Again, unlike a brokerage account relationship where
compensation is usually based upon commissions from transactions, we derive our
compensation from a management fee which is calculated as a percentage of the
assets being managed. We prefer this “partnership”
arrangement because our only incentive is to do the best job possible for the client. As a firm, we become more successful as the
accounts perform better and, conversely, we become less successful if the
accounts perform poorly. That is why we
look at it as a partnership. We are in
this together. The problem with
commission based compensation is the conflict of interest, whereby the broker
can actually become more successful by simply executing more transactions,
which could actually be detrimental to the client.
Our fee schedule is based upon various factors, including the
size of the account, complexity of administration (special requests, extra
reporting, requirement of frequent meetings, etc.) and type of management (growth, income,
etc.). Fees are paid quarterly and are
normally deducted from the accounts, however, some clients prefer to pay the
fee directly to our firm. In all cases,
we want to make sure the fee schedule is appropriate and fair for the service
being performed.
At this point, if we both agree that there is a good fit, we can then move on to the next step of establishing accounts.