question: My wife and I have been working with a fee-only advisor for about 10 years and currently have about $2.3 million in assets under management (AUM) with the first 1 million at 0.8%, the 2 million at 0.6%, and the rest at 0.5% . 300,000 dollars. In total, it costs about $15,500 per year. Is a flat fee advisor right for us? At what point do we know which fee structure makes the most sense? (Are you also looking for a new advisor? This free tool allows us to match you with fiduciary advisors who may meet your needs.)
answer: The investment management fees you mention are a fair standard, experts say. That assumes, of course, that the advisor is offering you real value. In fact, many companies offer a waterfall schedule with an industry-standard rate of 1% to 1.50% for the first million AUM, followed by a lower percentage for each million units managed. I am. “If you have more than $10 million in assets, you could bottom out at 0.25%,” says Caleb Paddock, a certified financial planner (CFP) at Ten Talents Financial Planning.
“This is a very competitive and fair pricing structure,” says Pamela Horak, CFP, Pathfinder Planning. “If you’ve been with your advisor for 10 years, you should ask yourself, ‘Is this advisor going to provide the value that I need at this point in my life?'”
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Does your advisor provide financial and tax planning? Can they help you review your 401(k) allocation or provide advice on financing a car or home? The S&P 500 or the Dow Jones Industrial Average You can use benchmarks such as to see how your portfolio is performing, but more than that, they can help you confirm and outline if they are helping you achieve your financial goals. In financial planning.
“Instead of looking at engagement as a cost, try to look at it in terms of value,” says Mark Humphries, CFP, Sentinel Financial Planning. “Ask yourself whether your advisor is adding value to your financial situation. Advisors can help you avoid problems with investments, insurance, taxes, retirement, and estate planning.” (New Advisors) Are you also looking for This free tool allows us to match you with fiduciary advisors who may meet your needs.)
Is a flat fee advisor the right choice?
Adrianna Adams, CFP at Domain Money, said: “Flat-fee advisors typically charge a predetermined amount, regardless of the size of your assets, offering potential cost savings for families with similarly sized portfolios. This arrangement is most effective if you require regular advice to ensure you are implementing the most effective strategy to achieve your goals. This model typically provides only the services you need when you need them. You can pay the fee.”
If you have more than $1 million in funds under management, it often makes more sense to pay a flat fee. “Customers would do well to understand that percentage fees work well for small balances, while flat fees are best suited for larger asset balances,” Paddock says. This article from his MarketWatch Picks highlights the benefits of using a flat rate planner.
“If you are comfortable making your own investment decisions, a flat-fee advisor may be sufficient. If you still feel you need wealth management services, consider other wealth management companies with similar fee structures. It may be time to find out if they offer the following,” says James Daniel, CFP at the advisory firm.
You may also find flat-rate contracts with options to add additional services as needed. Talk to your advisor to find out what they can offer you and how you can best supplement the value you’re already getting.
A simple rule to determine whether it is useful to use a flat fee model and a percentage structure of assets under management (AUM) is whether you feel that your assets will grow significantly over the next few years primarily due to your contributions to the portfolio. It’s about estimating. “In this case, a flat fee structure may be more beneficial because it has a more fixed base. Still, if the contribution does not significantly increase your assets, a percentage structure may be more beneficial.” ,” says Alonso Rodriguez Segarra, CFP at Advise Financial.
With the AUM model, you incur ongoing fees whether or not you take advantage of all the services an advisor provides. If you prefer a more hands-on approach to investment management, consider the AUM fee structure. may be more suitable.”
Each advisor has a different fee structure. “Based on the numbers you provided, it would be more expensive to switch to another advisor you don’t know, especially considering your average commission is currently 0.67%, which is less than the 1% that most advisors charge. You can see that it can get expensive,’” Segarra says.
“You’re not dealing with exorbitant prices,” says Steven Sivak, founder of Innovate Wealth. “I have certainly seen worse situations, but clients should always ask what value they are seeing from their advisor,” says Sivak.
Calculating the compensation an advisor receives can be confusing because there are so many different fee structures and many advisors do not disclose how they charge their fees. “It’s no different than buying any other service provider. When you buy a landscaper, you need to know what they’re going to provide, how reliable they are, how qualified they are, and how You want to know what you’re getting paid and how much you’re getting paid, even if you’re a financial advisor,” says Sivak.
That said, if you shop around, you may find that an existing advisor is perfectly suited to your needs. (Also looking for a new advisor? This free tool allows us to match you with fiduciary advisors who may meet your needs.)
“You’ll never know unless you shop around,” Sivak says. Generally, experts recommend meeting with two to three financial planners to see who you find easiest to talk to and who seems best suited to your personal situation. .
In addition to asking trusted friends and family for flat-fee referrals, sites like the National Association of Personal Financial Planners and Garrett Planning Network allow you to search for planners based on their fee structure.
Having a problem with your financial advisor or looking for a new one? Email picks@marketwatch.com.
Question has been edited for brevity and clarity.