A recent discussion with one of our existing fee-only clients on how advisory fees should be charged turned into a very interesting debate.

Which model is better – a fixed fee or a percentage-based annual fee?

A fixed-fee model offers simplicity and transparency. Clients know exactly what they are paying.

However, it has its limitations.

1. The adviser has little financial incentive to grow the client's portfolio.
2. The practice becomes harder to scale.
3. If fixed fees are set too high, they may also discourage smaller investors from seeking professional advice.

A percentage-based annual fee aligns the interests of the adviser and the client. The adviser has genuine skin in the game and is motivated to build a portfolio that aims to outperform the benchmark over the long term. It also allows the advisory practice to scale while serving clients continuously. The downside, of course, is that fees increase as the client's wealth grows.

The debate has no universal winner.

At Naveen Rego Capital, a fee-only financial planning firm and a SEBI Registered Investment Adviser, we believe both models can coexist, depending on the client's needs.

For clients who are deeply focused on their careers, businesses and families, and prefer a completely hands-off approach to managing their finances, our percentage-based annual engagement is often the better choice.

It frees up valuable time and mental bandwidth, allowing them to focus on what matters most.

In many cases, the value created through:

1. Disciplined planning,
2. Behavioural coaching
3. Sound portfolio management

can far exceed the incremental advisory fee.

For clients who are

1. Financially aware
2. Motivated
3. Comfortable implementing advice themselves,

a fixed-fee or hourly engagement works well. They pay only for the professional advice they need, execute the recommendations independently, and return whenever they require another review.

So, which model is better?

We don't believe there is a single correct answer. The better model is the one that delivers the best overall outcome for the client.

When evaluating advisory fees, remember that your own time has value too. The hours spent researching investments, executing transactions, monitoring portfolios and staying updated could instead be invested in your profession, your family or your passions.

Rather than focusing only on what you pay a fee-only adviser, ask yourself a more important question:

"Could I have consistently achieved a better outcome on my own?"

If the answer is no, the advisory fee is likely one of the best investments you can make.

Note: If you are working with a Mutual Fund/SIF/PMS/AIF Distributor, you are working on a percentage per annum fees even if you are having low interactions with the Distributor.

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Happy Financial Planning!

Naveen Julian Rego – CFP®

MD & Principal Officer

Naveen Rego Capital

SEBI Registered Investment Adviser

Reg No: INA000019211

BSE Membership ID: 2178

Disclaimers:

1. Investment in the securities market is subject to market risks. Read all related documents before investing.

2. Registration granted by SEBI, enlistment as IA with Exchange, and certification from National Institute of Securities Market (NISM) in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.

3. Financial products recommended by us that are under the jurisdiction of other regulators are beyond the scope of SEBI’s grievance redressal mechanism.