What is a Flat-Fee Financial Advisor?

A flat fee advisor is defined as a financial advisor who:

  • Charges a fixed fee that does not vary over the length of the contract;
  • Provides both financial planning and investment oversight or management services for that fee; and
  • May also be referred to as a “fixed-fee advisor.”

Example: I charge $6,000 a year for financial planning and investment management, the same price I charge for Advice-Only. I believe this further reduces the conflict of interest, and allows people to focus on the service that best suits their needs, current situation and preferences.

A flat-fee advisor is not somebody who:

  • Provides financial planning for a flat fee, and investment management services for an AUM fee;
  • Provides financial planning for a flat fee, and receives commissions for selling insurance or brokerage products;
  • Offers clients the option to be charged either a flat fee, a commission, or an AUM fee. No multiple fee options provided; there is only one option provided;
  • Makes more money when the value of the assets in the client’s portfolio goes up;
  • Works for a wirehouse or broker dealer firm and charges commissions;
  • Is dual-registered;
  • Is a hybrid advisor;
  • Charges an AUM fee in addition to a flat fee;
  • Charges commissions in addition to a flat fee;
  • Earns commissions for selling insurance in addition to a flat fee; or
  • Provides only financial planning services (this is called ‘advice-only’; not flat fee).

Some flat-fee advisors:

  • Adjust their contracts for inflation; or
  • Provide differing levels of service for different flat-fee amounts.

Why work with a flat fee advisor?

  • Reduced conflict-of-interests: no incentive to encourage managing more of your assets instead of recommending the funds be utilized for other purposes such as paying down debt, etc.
  • Transparency: you know the exact price you’ll be paying
  • Simplicity: no calculations necessary to understand fee

What is an Advice-Only Financial Planner

What is an advice only financial planner?

An advice-only financial planner is a defined as someone who:

  • Provides financial planning services only;
  • Gives financial advice but does not manage investments for a fee;
  • Only charges a fee for providing financial planning services;
  • May provide overall guidance on how to manage investments, such as assessing a client’s risk tolerance, without actually implementing these recommendations and/or charging a fee for it;

Example: I charge $6,000 a year for personal financial planning services, but receive no commissions, no AUM, no third party payments… and so while I appear to be expensive, I can usually save clients more than $10,000 over an AUM advisor or financial industry representative. – I charge the same price for flat fee financial advisory with investment advisory, so that we can chose the service best for you.

An advice-only financial planner is not somebody who:

  • Has discretion over client assets
  • Manages assets for a fee
  • Manages AUM (Example: “I charge 1% on your assets as my fee.”)
  • Is paid to implement specific investment recommendations on a client’s behalf
  • Provides financial planning for a fee, and investment management services for an AUM fee;
  • Provides financial planning for a fee, and receives commissions for selling insurance or brokerage products;
  • Offers clients the option to be charged either a fee, a commission, or an AUM fee. No multiple fee options provided; there is only one option provided;
  • Makes more money when the value of the assets in the client’s portfolio goes up;
  • Works for a wirehouse or broker dealer firm and charges commissions;
  • Is dual-registered;
  • Is a hybrid advisor;
  • Charges an AUM fee in addition to a planning fee;
  • Charges commissions in addition to a planning fee; or
  • Earns commissions for selling insurance in addition to a planning fee.

Some advice-only financial planners:

  • Adjust their contracts for inflation; or
  • Provide differing levels of service for different fee amounts.
  • Compensated by hourly, subscription, flat fees, and even retainer accounts

Why work with an advice-only financial planner?

  • Puts the focus entirely on planning for your life’s goals which you have more control over than the stock market
  • Puts the client at the center and eliminates the products from the offering
  • Reduced conflict-of-interests: no incentive to encourage managing more of your assets instead of recommending the funds be utilized for other purposes such as paying down debt, etc.
  • Transparency: you know the exact price you’ll be paying
  • Simplicity: no calculations necessary to understand fee

Are You Ready To Exit Your Business?

10 Ways to Check if you are Ready for a Business Transition

What does ready mean? How do we define ready?
Below is a set of 10 simple statements to help owners determine what they need to accomplish to be prepared or “ready” to transition their businesses. Use this as simple checklist.  You are “Prepared” or “Ready” to transition your business if you…

❏ Have spent some time and money getting educated on the process of how to transition your business. You have discussed transitioning with your loved ones.
❏ Your personal, financial and business goals are aligned meaning they are
defined, co-dependent, and linked.
❏ You have created an advisory team which includes at minimum: an attorney, CPA, wealth or financial advisor, exit advisor, spouse or partner or other family who is a “significant other” in your life. Other advisors that may be included: personal friends and advisors, banking advisor, M&A attorney,
estate planning attorney, real estate attorney, business attorney, ESOP
specialist, tax specialist, insurance specialist, foundation / charity, key
employees, investment banker or business broker, board members, family or
personal counselor.
❏ You have created a contingency plan which should include buy-sell
instructions, appropriate insurance, and specifies what should happen if
before you transition something was to happen outside of your control that
would prevent you from operating your business or unwillingly force you to
transition. You have reviewed this plan with your trusted advisors including
family members and/or partners if applicable.

❏ You have a completed a strategic analysis, business valuation and personal, financial and business assessment(s) within the last year.
❏ You have considered all of your exit options and optimum deal structure and
weighed the pros and cons of each in relation to your stated goals and
objectives.
❏ Your transition plan is written and includes goals and objectives, clearly
defined tasks and accountabilities, definition of your transition team,
definition of your transition process, a plan leader or project manager,
timelines, a budget and your role before and after transition. This plan ideally
has a multi-year implementation timeline.
❏ You have considered and designed a post business life-after plan. This plan is linked or part of your wealth management plan which has been prepared by a professional financial advisor and if applicable, estate planning attorney, insurance specialist, tax specialist and charitable foundation specialist.
❏ You have a pre-transition value enhancement / preliminary due diligence
project underway to de-risk the business, maximize its value, minimize taxes
upon transition and improve the probability of a smooth transition to the next owner including family, partners, or employees if applicable. Family
transitions should be treated no differently than other transition options.
This plan ideally has a multi-year implementation timeline.
❏ You have a management program underway to ensure the post transition
leadership is prepared to operate the company after you exit and secured the appropriate specialists to handle your desired transition option.

A Business Owners 3 Most Critical Gaps

Three numbers every business owner should know and manage to meet their goals.

I am not talking about the three key numbers you need to track in your business; sales, profits, and cash.
I am talking about managing your value, so that your can reach your personal goals.

These are the most critical three numbers, and a way to think about them.


What good could you do in the business with that extra flow?

Profit Gap = The Profit You’re Sacrificing by Not Operating at
a Best-in-Class Level
= Best-in-Class Profit at Your Level of Sales – Your Actual Profit
Key Points:
• For the purposes of this discussion, profit is best defined as earnings before
interest, taxes, depreciation, and amortization (EBITDA)
• To ensure an apples-to-apples analysis, your actual EBITDA should be
re-casted or adjusted for
o Extraordinary or one-time events
o Discretionary expenses that are tied to the owner
o Expenses that are currently above or below market rates such as rent,
compensation and others

How quickly would narrowing your Value Gap close your Wealth Gap?

Value Gap = The Business Value You’re Sacrificing by Not
Operating at a Best-in-Class Level
= Best-in-Class Value if at Your Level of Sales – Your Actual Business Value
Key Points:
• The basis of the Best-in-Class Value begins with the Best-in-Class Profit at
Your Level of Sales (determined in the Profit Gap analysis)
• The Best-in-Class multiple is applied to the Best-in-Class Profit
• Your actual value should be based on your actual re-casted or adjusted
EBITDA

How Will You Bridge the Gap?

Wealth Gap = The Additional Wealth You Need to Accumulate
to Meet Your Goal
= Your Net Worth Goal – Your Current Actual Net Worth (not including your
business)
Key Points:
• For the purposes of this discussion, do not include the value of your business
o It is not easily converted to cash
o You may or may not convert it into cash depending on what you decide to
do with it
• As you consider your net worth goal, identify:
o What you truly need to live your life the way you would like
o What you want

The 6 D’s of Black Swan Events & Exit Planning

Normally called The 5, for Owners it is the 6 D’s of Personal Black Swan Events

Did you know that 79% of business owners have no written transition plan and 48% have done no exit
planning at all? And on top of that, roughly 50% of all business exits are involuntary and are forced
by dramatic external factors. You need to have a well-thought-out plan of what happens if something
unexpected happens to you or someone in your family, directly impacting your business.

Owners need to plan for how they want to walk away
from their business not only in a perfect scenario,
but also in a worst-case situation. Throughout
the exit planning process, it is critical to consider
the following scenarios that force owners to exit
their business hurriedly, and often leaving value
on the table. They are often referred to as the 5 D’s:

  • Death
  • Disability
  • Divorce
  • Disagreement
  • Distress
  • Disruption

We often think that a Will addresses the needs upon
the death of an owner. If your partner or spouse
passes, do you have the ability to continue their job
at the level they were performing it? If you’re put in
a position where you need to stay home to take care
of a suddenly sick or disabled family member, what
will happen if you are forced to exit your business
due to your inability to come into work?
It is important to run through the tough questions
about what you want to happen to your business
if you have to exit your business prematurely.
Statistics have shown that in the four years
following an owner’s death, sales declined 60%
on average and employment fell 17%, resulting
in a decline the overall valuation of the business.
Additionally, two years after an owner’s death, firms
are 20% more likely to fail or file for bankruptcy

It is important to have a plan in place to avoid
these issues happening to your business in your
sudden absence.
What do you want your family, clients and
management team to know? What do you want
to happen if you die or become disabled? What
should happen if you or your spouse wants a
divorce? What happens if there is a disagreement
between business partners? An unplanned exit can
not only impact the day-to-day operations of your
business, but also the tax and legal aspects of it,
along with the value of your company. You need to
create contingency plans for each of the 5 D’s to be
properly prepared for any unplanned scenario.
While each of these unplanned events will
undoubtedly be treated differently, an important
step to take is creating and communicating the
action plan for each contingency. This is done
through a contingency letter, which serves as a
playbook that is a shorthand to your operating
agreement and your estate planning documents.
Your contingency letter should outline what you,
as the owner, would like to happen if you can no
longer operate the business.
Have you planned for these contingencies? Part of
the role a CEPA. plays is to educate the business
owner on how to de-risk the business. Some of
the largest risks to the business can be planned
for and some cannot. These are events that are
usually out of your control and can ruin the value of
your business.

Death

Imagine right now; you are in the middle of an intersection and are T-Boned. What do you want your family,
management team, and ownership team to know? What happens to your loans? Are the beneficiaries on
your assets and life insurance correct? Who should family and management talk to for advice? Do you have
a documented plan for those impacted by this event? What obligations does your business have to your
estate for the value of your shares?

Disability

Now imagine that you had a stroke and cannot talk or write. Does your family know where your important
papers are? Do you have a power of attorney for financial and medical matters? Do others have essential
passwords that enable them to pay your bills or interface with customers, vendors, etc.? Will this event
invoke a purchase of your shares? How will it be paid? Who has the right to vote your shares?

Divorse

Your spouse announces that he/she has grown apart from you and now wants to end your marriage while the two
of you are still friends. How will your shares be valued in a divorce? Do you have a prenuptial agreement? How
will the changes in your finances impact the cash needs of the company? Do you know your options on how to
create a non-adversarial process to make the decisions needed to unbundle your financial affairs at the end of a
marriage and mitigate the impact on your business?

Disagreement

When multiple partners enter into a business, is it all roses and rainbows? They rarely prepare for conflict with a productive exit clause. Like all relationships, business partners sometimes decide not to co-own a
business. How will your interest be valued? How will it be paid?

Distress

2020 has taught all of us some painful lessons regarding business interruptions and external threats we could
never imagine. Many businesses suffered disruption to their business’s productivity and the delivery of their
products. What was the strength of your back up system? What insurances did you have to cover business
interruption? Good contingency planning includes risk reduction strategies and policies to protect against
everyday disaster situations, including data breaches, property disasters, supply chain disruption, work safety
incidents, and critical employee loss.

Disruption

Time, innovation, and technology continually march on. Some business can become completely unviable overnight. Others slowly bleed to death. CEPA’s work together to create a plan that will “De-Risk” the negative impact of all these events. CEPA’s will help you assess what
you currently have in place, what you may need to do as your systems grow and change, and why this process should be reviewed
annually. 

One of the best ways to protect against the 6 D’s is proactively during the Value Acceleration Process.

Homeowners Insurance Discounts

The 10 Biggest Discounts

  • New home construction
  • Age of home (5-10 years or less)
  • Home and auto bundle
  • Significant series of upgrades (electrical, heating, plumbing)
  • Construction type (fire, hurricane, or earthquake resistant)
  • Roof upgrade
  • Advance purchase
  • Loyalty ( 5-10 years or more)
  • Paid in Full

CompanyTypeAverage discount
New HomeNew Construction Recently Purchased40%
Age of home5 Years Old26%
BundleHome And Auto18%
UpgradesElectrical, plumbing, heating done at once or over recent short period of time13%
Age of home10 Years Old13%
Construction typeFire Resistive11%
Construction typeSuperior11%
UpgradesRoof Upgrade11%
Advance Purchase10+ Days Advance Purchase9%
Advance Purchase7 Days Advance Purchase8%
Loyalty10+ Years Renewal8%
Construction typeMasonry7%
Construction typeFrame - To 66% Masonry Veneer6%
Construction typeFrame - Over 66% Masonry Veneer6%
Paid in FullPaid in Full6%
Loyalty5 Years Renewal6%
SprinklersSprinklers6%
Claims Free5 Year Claims Free5%
Claims Free10+ Year Claims Free5%
Hail Resitant RoofHail Resistant Roof5%
Loyalty3 Years Renewal5%
Construction typeAsbestos/Stucco4%
Fire AlarmCentral Station4%
Fire AlarmFire Department4%
Gated CommunityWith Patrol4%
BundleHome and Umbrella4%
BundleHome and Life4%
Burglar AlarmPolice Department4%
Burglar AlarmCentral Station4%
Age of home15 Years Old4%
Water Safety SystemWater Leak Detection - Shut Off And Alarm4%
Water Safety SystemWater Leak Detection - Shut Off3%
UpgradesElectrical Upgrade3%
Gated CommunityWithout Patrol3%
Water Safety SystemWater Leak Detection - Alarm3%
Automatic paymentsElectronic Fund Transfer3%
UpgradesPlumbing Upgrade2%
Construction typeFrame - To 33% Masonry Veneer2%
Burglar AlarmLocal2%
UpgradesHeating Upgrade2%
Fire AlarmLocal2%
Age of home20 Years Old2%
Smoke DetectorSmoke Detector2%
Fire ExtinguisherFire Extinguisher2%
Storm ShutterStorm Shutters1%
DeadboltDeadbolt1%

Popularity: A Bridge Between Classical and Behavioral Finance

Overview

This session from the 72nd CFA Institute Annual Conference is based on the CFA Institute Research Foundation book, Popularity: A Bridge between Classical and Behavioral Finance. Roger G. Ibbotson discusses:

  • “popularity,” or how much a security is liked, apart from the fundamentals: The more investors like it, the higher the price but the lower the expected return.
  • a new approach to asset pricing: the popularity asset pricing model (PAPM), which builds on the CAPM but includes additional investor preferences beyond risk aversion, such as liquidity and brand preference. These specific preferences are aggregated into security prices and are not arbitraged away.
  • that preferences can be rational (classical) or emotional (behavioral), so the PAPM provides a bridge between classical and behavioral finance.