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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

If you financial advisor is not giving you full disclosure of all fees you are paying then I would seriously consider another advisor. Whether you have asked him and not received a straight answer or if you do not feel comfortable enough to ask would be reason enough.

The following are differing structures most financial advisor use:

  • Percentage of assets that they manage on your behalf, typically anywhere from 1% - 2% per year. The more assets you have, the lower the fee.
  • Commissions paid to them from financial products you buy through them.
  • Combination of fees and commissions.
  • Hourly rate.
  • Flat fee to complete a specified project.

There are times that the percentage of assets is appropriate then there are other times that a commission is to your advantage. Personally, I use both. It depends on the client and the client's assets. This is a subject that should be discussed prior to investing or entering into a relationship with an advisor. 

It is important to always ask a financial advisor for a clear explanation of how they will be compensated before you hire them. ​This is one question you would want to ask any potential financial advisor. Look for an honest, straight-forward answer and avoid "advisors" who try to avoid the question.

July 2017
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