Fee-Only means more work for less pay
Generally I am not paid by the hour. Instead, my pay is based on the amount of investment assets I am managing for a client. So whether I work 20 hours next week or 200, I’ll likely make the same amount of money. Thus, if you calculate my work by the hour, the more hours I work the less money I make.
In 2008 (you do remember what happened in 2008, don’t you?), my work-load increased. It increased a lot. This was not a surprise to me. Work increased when the markets were bottoming at the end of 2002 and the start of 2003. It increased in the aftermath of 9-11. It increased while the Tech Bubble was busting. Yes, every time something goes wrong with the market, my workload increases.
Sometimes the work increases because there are cyclical changes to sectors of the economy. This was especially true when technology in all its many forms, but particularly those related to the Internet, spectacularly ended the greatest bull market in history. It was true after 9-11 when airlines were close to death while the defense industry could do no wrong. And it was true during the financial crisis when some of the top dividend-paying sectors like Real Estate, Insurance, and Banking were punished severely, while at the same time just about anything else with an income stream was rewarded.
These market turns require immediate changes in investing tactics, and demand a reevaluation of longer-term strategies. And that takes time.
It’s not the portfolio analysis or even the administrative duties that take the greatest amount of time, however, it’s helping my clients. When someone sees their investment portfolio--the assets they are depending on to feed, clothe, and shelter themselves in the future--go down 10, 20, 30%, they get concerned. Extremely concerned. This is not surprising. It is not unwarranted. They are not unreasonable. But it does take time. One day during one crisis, my usual prompt return of phone calls was impossible (running some 10 hours late) because of the sheer volume of calls coming in.
With all this extra work, equivalent hourly pay goes down. But it’s actually worse than that. Remember, most of my income comes from managing people’s investments. And most of the time I am compensated based on the value of those investments. Well, when the market goes down, the value goes down, and my income goes down.
Workload up, income down…not the best combination.
But it is what it is, and it is the nature of my business. It is a big lesson in my career field and one that trips up many of my peers. Like any other potential crisis in life, this one can be mitigated through planning. Saving a bit of cash “just in case” doesn’t hurt either.
Come back next week when I explore another part of the education I’ve gotten spending over 20 years helping folks with their investments. Next time, how I’m happy not being a success…at least the way my industry measures it.
This article was published under the title "Fee-Only: More work for less pay"
in the Wichita Falls Times Record News on September 26, 2014.