Financial Advisor Fees

  • I received the following question via email a few days ago:


    Dear Mr. Foreman,
    Several weeks ago I contacted a fee-only financial advisor, who authored an article in The Dollar Stretcher, to discuss providing financial advice for my husband and I.  Unfortunately, the advisor's fee after reviewing our assets was $10,000 per year which was quite a shock since we only have total assets of approximately $800,000.  We have a number of PLUS loans which we are currently repaying and our youngest child has 2 more years of college.  Please let me know if this fee in your experience is within the range for most fee-only advisors given our limited assets. Also, is there a formula that most fee-only advisors use to calculate their fees?


    I sent Dorothy a brief reply, but thought it wise to amplify it a bit because it's a common question.


    Typically fee only planners charge between 1 and 2% of the assets managed per year. So if the planner is managing $800k that would work out to between $8k and $16k per year. Some planners, who aren't actively managing the assets, will charge between $150 and $300 per hour they spend analyzing, researching and presenting your case. It's not uncommon for a planner to spend 10 hours on a case. But that varies widely depending on your situation. Obviously some family's finances are much more complicated than others. Before you choose any planner I'd suggest that you speak with (interview) 2 or 3 of them. Most will provide a free introductory interview as a 'getting to know you' exercise. The rate that you've been quoted is not unusual. But that doesn't mean that it's a good value. Depending on what the interest rates on your student loans are, the best move might be to pay them off first.


    Remember, too, that in choosing a planner the fee is only one consideration. Probably more important is how good they are at managing your money. An excellent planner could be worth 2%. A bad one could be expensive at 1/2%. If the planner can earn you more on your invested income than their fee they've added to your net worth. On the other hand, if they cannot earn their fee you're better off without them.


    There's one other factor to consider. A complete financial plan covers more than just investments. It also covers taxes, insurance, wills, trusts, etc. Not all planners include those areas. If you do hire a planner make sure you understand exactly what services you're buying.


    For additional information:


    Keep on Stretching those Dollars!

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