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?
Adivsors charge fees in a variety of different ways. A few that you might expect to see would be an asset based fee, hourly fee, or a flat annual fee.
The hourly and annual fee are self-explanatory. Those who charge by the hour will generally bill you in a similar fashion to your CPA or your attorney and the amount will completely depend on how much work they do for you in a given time period. The advisors that charge an annual fee will most-often keep that fee flat regardless of how often you call or need an appointment.
The asset-based compensation method - probably the most common you will find - is where an advisor will charge a percentage fee based on the amount of money you have invested with him or her. Most often, these fees range from .50% to 1.50%, and will be on a sliding scale to decrease as the amount of assets invested increases.
It is important that you understand how your advisor is compensated and I would recommend that you interview multiple professionals to ensure you are hiring the right person to fit your needs. With that said, finding the advisor with the lowest fees is not always the right solution, so be sure to understand their expenses, but then look beyond that and evaluate them on experience, scope of advice, philosophy, and integrity. I assure you that a good financial advisor is well worth the price you will pay.
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.
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!
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.
Apart from what has been discussed already below, I'll add my two cents:
- Don't let the 'fee tail wag the dog.' Clients should be going for someone who is not only charging a reasonable 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.' Clients should look for advisors who will go to bat for them.