Fee for financial advisor

[happygirl]

Hi all. I'm wondering what you think is a reasonable fee for a financial advisor to charge. From what I understand, there may be a small upfront fee, then an annual fee as well. I've also heard in some instances there could be a fee when money is withdrawn.

Is 1-2% annually reasonable? My thinking is that it becomes in their best interest to help you make money. The down side I suppose is that as you have more and more money growing, they get more and more of it as well since their cut is also growing.

I think I remember reading somewhere that it's best to only pay out an upfront fee, but I'm wondering if that is realistic.

Thanks for your input in advance!

[disneysteve]

If you are going to use a financial planner, I think it is best to use a fee-only planner who charges strictly based on time with you. If you have a 1-hour consultation, you pay him for that 1 hour of his time and that's it. If you have a 3-hour consultation, you pay him for 3 hours of his time.

I would not pay 1% or more per year to anyone. Keep in mind that you will be paying that fee on top of the expense ratios of the funds in which you invest.

Also, be sure and avoid any advisor who sells investments, insurance, annuities, etc. and earns a commission based on what he gets his clients to purchase. You want someone who will review your portfolio and goals and make recommendations as to how to proceed. Then you go off and implement the plan on your own.

Or you can just come here and let us do it for you.

[happygirl]

As it was explained to me, if I had $100 in my investment account, an annual fee of $1-2 would cover everything. I don't understand what you're meaning about the fee on top of the expense ratios. Are you meaning that instead of investing $100 then I would only be investing $98-99?

I know this is really showing my lack of understanding, but if you don't go to an advisor, how do you get to the investment companies? Do you just call them up and tell them you want to send them a check to invest in XYZ?

[disneysteve]

The type of advisor you are referring to is someone who you hand over your money and he manages it. You pay him an annual fee, like 1%, to do so. So if you invest $1,000, he takes $10/year. However, the investments themselves also have expenses associated with them. If he puts your money in a mutual fund that charges 1%/year, your total expenses would actually be 2%/year. Even worse, most advisors deal with load funds that charge a fee to purchase them. 5.75% is a very typical load so after 1 year, you will have paid a total of nearly 8% which is insane.

Instead, you could take your money and invest in a low fee, no load mutual fund like Vanguard. There is no load, no advisor fee, no commission. The expense ratio is very low, like 0.2%, so that same $1,000 investment would only cost you $2 in fees.

[Broken Arrow]

A front load is a fee they charge to buy a fund.

A back load is a fee they charge to sell a fund.

An expense ratio is a percentage they charge to maintain a fund every year.

You could also be charge with annual fees to maintain the account itself.

There could be other fees under different names, anywhere from 12b-1 to "advisor commission" for example.

Depending on the company and the situation, you can be charged with any one or more of these loads and fees. Not all companies and situations will be the same. In other words, some will charge more than others, and some can even be sneaky about how they charge you.

One of the cheapest companies in the industry is Vanguard, where you're usually paying only the expense ratio, which is typically 0.18%. 0.09% if you qualify for their Admiral share program. There are no loads, and the annual account fee can be waived.

[happygirl]

So I could call Vanguard to set up an account then essentially manage my own account (with advice and guidance from more experienced investors of course)? I could choose the types of investments I wanted and monitor them online?

It sounds like others have done this and they are a reputable company. I worry that my lack of experience and education could make me an easy target.

[disneysteve]

So I could call Vanguard to set up an account then essentially manage my own account (with advice and guidance from more experienced investors of course)? I could choose the types of investments I wanted and monitor them online?

It sounds like others have done this and they are a reputable company. I worry that my lack of experience and education could make me an easy target.

That is absolutely correct. Vanguard, T. Rowe Price, Fidelity, Janus, Heartland and dozens of other companies sell their no load mutual funds directly to investors. No advisor. No middleman. No loads or commissions. There are loads of resources both online and in print to help you evaluate funds. There are numerous people here who will be happy to help you plan your investing. That's exactly what most everyone here does.

[MonkeyMama]

Heck, you can just go online and set up an account.

Yes!

Google "lazy portfolios"

Vanguard has a lot of indexes, which follow the entire market. Lots of diversity. You don't have to know what you are doing.

If you are young, put something like 70% into "Vanguard Total Stock Market Index" and 30% into "Vanguard Total Bond Index." Wala, a cheap, well diversified portfolio.

It's a starting point, at least. There is a wealth of investing info online.

[MonkeyMama]

I forgot to add, most these companies also have "Target Retirement" funds.

You buy one fund and it starts out more aggressive and becomes more conservative with time (as you near retirement).

Buying regularly (called dollar cost averaging) smooths out the bumps in the market. It is easier to stomach the stock market if you contribute some amount every month or every year.

[happygirl]

I've been browsing around Vanguard's website and it appears they do make recommendations based on your age, then you can search for more or less aggressive dependent on your individual preference.

I might have to read up on this more over the weekend then discuss it with DH after I can sound relatively intelligent on the matter. I'll probably have more questions as I go.

I really appreciate the help I receive here.

[disneysteve]

Happy to help. Keep the questions coming. Investing really isn't rocket science and there is no reason to pay someone hundreds or thousands of dollars to do something that you can pretty easily do by yourself for free.

As MonkeyMama correctly points out, you can have a well-diversified portfolio with as little as one mutual fund. Really, how much easier could it get than that?

[happygirl]

Well, I've been reading up on investing and the Vanguard site does seem to be reasonably understandable.

I've decided to meet with one other financial advisor later this month before making a final decision. This person charges an upfront fee but does not charge an annual fee. I figure it can't hurt to listen to what he recommends.

I'm leaning more toward doing it myself, so I'm sure I'll have more and more questions in the next few weeks. Just think, maybe someday I'll be able to give out good advice on investing too!

[disneysteve]

I've decided to meet with one other financial advisor later this month before making a final decision. This person charges an upfront fee but does not charge an annual fee. I figure it can't hurt to listen to what he recommends.

I see nothing wrong with meeting with an advisor but ask yourself why you are going. What is it that he/she can say that will make you decide to either hire him/her or to decide to invest on your own?

I've never used an advisor so I'm not quite sure how someone decides to use one.

[Alex_Adviser]

Financial advisor fees vary from advisor to advisor. Some financial advisors charge fees in the form of commissions; others in the form of an hourly rate, or percentage of your account value. Following are some probable ways how a Financial Advisor charges his fees:
1. A Financial Advisor Fee Charged As A Percent Of Your Account Value2. Commissions Paid To 2. Commissions Paid To The Financial Advisor From Insurance Or Investment Products That You Buy From Them
3. A Combination Of Fees and Commissions
4. An Hourly Rate For Financial Advice
5. A Flat Fee To Complete A Specific Project
6. A Quarterly Or Annual Retainer Fee to Provide Ongoing Financial Advice

[Scanner]

Are we talking about a huge amount of money or are you just trying to build wealth?

Someone mentioned "lazy portfolio". . .if you are in the latter group, just trying to assemble some wealth, a "Target" fund is probably the best idea for a novice investor and could outperform an amateur or experienced investor.

If you were to use a financial advisor (and although frowned upon at this forum, really nothing wrong with that), I think a 1% commission on total assets is a good way to go. Negotiate this if you have to. I kinda like the 1% because it incentives the planner to not take too much risk with your money.

That is, let's say you had $1,000,000 in your portfolio and I was making 1%. . .$10,000/year. And I sink it all into one stock like Walmart or something and it drops to $500,000. . .I have just shot myself in the foot. You want your wealth and his/her prosperity tied at the hip.

The other way is like DisneySteve noted - just a flat fee to a CFP - he/she makes recommendations and you follow them. Just realize fees go beyond just the hour consultation as he/she will want to gather records (403(b) statemetns, ROth's, Insurance, etc.)

Good luck.