Yes - fees are often a part of finances, but be sure you are getting what you pay for!
I recently had a new client come in because he was nervous about the risky investments his advisor had set up for him. We looked over his portfolio and discovered he had paid his advisor over $8,250 in the last year.
This is a serious problem.
Most of the financial planning industry is run on a suitability standard. This means when you sell an investment product, your advisor gets all of their commissions upfront. If they meet with you again the next year and you decide not to sell anything, they don’t get any money. The suitability standard is a bit tricky because it encourages advisors to make their customers sell before they should so they can receive a commission.
Many advisors, myself included, instead have a management fee. My fee starts at about 1% and drops with the more money you have.
This client was paying his advisor a management fee of more than 1.5%, which is higher than average. The client had over $550,000 in an IRA, so the fee he paid annually close to $8,250.
Overall, that doesn’t seem like much, but that was more than he earned each month.
It was also more than he paid for any vacation that he had ever taken.
That was more than he paid on his mortgage all last year.
A fee of 1.5% sounds small but was actually a large chunk of his savings.
What I found as I dug deeper into this client's accounts was even more disturbing. He was on regular, boiler plate mutual funds that he could have signed up for on his own. What’s worse is that 90% of his portfolio was sitting in stocks or in equities, even though he was nearing retirement. That’s extremely aggressive and dangerous.
Think of the percentage of your savings in equities like a speedometer. The faster you’re going, the faster you’ll get to your destination. If there is an accident though, the damage will be much worse. If something bad were to happen to his investments, he would lose almost everything he’d saved for.
He also hadn’t spoken to his advisor in about 15 months.
He had never done income planning with his advisor or even went by to see him for a review.
He was put into a basic investment plan and never adjusted.
This customer was making good money from his advisor, but was also risking most of his retirement funds. The job of a good advisor is not to make the most money possible. It is to make sure their customer is set up for a comfortable retirement.
I understand more than anyone that financial advisors need to charge fees. I have a business to run. I have a family. I want to make money and save for my future just like everyone else, but it’s important to me that my customers know what I’m doing to earn the money they give me.
Part of the problem is that people don’t realize how much they’re paying their advisors because they don’t write a check to them each month like you do for many other services. Instead, it’s taken out of the money that you earn and is in the fine print of your monthly statement. If you currently have an advisor, do you know how much you’re paying in fees? If you don’t know, you need to pull up your statement and figure it out.
I give you permission, whether you’ve been working with me or any other advisor, to ask questions during your annual review. Do not let the meeting stop with “Everything is good! We’ll see you next year.” Ask how much you paid your advisor in the last year and what they are doing to make sure you’re ready for the future.
Please let any fear that you’ll be offending your advisor melt away. It’s your money and your retirement on the line, so you have the right to ask.
If you are paying a financial advisor, you should expect:
If you need a second opinion on your current retirement plan or need someone to analyze your agreement with another advisor, please reach out and take advantage of our free consultation.
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