CKBlog: Standards

Tuesday, July 17, 2018

Want to Know How Much We Make?

by Steve Haberstroh, Partner

It’s ok, admit it. You’d love to know how much your neighbor, friend, or family member makes. Don’t even pretend you’ve never visited or after seeing a friend or colleague get a promotion on LinkedIn. If this is the first you’ve heard of these sites, go check them out. They list average pay for certain roles and titles at thousands of companies across the US. It’s a tricky equation, but the websites claim to have proprietary algorithms to optimize their estimates. 

Want to know how much we earn? No algorithm needed. Here is the fee schedule we are required to publish with the SEC and give clients and prospects each year. I’ll follow up with some real world examples to make things more clear.

Portfolio Management and Investment Advisory Services Fee Schedule

Tiered Fee Schedule
  Account Size Rate (p.a.)
First $1,000,0001.500%
Next $4,000,0001.250%
Next $5,000,0001.000%
Next $5,000,0000.750%
Next $5,000,0000.600%
Next $5,000,0000.500%
Next $75,000,0000.375% -0.400%
  > $100,000,0000.200%-0.375%
Please note: Fees for any client who signed investment management or investment advisory agreements with CastleKeep Investment Advisors LLC on or before December 31, 2014 are calculated on a single rate for the entire value of assets under management attributable to such client.  Fees for any client who signed an investment management or investment advisory agreement with CastleKeep Investment Advisors LLC on or after January 1, 2015 are calculated on a tiered rate based on the value of assets under management attributable to such client, as per the chart above

Here are real-world examples (best viewed in landscape mode on mobile devices):

Examples Tiered
Fee Schedule
Account A w/
Fee Amount
Account B w/
Fee Amount
First $1,000,000at1.500%$15,000.00$15,000.00
Next $4,000,000at1.250%$50,000.00$50,000.00
Next $5,000,000at1.000%$5,000.00$50,000.00
Next $5,000,000at0.750% $37,500.00
Next $5,000,000at0.600% $30,000.00
Next $5,000,000at0.500% $25,000.00
Balance > $25,000,000at0.375% -0.400% $22,000.00
Total Fee (per annum):$70,000.00$229,500.00
Effective Rate:1.273%0.752%

Want round-number figures?
If we manage a $250,000.00, we earn $3,750 annually.
If we manage $500,000.00, we earn $7,500 annually.
If we manage $1,000,000.00, we earn $15,000 annually.
If we manage $5,000,000.00, we earn $65,000 annually.
If we manage $10,000,000.00, we earn $115,000 annually.

Not ready to hand over the reins? We offer a $450 hourly rate for folks who want financial planning analysis projects without hiring us to manage their wealth full-time.

Want us to keep an eye on your existing wealth manager and offer you quarterly analysis? We charge a lower asset based fee for this analysis called “Money Manager Monitoring”.
All of this is described here (published annually with the SEC):

Our clients pay us one transparent fee, billed quarterly, debited from their account. They pay us nothing else. Critically important, I might add, is that our clients are the only ones who pay us. As an SEC Registered Investment Advisor (RIA), we do not charge commissions to make trades, we do not sell product (such as insurance), we don’t earn 12b-1 fees (look them up), we do not earn a commission if you get a mortgage through our referral, and do not accept kickbacks or incentives to have our clients invest with a particular manager. If such a manager insists on paying a commission, we pass those dollars right onto you—we have done this before.

Why is this so critically important? As Bob Reynolds, CEO of Putnam Investments once said, “You tell me how someone is paid and I’ll tell you how they are going to act”.  Incentives matter. Moreover, they make people do strange things. Ever wonder why your advisor recommended a particular life insurance policy, offered a lending product, or touted a particular mutual fund family? Do you find it concerning when your commission-based broker seems to make trades before Christmas each year?

Advisors at the wire-houses probably think I am crazy to make our compensation so clear. Large banks have hundreds of folks in marketing and legal departments dedicated to making things as complex as possible. The thinking has been, “confuse the heck out of them and they’ll stop asking questions.”

As evidence, I offer you UBS’s 41-page document entitled: “Understanding our Fees, Charges and other Compensation”.

Forty-one pages to explain to clients how you make money off them? Really?

If you work with us, our compensation will always be clear and transparent. That’s why I’m putting it in plain English on our website. Our interests are aligned. As your account grows with us, we will make more money. Isn’t that the way it should be?

So next time we are at the same cocktail party, lean into the person next to you and say, “Wanna know how much he makes?”  I’d be totally cool with it.