Enumerating the value of financial advice in a competitive market – a dual structure approach and analysis†

Abstract

This paper introduces and examines a composite, dual fee structure (CDFS) for financial planners that helps quantify the value of financial advice. Our structure specifically separates financial planning (advice) fees based on total net worth (NW) from Investment Management (IM) fees based on assets under management (AUM), which are readily observable and pervasive in the marketplace. Doing so facilitates quantifying the value of this financial advice in a competitive market setting. Knowing the financial value of the non-IM component of financial planning services can reduce perceived conflicts of interest by permitting financial planners to generate compensation for non-IM planning activities in a transparent manner, whether or not the client moves investable funds to the planner.