I'm paying over two percent of the current value of my portfolio in annual fees; is this rate high for a fee-based advisor?
I have a fee-based advisor for my mutual fund portfolio. The current value is at about $60,000. I'm averaging about $320 in fees per quarter, which amounts to just over two percent in annual fees. Is this rate high for a financial advisor? The advisor is also a CPA.
Yes, this is a very high rate for a fee-based advisor. The high-end average for fees is 1.5%/yr plus any internal costs of your portfolios (mutual funds have internal expenses). Most hover around 1% nowadays even at the wirehouses like Merril Lynch or UBS. If I were you, I'd be looking to see what your client agreement and account paperwork says as well as analyzing the weighted average expense ratio of the mutual fund portfolio you are in. The main thing to note here is that for every percentage point in fees you pay, that's a percentage point less on returns. Over long periods of time with the power of compounding, this can result in substantially lower returns. I would hope that if you're paying more than 2%/year, your advisor is providing an enormous amount of value. Otherwise, you're just wasting money in my opinion and I'd be looking elsewhere. My firm, for example, uses strictly ETF portfolios and charges 0.80%/yr, so our clients only pay around 1% all-in.
Yes, 2% is high. The industry average is much closer to 1%.
You should also take into account the internal expenses of the mutual funds being managed as well as any charges associated with buying and selling them. Being a CPA isn’t as relevant considering asset management and accounting services are independent of each other.
I think this rate is pretty high, but it depends on what you are receiving for your money. Are you being charged assets under management only, or is there financial planning involved? Also, you may want to check on whether you are also paying commissions on the funds in your portfolio.
It really depends on the services they are providing, but in general, yes, I'd say that is pretty steep. (For comparison and full disclosure - I manage accounts your size and smaller for less than 1% and that includes ongoing financial planning.)
Sadly, the smaller the account, the larger the percentage you will pay in most advisory firms.
All my best!
2% would run a bit toward the high side, but based on your account size this isn't really that far off the averages. The typical 1% average you hear about is for account with an account balance of a million dollars or more.
What you really need to decised is if this advisor is providing enough value to you to jusifty their fees- whether the fees are high or low. For example if they are helping with other things like financial planning or other services that your value that aren't part of just managing your investments.
Best of luck