Flat-Fee Financial Planning vs. Traditional Models: What You Need to Know

Written By: Carlie Ransom CFP®, AIF®

Fee-based, fee-only, flat-fee financial planning? Are you asleep yet? Financial services transparency should be simple, but with layers of possible fees in every financial product and an entire new language of terms like conflicts of interest or fiduciary standard, it’s no wonder that most of us fall asleep before trying to fully understand this jargon.

But at what cost?

While leaders for financial transparency and client care are doing their best to transform the financial planning and investing industry, questionable practices remain because conflicts of interest (aka anything that could cause your advisor to steer you to a certain product), are rarely disclosed in the industry, and most consumers don’t take enough time to educate themselves on the boring details of fee structure. Choosing one advisor could end up costing 5-10 times more for the same service as another advisor in many situations; even when the service is essentially the same. Beyond paying more fees, an even larger issue with certain types of models is the level of bias the advisors face.  Certain models create much larger conflicts of interest. 

What is a conflict of interest?

Even the advice from CFP® professionals legally obligated to act in your best interest is greatly impacted by a concept called “conflicts of interest.”

If advisors are financially incentivized in any way to not act in your best interest, then even the very best and ethical advisor can be swayed (sometimes unconsciously, sometimes due to firm pressure, and sometimes out of financial desperation) to recommend a financial solution that helps their business revenue instead of the path that is truly in your best interest. 

Here’s a scenario: an advisor who is a “good” human and has always given you good advice, suddenly is in a situation where he needs to make more money to pay for his son’s cancer treatment and needs to increase his income quickly. You meet with him and mention that you received an extra $100,000 from a bonus and you are not sure what to do with it. The real answer is likely that you should put it towards the home project that you’ve been talking about for years. However, the advisor needs extra revenue and gets a paid a percentage of any assets he manages, so he is therefore going to make more money if you invest the money with him. So he suggests that you invest the $100,000 with him to save for retirement. Could the advisor argue that he is working “in your best interest” by helping you save for retirement? Sure! That is pretty easy to justify. This advisor might not even realize his own bias and could potentially have blinders on to the fact that fixing your home for your family might actually be in your best interest. 

Comparing Financial Planning Models

Conflicts of interest are not equal in all fee structures.  Let’s explore how flat-fee planning compares to other common ways advisors charge for their services. This article succinctly compares the four most common fee structures you’ll find today:

1. Commission-Based (also called Fee-Based) 
2. Fee-Only, based on percentage of assets under management (AUM model)
3. Flat-Fee that includes investment management 
4. Advice Only 

While fee structure might seem like a boring detail that doesn’t really matter, the differences between fee structures can significantly impact the kind of advice you receive—and whether it aligns with your broader goals. 

1. Commission-Based (also called Fee-Based)

Commission-based advisors earn their income by selling financial products, such as life insurance, annuities, or trading stocks for commission. If they are also able to manage your investments and they charge a percentage of your assets being managed, then they are called “fee-based.”

Potential Benefits:

• Advice During a Sale: When you need to buy a product (such as life insurance or an annuity), then the advice you get during the product sale can be valuable to help you make the right decision, since many products are complex, especially as you get into the permanent insurance space. 
• “Free” financial education: Some firms provide free education so you can learn about their financial products. While there will be bias during these talks, it is still a great way to get some free financial advice as long as you are aware of the bias and conflicts of interest. Full disclosure: I was formerly at a fee-based firm and while biased, our financial education was extremely helpful to most people and they were genuinely appreciative of the free education. 
• “One-Stop Shop”: Some firms say they are a “one-stop shop” by being able to sell you insurance products and also manage your investments, so this way you don’t need as many financial advisors.

Potential Drawbacks:

• Conflicts of interest: Your advisor may be incentivized to recommend products that generate commissions, even if they’re not the best fit for your financial plan. In particular, you could be placed into products that are hard to get out of (such as permanent insurance or annuities), and due to the large initial commission that the advisor receives, they don’t have incentive to help you in the future after the product sale. 
• Lack of transparency: It can be difficult to know how much you’re really paying, as commissions are often hidden in the cost of the product. Your advisor might even say that you “don’t pay them anything at all—it’s the insurance company that pays them.”. 
• Limited fiduciary standard: Many advisors in commission-based roles (especially if they work at an insurance company) are not required to follow the fiduciary standard of care to act in your best interest. Even advisors held to the fiduciary standard, such as CFP®  Professionals, may be swayed to recommend a product or plan that generates more revenue for themselves instead of the client. 

2. Fee-Only, Based on Percentage of Assets Managed 

To be able to use the “fee-only” terminology, firms must not sell any products for commission. Fee-only firms can, however, charge a percentage for the assets being managed (often around 1%), and most fee-only firms use this model.

Potential Benefits:

• Common Goal: Advisors get paid more when your account balance goes up, so they are incentived to manage your portfolio well.  You are on the “same side of the table” and they say, “It makes sense because if I do a good job managing your portfolio you’re happy because you have more savings and I’m happy because I get paid more.” 
• Pay Later Instead of Now: Rather than having your financial planning fees come out of your checking account today, they are simply (generally) subtracted from your investment account, which works well for those on a limited budget who otherwise couldn’t afford financial planning fees.

Potential Drawbacks:

• Fees grow as your wealth grows: Whether you receive a bonus, save more, earn more compounded interest, or sell a home, your advisor’s fees increase without necessarily adding more value to your financial plan. Also, it should be noted that when your portfolio grows, it isn’t necessarily due to the skill of the advisor- much of the time it grows simply because the stock market tends to go up most years. 
• Conflicts of Interest: Imagine you ask your advisor, “What should I do with this $100,000 I just received?” The real answer might be that you should either use it as a down payment for a home, invest in a business, pay off debt, or invest more into the stock account your advisor manages. However, your advisor only gets paid more if it goes into the stock account, which creates an ethical dilemma for the adivsor. 
• Narrow investing focus: With fees tied to your portfolio, advice may center around your investments, leaving other critical areas—such as student loan repayment or life transitions—less explored.  Therefore, over time, your advisor’s depth of knowledge may not be as high in alternative investments such as cryptocurrency, real estate, or business, since they don’t get paid any more by discussing these types of investments, but they do get paid more if they manage more of your assets.

3. Flat-Fee that includes Investment Management

Flat-fee financial planning is a subgroup of “fee-only” planning. With flat-fee financial planning, you generally pay a fixed amount based on the complexity of your financial situation, not the size of your portfolio. This can either be in the form of an hourly, monthly, or quarterly fee and can be either project-based or ongoing. Many flat-fee planners offer sliding scale pricing, based on how complex your situation is, but the fee is not directly related to your portfolio size, which means they have greatly reduced the conflict of interest related to investment management. 

Potential Benefits:

• No hidden surprises: Your fee is transparent and doesn’t fluctuate with market changes or your savings rate. You know exactly what you’re paying for, which fosters trust and open communication.
• Holistic advice: Advisors focus on your entire financial picture—whether it’s planning for maternity leave, buying a home, business or career strategy, managing student loans, or exploring socially responsible investment options—rather than just focusing on your investment portfolio.  
• Lower cost for large portfolios: flat-fee planning is especially helpful for individuals with larger investment portfolios because the flat-fee acts as a cap, while their fee keeps going up and can get pretty large when using a fee-only or fee-based advisor charging based on a percentage of their assets. 
• Removing fees from the investment: Some clients choose to remove the roughly 1% fee from the investment, and this leaves more room for compounded interest in your portfolio. This is a major benefit in Roth accounts in particular.

Potential Drawbacks:

• Affordability: People on a tight budget might not be able to afford financial planning fees out of pocket and may actually prefer to simply have a percentage drawn from their investment account each year under the percentage AUM model. 

4. Advice-Only 

Similar to flat-fee planning above, advice-only planning allows for comprehensive advice with conflicts of interest minimized. The main difference between advice-only planning and flat-fee planning is that advice-only planning can offer investment advice but not management, so you need to implement any investing strategies on your own. 

Potential Benefits:

• Advice for DIY Investors: This model is well-suited for those who prefer to handle their own investments but need expert advice to make informed decisions.
• Holistic advice: Advisors focus on your entire financial picture—whether it’s planning for maternity leave, managing student loans, or exploring socially responsible investment options—rather than just focusing on your stock portfolio.
• Clear and transparent: You know exactly what you’re paying for, which fosters trust and open communication.

Potential Drawbacks:

• Less hands-on: While advice-only planners offer valuable insights, they don’t typically assist with the ongoing management of your investments, such as rebalancing or tax-loss harvesting.
• Investment Management Mistakes: While most of us want to believe we’ll get the details of investment management correct, many make mistakes while implementing DIY investing plans. Some DIY investors still panic during market lows, which are the costliest mistakes of all. 

The Equal Path Investments Decision to Adopt the Flat-Fee Planning Model with Optional Investment Management

At Equal Path Investments, we considered offering advice-only services (option 4 above). However, after speaking with our clients, we realized many simply don’t have the time or interest in managing their own investments. While DIY investing sounds appealing in theory, it often leads to incomplete strategies, costly mistakes, or high fees from trading costs, platforms, or robo-advisors. 

Therefore, our challenge was to determine how we could provide investment management for our clients without creating the conflict of interest that arises by charging for investment management.

The issue is that if we paid based on a percentage of the assets we manage, then we are incentivized to recommend that you invest with us in order to increase our fees. This is why charging a percentage of assets (typically 1%) creates an incentive to prioritize gathering more assets over a client’s best interests.

Our solution? We eliminated asset-based fees. Instead we charge a flat fee, whether you manage your own investments or have us do it for you. We offer you the option to have your investments managed, and we cover the cost of the platform fees. Our reasoning for this is that we’ll give you investment advice for your entire plan either way, regardless of whether or not you invest with us, and when you invest with us we can more clearly and effectively make changes to your investments as needed, so it’s a win-win: You win by getting the chore of investment management taken off your plate for no extra fee, and we win by having investment management simplified on our end so it saves us time (rather than emailing statements back and forth for DIY clients). 

Why Flat-Fee Financial Planning is Ideal for Impact-Driven Professionals

For many individuals who are balancing careers, family, and a desire to make an impact, flat-fee financial planning with optional investment management is the ideal solution. It offers clear, unbiased advice across all areas of your financial life, without the significant conflicts of interest often present in percentage-based or commission-driven models.

By focusing on your unique goals—whether it’s finding the best loan repayment plan, making home-buying decisions, or structuring your finances in alignment with your values—you can build a financial strategy that supports both your present and future, free from hidden fees or surprises.

When Flat-Fee Planning Might Not Be the Best Fit

While flat-fee planning offers many advantages, it may not always be the right fit for everyone. For those with smaller portfolios or simpler financial needs, a percentage-based fee may be more cost-effective in the short term. However, as your financial complexity grows, the value of flat-fee advice becomes more apparent—especially when it comes to providing holistic, unbiased recommendations across all areas of your life.

A Clear Path to Purposeful Financial Planning

Flat-fee financial planning is all about helping you achieve financial clarity and peace of mind. By removing the barriers of hidden fees and focusing on what truly matters, it empowers you to make confident, informed decisions about your financial future. You can focus on bringing your unique vision to life through financial clarity. 

Reach out if you’d like to learn more.