How would you rather be charged for investment advice?

Question

Arpita Sinha · Accepted Answer

Commissions eat up the returns exponentially. Fixed fee always works better. It also aligns the interest of the advisor and there's no chance of product pushing.

Utkarsh Choudhary · Answer

@chirag_dodiya Absolutely. The compounding effect is real with commissions or trailer fees.

Chirag Dodiya · Answer

Fixed fee always works better because of cost overtime if you go with percentage.

Aneesh Gupta · Answer

@utkarsh_choudhary92 got it thanks Utkarsh! For retail I think a fixed fee works better if you think about products like Smallcase for example.

Utkarsh Choudhary · Answer

@julien_fayad The last option is quite interesting. Could be something worth exploring.

Utkarsh Choudhary · Answer

@arpita_sinha1 Agreed. Now that people have finally started realising the compounding effect of trailer fees, this will hopefully become the norm.

Utkarsh Choudhary · Answer

@_aneeshgupta_ Yes very much so. If we get into modes of charging from HNI investments, its a deep rabbit hole. The focus of this discussion is on retail investors who still haven't had access to quality advisory.

Answer

Performance fee - I hate to see companies get paid for not performing well.

Ibrahim Saidu · Answer

Great insight on charging for investment advice! I totally get the point about a fixed fee, especially when considering retail and platforms like Smallcase. It does simplify things and gives a clear picture. On a slightly different note, have you ever explored opportunities in oil well investing https://www.oilandgasinvestmentf... ? Curious to know your take on that front! Let's keep the financial chats going!

Answer

@utkarsh_choudhary92 Yeah that makes sense. Perhaps compare against S&P500 to cancel out bear market impacts?

Utkarsh Choudhary · Answer

@samuel_tf_lam That's a great idea actually. Performance relative to benchmark.

Utkarsh Choudhary · Answer

@samuel_tf_lam agreed. Think the challenge is that, with long term investments, if the cycles aren't in your favour (like bear markets last 2-3 years), the advisor might not get paid for a very long time. Not because of any fault of his own but because of the macro-economic environment. So from a sustainability perspetive, it's a challenge.

So i think a split between some fixed fee (not commission) and some performance based could be a sensible hybrid.

Donald Allen · Answer

Optimal alignment of interests: Focus on investment performance, not transaction volume. Generous fee for positive outcomes, no profit sharing.

Julien Fayad · Answer

A generous fixed performance fee: This is the best way to have everyone's interests aligned. You are not incentivized to maximize transactions but instead to make sure the investment is performing BUT you are not sharing the profits and instead get a generous fee when it does perform (regardless of much money the client is investing).

Another model could be capped commissions on performing investments

Utkarsh Choudhary · Answer

@donaldal23 completely agree. A pre-defined amount on positive outcomes makes it much more attractive as compared to an uncapped number.

How would you rather be charged for investment advice?

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