Should I seek a new financial advisor?
I have an IRA. My investment advisor charges 2% of the value of the fund yearly, but sends out bills monthly. The fund was a rollover account of $47,000 from a company I worked for. Even though the fund is now worth $70,000 in value now, that's only a paper value. I think his rate of $1,200 or more per year is excessive. My shares' value become less as the year goes on. I feel cheated because even though the fund is doing well, it only relies on the market as growth. I am a widow who lives on only $30,000 a year, so I feel by the time I retire in five year, it will be down at least 20 to 40 more shares. Is this standard procedure?
2% is a very high fee by industry standards. But, I do have a caveat. There's a saying that goes something like "price is what you pay and value is what you get." That's attributable to Warren Buffett. It's hard to say how much value you are receiving without knowing how long it has taken to grow from $47,000 to $70,000. Besides being concerned about fees, investors should be concerned about returns net of fees. If you have two identical investments that return 8% and one costs 1% in fees, but the other is 2% in fees, then your return net of fees is 7% on the lower cost investment and 6% on the higher cost investment. However, if two different advisors recommend two different investments that have very different rates of return it's a different story. Let's say advisor 1 recommends investment A which returns 8% and costs 1% and advisor 2 recommends investment B which returns 12% and costs 2%. Investment A would have a 7% net return and investment B would have a 10% net return. You can see that in this scenario Investment B was more valuable even though the cost was higher.
If you are retiring soon and know your expenses and how much you have available to cover those expenses, then you should interview a few advisors. Go see several, 3 or 4. Take your statements and find someone who will break down the facts and make you feel comfortable. Some advisors will try to sell you on their product no matter what. But, if the advisor you're with is doing a good job then at least one of those advisors you interview should be honest and transparent enough to tell you that you're getting what you're paying for. In the end, you may find out you're in a good place already, or you might find a different advisor you like more. Either way, you definitely need to be working with an advisor who will help you get set for retirement if it's not very many years away.
2% may be too much if the advisor is not helping you with all the other aspects of your financial like like taxes, insruance, esate planning, debt reduction etc... If that is the case you can simply move your IRA to a discount broker where there will be no advisor fee. This means you are on your own in terms of managing this fund but if you are comfortable holding it this would be a lower cost option.
I can tell you that 2% is on the high side of the advisory fee spectrum. However, I would look at the value you are getting for your money. Some advisors might charge a smaller amount of fees but they only focus on investments. Their cost might be too much for what they bring you. Other advisors might give be more expensive but they might give you more of their time and bring you more value.
Like anything else, you need to figure out if what you are getting for the money you are spending is worthwhile. If you don't think the set of advice he/she is giving is not worth $1,200/year, then I would start my search to find someone that will be dedicated to your financial success.
I hope this helps.
While 1-2% is considered industry standard for asset management, many advisors have fees lower than 1.5% with comparable value. You should feel comfortable with the service you are receiving at a rate you think is fair. Some advisors may even offer a discount!
2% is a little high especially if he or she isn't actively managing your account. Sending out the bills monthly is standard for most fee-only advisors. They bill client's monthly instead of taking it all at once at the end of the year. The bottom line is if your advisor isn't listening to your concerns or if you are just uncomfortable, then it is time to make a move. There are many advisors out there that may be a better fit. I recommend using Investopedia to help you find your next one.