My current financial advisor is billing monthly; is that common?
My current financial advisor is billing me monthly. It is broken down from 1 percent of my holdings yearly split into 12 months. Is this a normal way to be charged? I send him a check monthly. I want to make sure I am not being taken advantage of.
This is a good question and one I can answer from experience, as my firm bills monthly.
Monthly billing is not as common in the industry, quarterly is the most common. I chose to bill monthly so clients were not "shocked" with a three month bill all at once. People are used to paying most of their bills monthly and this smooths things out for them on a cash flow basis as well. In short, there is nothing worng with being billed monthly.
You should make sure that the bill is being calculated correct, as we provide each client with a monthly invoice that shows them what the bill is and how it was calculated. Most clients have the fee assessed to the account that is being billed, but you can certainly pay it with outside funds to keep more of your money invested.
Based upon your question, the other piece of information I would be curious to see is how does he account for withdrawals. So for example, lets say you account is $1MM at the beginning of the year and he is charging 1% or $10K. How does the fee get impacted if you remove $200k from the account? Do you get a credit for the removal and is your fee reduced accordingly?
Great question and best of luck! Paying monthly is not an issue.
We just had our state audit and the state of California just required us to bill monthly instead of quarterly for clients. So that is not a red flag. Normally the advisor is just paid right out of the funds electronically, so other than you having to send a check which seems archaic, it looks solid to me.
I hope this help!:)
I mean I have not overly seen that type of billing but it is fair and honest. Maybe not the norm but doesn't mean anything wrong with it. We bill quarterly which I think is generally more common practice, but to each their own. In the end should all come out in the wash. These days you are seeing all sorts of alternative billing methods to be honest. If you feel like you are getting value and you trust this person then I wouldn't pay it much mind. It is a partnership at its core.
What terms did you agree to when you initiated your relationship with your financial advisor. The typical management fee is paid quarterly and it is usually deducted directly from your account through accumulated cash dividends, interest or cash allocations in your account.
A one percent fee sounds fair although there are times when not paying a fee and instead paying commissions on each trade works to the client's advantage depending on how active your account activity is and also on the type of investments you own. There has been concern amoung regulators for financial advisors charging an ongoing fee for an asset that they truly are not able to manage due to the nature of the investment. It is known as reverse churning which is the placement of clients in a fee based account when their account activity demonstrates that they would be better served by being in a commission transaction fee based account.
It is not fair to place a customer in an account with a fee structure that reasonably can be expected to result in a greater cost than an alternate account. If you have ever been in a fee based account during an extended bear market then the only one making money is your financial advisor when you are actually experiencing diminishing returns.
Typically if you are working with a fee-based or fee only advisor they you will pay them a fee in this case it sounds like 1%. Paying monthly is less common than quarterly but that doesn't mean you are being taken advantage of. Just likely means you are supporting the USPS and mailing more checks.
It is more common for these fees to be taken directly out of the account. I would look up the holding you have in your account to make sure he isn't also collecting 12b-1 fees or earning commissions. That would be double dipping and likely mean you are being taken advantage of.
Otherwise he is just creating a little more work for himself, and a little extra postage cost for your with paper check monthly. Sounds like a pain in the butt to me, but not necessarily that you are being ripped off.
Best of luck.
David Rae- Fiduciary Advisor