Afraid of the Cost of Hourly Advisors?

On this episode of The Long View, founder and lead financial planner of Vantage Pointe Planning, Feraud Calixte, sits down to talk financial planning, education, and how to separate your net worth from your self-worth.

Here are a few excerpts from Calixte’s conversation with Morningstar’s Christine Benz and Jeff Ptak:

Why Should You Focus on Financial Planning First?

Jeff Ptak: I think another way it sounds like in which you inverted the traditional model that you’ve talked about is you didn’t lead with investments. Instead, you focused squarely on financial planning rather than investments, though you do provide investment guidance, too. What led you to conclude that you wanted to put planning front and center with your firm?

Feraud Calixte: I can’t even take credit for that. Ninety-nine percent of wealth management firms, they say that financial planning leads. I think we are correct in understanding that investment management, if that’s solely what you provide, well, that becomes a commodity. So, a lot of the industry was shifting toward leading with financial planning, and I just decided that, not only do I want to lead with financial planning like everybody else, but I want to say that this is where the value really lies and I want to align my business model to reflect that. And I think that it signals to the client that, this is what I’m paying for, this is where the greatest value is, and that’s what I did.

Hourly Financial Planning

Christine Benz: You wanted to be a fiduciary, you wanted to lead with financial planning versus strictly investment management, you wanted to be hourly so as to serve people without large portfolios. Were there any other principles that you wanted to bring to bear on Vantage Pointe when you started it up?

Calixte: Transparency is something that was really important to me. If you visit my website, all my fees are transparent. You know coming in a ballpark of the fees. I wanted comprehensive. So, I wanted folks to be able to look and see that this is the full suite of services that we help you with. Again, the fee-only, I wanted to focus on there’s no product sales. Our value is the advice that we give. Those are the three big headings I think of when we think about value. And then there’s a tagline that I have on my website also, and it’s: Your self-worth is not your net worth. To me, that resonated personally to me. And then, I thought that for people to realize that look, when somebody comes in and inquiries about working with me, I don’t ask how much they’re worth. I don’t immediately knee-jerk talk about how many assets is available for me to manage, because that’s not really important. This is a person who has some pain points, and they’re coming to me as a professional to help them solve those pain points, and that’s what I think I’ve been able to create.

Financial Niches

Ptak: It does seem like these days financial planners are very much focused on targeting specific niches. And you’ve talked about some of the attributes of your firm that make it distinctive in a lot of ways. But with respect to niching, is that an emphasis for you as well, and if so, what are the niches that you’re trying to reach?

Calixte: I’ve read all the studies about focusing on a niche and buckling down. I’m not closed to that idea, but I still think that right now one of the cool things that I see, I’m able to cast really a wide net and serve so many people along the financial spectrum and industry spectrum. I like the fact that I can work with a larger group of people.

Benz: And I would imagine that that keeps things interesting too that you have people who aren’t all …

Calixte: Yeah, it does keep things very interesting.

Benz: … engineers getting ready to retire or something like that. I’m curious, do you find that you bring your legal background to bear upon your practice?

Calixte: To the extent that I think that when people see law degree certified financial planner, they know that, obviously, I spent years educating myself. There’s a certain level of competence, professionalism that comes to bear in my advice model. And when I have conversations with folks, they get it. So, I’m saying that the value that I bring is this expertise and advice, and this is what it looks like to work with me. They’re like, well, it makes sense, right? This guy has a law degree. He’s a certified financial planner. His stock-in-trade is his expertise and advice. So, that’s one thing that I found was pretty interesting.

Secondly, just from if you think about estate planning, as a part of a comprehensive financial plan is having your estate plan in order. That conversation is always a lot easier, even though I always tell clients that I work with estate attorneys to draw up the documents obviously, but I think that’s an easier conversation with the client. I found that when I talk to other COIs, centers of influence, they get it too. They see my background. They see the expertise that I bring. They’re a lot more comfortable in the fact that I’m an expert in this area, you’re an expert in that area, and we can work and collaborate together on this client to make sure they achieve their goals.

What is the Appeal of an Hourly Advisor?

Ptak: You started as an hourly only advisor. What appeals to you about the hourly model?

Calixte: For me, when I looked at all the different fee models out there, hourly just made the most sense in terms of really focusing on the advice portion. I wanted to work with folks who value advice and expertise and to me it made the most sense to do it that way. Plus, every other professional industry works that way. Traditionally, we think about lawyers, consultants, accountants. The bottle was already there. And obviously, this is not a new thing that I’m doing as a financial planner. There’s the Garrett Network, there’s other hourly advisors around the country. So, we’re just talking to a few other folks, delving into the model and seeing that there’s a need out there. There’s a certain market that this would resonate with. It just made sense. It was good business, frankly.

Pushback to the Hourly Financial Advisor

Benz: Do you find that prospective clients sometimes push back when they hear about the dollar amounts that the hourly model might entail? Because they’re hesitant to pay out of pocket, or maybe that’s not what they’re used to. They’d rather have that invisible hand reach into their accounts and take out their fees without really knowing it. Do you get that pushback from people who might otherwise want to sign on with you?

Calixte: That pushback has happened, but not as often as you would think. I think there’s a couple reasons for that. I think the website being super transparent in terms of the fees are there front and center for anybody to see—that’s number one. Secondly, by the time I’m having a conversation with someone, if someone is unclear about how the fees work, or why does it cost this much? I always look at that as an opportunity. So, this is an opportunity for me to really demonstrate my value and say that this is the work that we’re going to be doing together. These are the goals that you say are important to you, and this is just the way that we decided to get compensated on that. And at any time, no matter what business model you have, you should be always focused on delivering the value to the client. I would argue that the value should far exceed whatever your fee is to the client so they can continue working with you.

To me, there’s no difference. I think that one of the things that was interesting is that a lot of my clients are actually new—they never had a relationship with a financial advisor before. Because remember, for one reason or another, they didn’t fit traditionally in the majority of the models out there. A lot of times, I spent the initial conversation just educating prospective clients on what it’s like to work with the planner, what’s the value you can receive. So, that that’s been good, too.

Can You Make a Living as an Hourly Financial Planner?

Ptak: What do you say to financial planners who look at the hourly model and conclude that it’s just not a great way to make a living?

Calixte: I’d say, it’s tough. There’s no way to get around that. Again, whenever we go back to this fee thing, I get it. I get the business, I get the economics, I get the saliency of fees, I get the way 1%, it’s such a small number in comparison. So, when another advisor pushes back and says, “Feraud, I would never do it that way.” Typically, my response is some version of “Well, great. Advisors don’t work with me. I’m not interested in working with advisors as clients.” But for the public, for the folks that it works for, I think it makes sense. And I have an abundance mentality. There’s no way I can work with everybody out there, so there’s always going to be clients who want to work with my advisor friends who decide other models. And then, fortunately, there’s clients who want to work with me.

Benz: Your business is primarily hourly, but you eventually did add an option for people who want to pay for that day-to-day portfolio oversight. Can you talk about that decision and what prompted it?

Calixte: My firm and what I like about just this process of innovation and just really serving client needs as they come up. It’s the opportunity to really pivot and innovate constantly. The feedback that I was getting from clients is that some of them—some folks, not everybody—but they wanted to me to continue helping them with some of the implementation. I would give them the recommendations. I would do their investment planning and then they said, “Feraud, can’t you just do this for me?” And then, enough people said that. And I decided to offer that option and people decided to take me up on it. And investment is something I’ve always been comfortable with. In every other role I’ve had, I’ve had discretion over assets, I’ve managed assets, I was comfortable in that space anyway. So, when I saw an opportunity to continue to add value, serve clients who wanted that service model, I just decided to add it.