Like many full-service financial planners, Mark Cortazzo felt bedeviled by the so-called robo advisor rivals that were springing up and promising low-cost asset management with web-based interfaces.

But instead of complaining, Cortazzo decided to join the fray: Three years ago, he launched the Flat Fee Portfolios website as an alternative to Macro Consulting, his Parsippany, N.J., planning firm.

“I would walk out of a meeting frustrated because we were competing with something that was simple, but not as good,” Cortazzo says. “But we said, 'OK, if you want simple, we can do that, too.’ ”

The resulting web service,, is simply a product offering of Macro Consulting. If you choose the site’s passively managed portfolio, you’ll get a mix of low-cost mutual funds and exchange-traded funds, rebalanced annually, for a monthly fee ranging from $129 to $199.

Once a client’s assets exceed $1 million, the fees are charged as a percentage of assets, but at a scant 0.24% (or even less for larger accounts). Clients also pay annual administrative fees charged by the funds, but the combined costs are still about half or one-third what an investor would pay for full-service asset management, he says.

Cortazzo thinks the formula works nicely for a cost-conscious consumer who is building assets, but it’s not the right mix for those who have more sophisticated needs. Indeed, if you choose the site’s “actively managed” option or say that you want to buy alternative investments, you’ll get a call from one of Macro’s planners, who may well persuade you that you need more than a flat-fee portfolio can provide.

Cortazzo says one of the unexpected benefits of creating the Flat Fee site was that it forced his planners to clearly explain what makes the firm’s full-service investment management process better.

“A lot of what we focus on is sequence risk, longevity risk, where to hold assets,” he says. “Because our clients tend to have more complex structures in their lives, we don’t give them a solution that’s easily explained by a pie chart.”


It’s not the only time that Cortazzo’s 22-year-old fee- and commission-based practice has come up with a new offering to capitalize on an emerging market opportunity.

Last year, Macro Consulting started a stand-alone annuity review service. For $199, Macro’s annuity experts will look over as many as three contracts to tell you whether you should keep them, exchange them or cash them in.

Cortazzo says he launched that service because insurers were offering to buy out some of their old annuity contracts, and some planners were wrongly advising clients to go for it. In some cases, cashing in an old policy is fine, Cortazzo adds.

But some of the old annuity contracts are valuable because they offer bells and whistles — such as 6% guaranteed rates of return — that can’t be bought at any price today. Clients who are lucky enough to have these sweet deals should keep them, he says.

Cortazzo is a fan of annuities for retirees and near-retirees, who make up the bulk of his practice, because he thinks they successfully avoid some of the uncertainties of investing.

Risk is of particular concern to older investors, who have neither the time nor the wages to make up for investment losses.

“When we are talking to our clients about risk, there are only three things you can do: avoid it, manage it or transfer it,” he explains.

To avoid risk, you could invest in money market accounts, certificates of deposit and short-term Treasuries — but at historically low interest rates, that’s going to earn less than the rate of inflation and cost investors buying power in the long run.

You can manage risk with a diversified portfolio that includes some hedge funds, he says. But hedge fund fees can be costly, too.

Many of Cortazzo’s clients have chosen to transfer the risk to insurers by buying variable annuities with riders that protect the client’s built-up principal. Roughly $500 million of Macro’s $850 million in client assets is invested in annuities, Cortazzo says.


Because his practice is a hybrid, clients wind up paying for the annuities in one of two ways.

Part of the company is an RIA firm that charges clients hourly rates and asset management fees. That piece of the practice, regulated by the SEC, has about $250 million in assets under management — including the $150 million that’s invested in his Flat Fee portfolios.

The larger piece of Macro Consulting is a commission-based firm operating under the umbrella of giant independent broker-dealer LPL Financial. Macro retains commission-based products because some of the annuities that Cortazzo sells are better deals when sold by commission, he says. The distinction is pointed out to clients, who are given the choice of whether to pay a commission or fee.

When the products are compared side by side, the client rarely cares whether she is paying a 1% commission or a 1% fee, he says — and since the guarantees given on the commission-based products are better, Cortazzo adds, most clients make that choice.


Still, Macro’s ADV form offers a lesson in complexity. The firm lists no fewer than eight different fee structures, in addition to hourly rates. An arrangement with Everbank can also bring in a commission for Macro that translates to a small percentage of client deposits.

No client pays just one type of fee, Cortazzo says. Typically, the total cost per client is an amalgam of commissions and asset-based fees; the total ranges from 0.2% to 1.8%, depending on how the client’s money is invested.

Thus, all clients sign management agreements that spell out how much they are paying on each piece of their portfolio and show whether the charges come from fees or commissions.

“We don’t have a cookie-cutter solution,” Cortazzo says. “We have a palate of tools and solutions. But when we spell it all out in writing, it’s pretty clear.”

The arrangement makes sense because people with bond-heavy portfolios should pay less than those who have more equities or are attempting to hedge risk with active trading strategies, Cortazzo argues.

Macro’s admittedly complex fee structure allows that to happen, resulting in a more fair distribution of cost, based on the complexity of each client’s account, he says.

“We don’t make this simple because I don’t have groups of clients who have the same needs,” he says.

“I know people want to make the asset management piece easy, but it’s not. If you want to do this job right, it’s a lot of work.”

Kathy Kristof, a Financial Planning contributing writer in Los Angeles, contributes to Kiplinger’s and CBS MoneyWatch. Follow her on Twitter at @kathykristof.

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