Resolve for the New Year: Take 3 Steps Today to Get Your Money’s Worth from Your Financial Advisor

Make a resolution to move forward right now with three steps to get quality service for the money you pay your financial advisor.

Step #1: Get from Your Financial Advisor (FA) What They Cost You in Total

Understand Your Financial Advisor’s Total Costs to You

Here are some examples of the costs you might be paying:

Assets Under Management (AUM) Annual Fees

Assets Under Management (AUM) annual fees are generally 1% of the stocks and bonds your FA is managing for you. For example, let’s say your FA has been managing your $1,000,000 investment portfolio for the last five years. You likely would have paid your FA a total of $50,000 for those five years (1% X $1,000,000 = $10,000 times 5 years = $50,000).

Retainer Annual Fees

Retainer annual fees could range from $2,000 to $10,000. Over five years, these fees could total between $10,000 to $50,000.

Subscription Monthly Fees

Subscription monthly fees could run from $200 to $600 per month. You could be set back from $12,000 to $36,000 over a five-year period.

Fees by the Hour

Hourly fees are usually between $100 and $500 per hour. Oftentimes, there might be a minimum number of hours required.

Comprehensive Plan Fee

The flat fee for a one-time Comprehensive Plan could cost from $3,000 to $10,000. Generally, the plan is comprehensive and touches almost all parts of your financial ecosystem. A comprehensive plan is usually done every five years because the plan could prepare you for a longer horizon. For a five-year period, a comprehensive plan could cost $3,000 to $10,000.

Project Plan Fee

The flat fee for a one-time Project Plan might range from $1,000 to $5,000. A project plan is limited in scope. It is focused on one or two narrow topics. It is usually done on a one-off basis to address a specific need.

Commission Fees

Commission fees are typically 3% to 6% of investment transactions. The larger the transaction, the larger the commission. The financial advice you receive from a commission financial advisor is linked to the FA earning their commission.

Annual Expense Ratios of Mutual Funds and ETFs (Exchange-Traded Funds)

These expenses can be low cost, e.g., $150 per $1,000,000. They can also be high cost, e.g., $1,000 per $1,000,000. A 2023 update to major research provides strong evidence that low-cost investments perform better than high-cost.

Miscellaneous Fees

Normally, you could spend $25 – $100 on other fees. These fees may seem small. But a lot of them could add up quickly. Their total cost could become significant.

Have Your Financial Advisor Itemize All Your Costs

It’s easier to understand your costs when they are broken down into specific items.

With your financial health at stake, now is the time to look at the forest, and then down at the trees, and then even down to the roots.

Make Sure Your Financial Advisor Explains to You Each of Your Itemized Costs

For every one of your itemized costs, have your FA communicate to you in understandable language what benefit you received.

For example, if your cost was for “advisory service,” what specific advice did you get, and how was it helpful.

Another example is “investment management.” What was the specific management action and how did it benefit you?

And if your financial advisor placed you in high-cost mutual funds, have your FA justify the high cost.

Get Your FA to Put in Writing All Your Itemized Costs and Their Explanations

Getting the itemized costs and explanations in writing is important. Writing them down allows both you and your FA to:

• focus attention on all the costs you are paying.
• zero in on the quality of service you receive.
• hold each other accountable to make sure the service measures up to your cost.

Step 2: Compare! Compare! Compare!

You comparison-shop at the store and online. You can also comparison-shop your financial advisor.

Compare the costs you pay to your FA against the amount and quality of service you receive. Ask yourself, does your financial advisor:

• exceed your expectations?
• communicate with you in your preferred style?
• help you find free and unbiased information?

Compare your FA’s costs and services versus previous years. Do you feel your FA is:

• taking your business for granted?
• not supporting you in your achievements?
• treating you like an account number?

Compare your financial advisor’s services with other offerings. Consider whether another FA might:

• give you better quality service at lower costs.
• work hard for you all the time.
• care more about you than just your money.

STEP 3: Help Your Financial Advisor Be Competitive

Keep yourself informed and inquisitive. Financial advisors love folks who ask them challenging questions. It spurs them to stay on top of their game. Here are three sources for valuable information for yourself:

• Managing Money section of Sixty and Me
• Consumer Financial Protection Board
• MyMoney.gov

Know your choices. Stay aware of other financial advisors who might serve you better. They may be a better fit for your current needs.

Consider looking through the Certified Financial Planner® (CFP®) directory.

Also consider the Foundation for Financial Planning’s website. It contains stories of many financial advisors who generously, lovingly, and successfully helped folks in financial need.

Let your financial advisor know you are aware of your choices. They will thank you for your caring to bring the best out of them.

Let’s Have a Conversation:

Do you feel you are getting your money’s worth from your financial advisor? What steps would you take to get better service? Do you feel you have other choices?