'War on savers' also an assault of fee-based advisers

The biggest threat to fee-only financial advisers isn't the markets. It's the Fed. The Federal Reserve Bank's continued policy of keeping interest rates at a historically low level has been called a “war on savers.” If so, fee-only financial advisers are right there on the front lines with them, said Don Phillips, president of fund research at Morningstar Inc. “Planners who moved away from commissions to a fee-only advisory model to better align their goals with clients are paying for it,” he said. The side effect of the low-interest-rate policy is that safe havens, such as bank accounts, are now yielding close to zero and have no chance of keeping up with even modest inflation. That's putting an increased strain on clients' account levels, which, in turn, hits fee-only advisers' compensation levels. Bill Carter, president of Carter Financial Management, is one adviser frustrated by the policy. “I've got clients who've done the right thing for 25 years,” he said. “They've saved more than they spent. Now we're being forced into riskier asset classes.” To make matters even worse, many of the tax increases being bandied about are aimed at investment gains, which will again hit fee-only advisers' compensation. Advisers who are willing to sacrifice some compensation to build up equity in their practice eventually would be hit by the proposed “Buffett rule,” which would create a new tax bracket for those with over $1 million in annual income, when it's time to cash out, Mr. Phillips said. Bottom line: “If you feel a little paranoid in this political climate," Mr. Phillips said, “it's because you should.”