By Russell W. Hall, CFP®, CPWA®

“Being fee-only planners, we believe we offer our clients objective advice. We never receive commissions on anything we recommend.”

-Letter to a potential client from Bill Camp, December 1985

Big Changes

The world of investing has changed radically in the forty years since Eclectic Associates opened our doors. When we look back at the mid 1980’s, it’s amazing how difficult it was to do things we take for granted now. Something as simple as making an IRA contribution and purchasing a mutual fund required multiple points of contact and could take weeks. Custodians like Schwab were not widespread yet, so keeping track of investments at different mutual fund companies, making trades, and reporting on investment returns were complicated, labor intensive, paperwork heavy processes.

Unchanged

With that in mind, it’s interesting to read through documents from that period and see how Eclectic’s guiding principles and investment philosophies remain largely the same. Our founder Bill Camp’s quote above still applies and could have been taken from a current email. As we pointed out in a previous article, in many ways our fee-only structure was unique in 1984 and it is still the minority in the world of financial services. But why did Bill and then his son Carl choose to be fee-only advisors, and remain that way for all these years?

Objective

The answer is in Bill’s quote. Having worked in the world of real estate sales, Bill knew firsthand the experience of trying to earn a commission. That is standard practice in the real estate industry, but as a financial advisor Bill wanted to sit on the same side of the table as his new clients. In other words, he wanted to be as objective as possible. The way he chose was to only charge a fee for his advice and not be paid in any other way.

Being fee-only aligns Eclectic’s interests with that of our clients. If our recommendations perform well, client portfolios go up in value and our fee increases. If performance is not good, our income drops along with our clients’ investments. It also incentivizes us to keep other expenses like underlying investment and trading costs at a minimum, so that both we and our clients benefit in the long run.

Not Perfect

As with everything, the fee-only model has an inherent conflict of interest: managing more assets translates to higher fees. This conflict could arise when a client is considering withdrawing a large sum to pay off a mortgage or other debt, for instance. In such cases, we are careful to abide by our fiduciary duty of putting the client’s interests before our own. We will point out the issue and do our best to objectively stick to what the numbers are telling us is the best option for our client.

As an aside, we are often asked why we split our annual fee into thirds and charge every four months. When Eclectic started, the rules for investment advisors were very different. We couldn’t legally bill one or even two times per year, so we chose triannual billing (instead of quarterly) since billing was as much of a labor-intensive process as everything else in those days.

The Eclectic Choice

Over the years, the industry has evolved and now advisors are charging for their services in many different ways. Options like fee-based (commissions plus management fees), hourly/project, retainer, or flat fee are common in the industry. We have stayed with being fee-only because we believe we have “chosen it from among the best” – the definition of the word “Eclectic” that gave our company its’ name. As Bill said in 1985, we’ve never received commissions and never will, and we plan to keep giving our clients objective advice for the next 40 years and beyond.

If you know someone who should consider using our services, please send them our way. We are happy to meet with anyone for a free, no-obligation meeting. Have them call us at 714-738-0220 to schedule a meeting, or they can click here to schedule an introductory call with one of our advisors.