always have to be revised. As the Eisenhower saying goes, “Plans are useless, but planning is indispensable.” Accordingly, production of a highly detailed plan that quickly becomes obsolete is not, in our opinion, of sufficient value to charge for it separately. A regular fee of some kind is more reflective of the ongoing planning necessary.

Hourly compensation has two problems. First, we find it hurts the client relationship and prevents us from providing as much value as possible. Clients do not want to call because they are “on the clock,” so they don’t ask questions or share all the relevant information. We want clients to feel free to reach out when we can help. Second, on a personal note: After practicing law for a few years, I found the constant tracking of billable hours, usually in six-minute increments, to be detrimental to my mental health. I was internally tracking every moment I spent pouring coffee or going to the bathroom, and I had a dozen or more timers on screen dedicated to various clients and matters. It was as though I had a stopwatch constantly ticking in my head. That’s just not how I want to live.

Commission compensation is common in the financial world, but can present a fairly obvious conflict of interest. We have unquestionably run into folks who were sold financial products that were, let's say... a poor fit for that client, likely driven by a hefty commission for the seller. More fundamentally, we do not want clients to feel that we are selling them something every time we talk. We do occasionally recommend insurance products when they are the right tool for the purpose, and these products may have commission compensation, but that is a small part of Cone Wealth's revenue.

So that leaves flat fee/subscription or AUM compensation.

If we were to charge a flat-fee, it is in line with our values to have that fee be on a sliding scale, so that those with less ability to pay are not priced out from our services. The next question then becomes “What is the appropriate basis for that sliding scale?”

Some use income to set their fee, arguing that this makes clients who are high-earners but don't yet have wealth more profitable. But this would result in charging, say, a doctor who has a high income, but is the first generation in their family to attend college, who may have sizeable student loans etc., more than a client with significant wealth, no debt, and moderate income. We think that’s backwards. In our society, wealth is a greater determinant of financial well-being and stability, and thus ability to pay, than current income—especially for W-2 employees,who are almost always subject to being laid off at a moment's notice.

We therefore find wealth to be a better basis than income for setting a sliding scale. So, we’ve arrived at a wealth-based sliding scale subscription fee as the best option for Cone Wealth and, we believe, for our clients. As it happens, that exactly describes what an AUM fee is. For these reasons, we have found the AUM fee to be the best fit for our clients and practice.

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