What amount of fees should I reasonably expect from a Financial Advisor?
What is a typical charge for a financial advisor to handle your retirement savings?
It depends on what services you are getting. Remember, this isn't standardized per se. Generally speaking though, charging 1% for asset management is not uncommon.
I'd suggest taking the top 5 advisors you interview, and pulling their Firm brochure (Part 2 should disclose the fees) from: https://www.adviserinfo.sec.gov/
You can then average their fees from there. As more assets are managed, the fee typically goes down, but you also need to consider what type of services are being provided by each advisor.
I hope that helps!
I am taking a different approach than the other advisors here. I think your goal should be to pay under 1% for all costs: advisor fees, trading commissions, investment products, and miscellaneous fees. Many options exist now to keep your costs in check like robo-advisors and advisory firms that charge under 1%. Costs are the one area you have total control over, and it has been proven that costs have a substantial impact on returns. The other reason to focus on fees is the yield on bonds is historically low. If you pay more than 1% in fees, and the yield on a 10 year Treasury bonus is 2%, you are losing most of your return on bonds to your advisor.
The 1% cost was fine in the 1990s but investors can do better today.
Generally, fees are on a sliding scale and usually range from 0.50%-1.50%. Be sure to know if you pay maintenance fees, account closing fees, cost to trade, etc. Not only is knowing the charges important, but it is important to know what you get.
For example, someone who charges 1% may never even see you and someone who charges 1.25% may see you often, provide tax services, estate planning, insurance, etc.
It all depends upon whether it is active management or passive management. I am an active, fee based only manager and charge anywhere from 1% to 1.6% depending upon strategy and how much work it entails. For passive "pie" charts, you should only pay around .10% to .25% because you could easily do a passive strategy yourself with a little research and there is very little maintenance. For a "blended" strategy which would be some L-T passive, it is called "strategic", and some M-T active, called "tactical:, fees generally range around .70% to 1%.
Then, there is a whole broker/insurance group who rely on commissions. Annuities fall into this category and commissions can be as high as 8% to even 10% of the principal placed in the annuity. I vehemently disagree with this approach because there is a conflict of interest. And there are actually commission free, fee based only annuities but you never hear about them. Most fee based advisors only act as your Fiduciary with your best interest first.
The most important thing is to do your homework and know HOW the advisor is getting paid. It is not necessarily about lowest costs/fees, but the value you are getting for those fees.
Hope this helps, Dan Stewart CFA®
Apart from what has been discussed already below, I'll add my own opinion.
- Don't let the 'fee tail wag the dog.' Clients should be going for someone who is not only charging a reasonable fee (Under 1% if asset based fee), but also is providing good value for the fee charged. For example, many advisors include some amount of financial planning services for the asset based fee charged.
- Understand the importance of 'alignment of interest.' For example, some advisors are structured as fee-only. They do not get any commissions and, therefore, have an 'open architecture' in that they can use any product and usually choose the best available product for the client. Clients should look for advisors who will go to bat for them.