Q&A: How much should you pay your financial advisor?

Dear Liz: With my advisor’s blessing, I took one of my brokerage accounts and converted it from stocks to mutual funds that charge an aggregate fee of 0.26%. Not too bad, but my advisor insists that he still must charge his standard 1% fee on top. I know of other people whose advisors dropped their fees to 0.5% or even less in similar situations. What is a fair fee in this case, and is my only option to find another advisor?

Answer: For context, robo-advisors — services that invest and rebalance portfolios according to computer algorithms — typically have an “all in” cost of about 0.5%. That includes the advisory fee plus the cost of the underlying investments. Some robo-services offer access to human advisors for investment and financial planning questions, while others do not.

If you’re paying much more than 0.5% “all in,” you should be getting more in the way of investment and financial planning services. Is your advisor available to help with your questions about taxes, insurance, college savings, long-term care, retirement and estate planning? Did he create, and is he regularly updating, a comprehensive financial plan for you?

If you’re getting all that, then a 1% fee may be fair, especially if yours is a relatively small portfolio. (A survey of 1,000 financial planners by trade publication Inside Information last year found 1% was the median annual advisory charge for portfolios of $1 million or less, while the median fee for portfolios in the $5 million to $10 million range was 0.5%.)

If all you’re getting for your 1% is investment management, though, you might consider looking elsewhere if your advisor isn’t willing to adjust his fee.

Related Posts

Comments

  1. You’re right, it’s all about the value. I personally do not use a financial advisor, instead just put most of my savings in broad market funds by Vanguard. I am a CPA though. I would recommend the advice of an advisor or CPA for the average investor once they have $200,000 in investable assets. I would never recommend or use an advisor that earns money from commissions, as they may look to their earning potential rather than your success.

  2. It isn’t as difficult as people think. A little time and reading can go a long way and save a lot of fees.
    5-7 index ETFs and/or mutual funds are all anyone really needs.