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The fee your advisor charges is based on the services you’re receiving, the individual advisor’s fee structure and other factors, including the amount of money you have to invest. With $1.4 million invested, many advisors would likely charge about 1% of the account balance as an annual fee. However, this could vary widely among advisors. You can, however, negotiate with many advisors and possibly pay less. In a pinch, you can always decide to go with another advisor who charges less, offers a selection of services that better fit your needs or is preferable in other ways.
You can use this free tool to match with a vetted fiduciary financial advisor to discuss their fee structure.
Financial advisors charge for their services in a number of different ways. The five primary fee setups are listed below, along with brief descriptions:
|
Type |
Details |
|
Percentage of assets under management |
Based on a percentage of the total assets in your account. May differ based on account size. |
|
Hourly rate |
A dollar amount charged per hour of work. |
|
Flat fee |
A flat fee, usually annual, for providing services. |
|
Commission |
Compensation paid by investment product providers |
|
Performance-based |
When a preset performance goal is reached, an additional fee may be paid. |
Fees based on a percentage of assets under management usually vary from 0.5% to 1.5%. A fee of 1% is about average. The fee may be tiered, with smaller accounts paying a higher percentage and larger accounts paying less.
With $1.4 million in an account and a 1% fee, an investor would pay approximately $14,000 per year in fees. This may not be all the fees that are charged, or that the advisor receives. For instance, an advisor may receive a combination of fees paid by the investor, as well as commissions paid for trades or by financial companies that provide investment products.
A 1% fee may be a bargain, or it may be too much. It depends in part on the services you receive in exchange. Advisors can supply you with expertise and experience along with an objective source of suggestions about ways to reach your financial goals. The topics you can expect help with include investing, retirement, estate planning and taxes. The benefits you may receive can include avoiding or reducing losses and maximizing gains.
Advisors can have different value at different stages of your life. When you’re younger and have few assets, it may be less useful to have a professional overseeing your financial affairs. As you near retirement and have accumulated significant account balances, the stakes are higher and well-seasoned advice becomes more important.
Fees are not necessarily set in stone. Although not all advisors are willing to negotiate their charges, many are. You can find out what an advisor’s fees are and whether they are open to negotiation by looking at their Form ADV, an official document they must file with the Securities and Exchange Commission.
If you’re inclined to negotiate fees, first make sure you understand what you’re paying and what you’re getting. Ask your advisor for a breakdown of the fees and services. Next, if you want to suggest a lower amount, propose a specific fee, such as a lower percentage of assets under management. You may receive a counter-offer, so consider adding a cushion to give you room for your own counter.
If you can’t reach an agreement on fees, your final option is to look for another financial advisor. If you do, don’t base your selection on fees alone. Start by looking for candidates, focusing on advisors who serve clients like you based on factors such as your account balance, age, income and financial concerns.
Aim to interview at least three of the candidates you identify. Basic questions you’ll likely want answered include whether the advisor abides by fiduciary duty to always act in the best interests of clients. Also discuss the services offered and the fees charged for them. Communication practices may also be something to focus on. On that topic, any time an advisor candidate refuses to answer a question or can’t explain something clearly, consider it a red flag and an indication to look elsewhere for advice.
If you can’t find an advisor who suits your needs and your fee budget, you may want to consider a robo-advisor. These are automated investment programs that use software and computers in place of a human advisor. They usually charge lower fees, as little as 0.25%, and may be most appropriate for younger clients or those with smaller account balances.
A 1% fee on $1.4 million in investments means paying $14,000 a year for advice. This may be a lot or a little, depending on whether the investor is getting the services they need and how well financial objectives are being reached. It may be possible to negotiate a lower fee or, if necessary, look for another advisor who may charge less. Interviewing advisors is best approached systematically and thoroughly, with a special eye for openness and candor. A specific advisor may not always be worth the cost to any given investor, but advisors can provide highly valuable insight, experience and a sounding board to help clients succeed.
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Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Where you choose to retire can have a significant impact on how well prepared you are financially for retirement. SmartAsset’s Retirement Tax Friendliness Calculator gives you the information you need about whether a state taxes Social Security benefits, retirement account withdrawals and pension benefits.
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Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.
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The post I Have $1.4 Million Invested with My Advisor Who Charges a 1% Fee. Am I Paying Too Much? appeared first on SmartReads by SmartAsset.
