How do I determine if I am being fairly charged by my financial advisor?

How do I know if my financial advisor is charging me a fair rate for managing my portfolio? He set up my inherited portfolio 25 years ago. Does he base his fee on a percentage of the value of my portfolio? What is the industry standard for fee rate?

Personal Finance, Asset Allocation
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June 2017
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First,  determine whether your advisor is a securities salesperson or a fee-only advisor.  Here are some clues that can help you:  If your advisor has the title "registered representative", or if you see the phrase "securities offerred through..." then your advisor is really a salesman.  A salesman is not qualified or paid to give advice.  It will be difficult to determine what you are paying,  because the brokerage industry is quite experienced at hiding compensation numbers.  Regardless of what you are paying to a salesman,  the value is questionable, because the true cost of buying and selling investments is near $0, and the "advice" is typically given as a tool to steer you into the investments being sold.

If instead, you see the words "fee only", or NAPFA member,  then you have a fee-only advisor.  This advisor is a fiduciary, and is qualified and paid to give advice.  A fee only advisor is typically transparent with fees,  and it should be easy to figure out how much you are paying.  There are a few different ways that advisors charge,  but far and away the most common is as a percentage of fees under the management of the advisor.  Typically, a fee-only advisor charges in the range of 1% for the first million dollars,  and lesser percentages for amounts over that.  This fee should buy you more than investment management.  It should include advice on your entire financial life.  The advisor should oraanize your finances through financial statements, projections, and written action plans.  The advisor should also coordinate a team of professionals that advise you in the areas of lending, insurance, income taxes, and estate planning.

You should see the fees being deducted from the money market portion of your accounts on a monthly or quarterly basis. To find a fee-only advisor's fee schedule ,  evaluate the firm's ADV form,  which can be found at https://www.adviserinfo.sec.gov.  

 

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