Investment advisors have become increasingly popular in recent years as more investors seek professional guidance on managing their portfolios. Variable investment advisors represent a specific segment that charges fees based on assets under management rather than fixed rates. Though variable advisors offer certain advantages, they also pose some downsides for investors to consider. This article will analyze pros and cons of using variable investment advisors from multiple perspectives.
Variable investment advisors provide more personalized services catered to clients’ needs
Unlike fixed-fee advisors who service all clients with a one-size-fits-all approach, variable advisors have greater incentive to tailor recommendations and portfolios specifically for each investor. For instance, they are more motivated to frequently rebalance portfolios when clients’ financial situations or risk tolerances change. They also tend to proactively contact clients regarding new investment opportunities matching their objectives.
Potential conflicts of interest could sway variable advisors’ judgement
With pay structured as a percentage of assets managed, some variable fee advisors may be tempted to take on more risk than appropriate for certain clients to chase higher returns and thus fees. They may also be reluctant to recommend paying off debts early despite the guaranteed returns offered, since that would shrink assets under management.
Variable fee structures offer transparency but costs can add up over time
Unlike fixed-rate advisors who receive the same compensation regardless of portfolio performance, variable advisors’ interests are better aligned with generating strong returns for clients. Investors also enjoy full transparency on how much they pay. However, during extended bull markets, variable fees charged on growing account balances can become exorbitant.
Investors should closely examine variable advisors’ qualifications and investment strategies
While the variable pay model offers some advantages, investors should still vet advisors thoroughly regarding credentials, years of experience, investment philosophies, and customization capabilities. Understanding how potential advisors have performed through different market cycles is key to determining fit.
In conclusion, variable investment advisors provide more personalized portfolios and transparency on fees, but also pose some conflicts of interest. Weighing pros and cons carefully is crucial when selecting right advisor.