YOU WOULDN’T GET YOUR oil changed or your hair cut without knowing what it’ll cost, and yet more than one in five investors don’t know what they pay in investment fees, according to a survey by Personal Capital. Another 10% don’t even know if they’re paying any fees at all.
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Guide for Financial Advisors
If you’re working with a financial advisor (whether they be of the human or the robo variety), they’re getting paid for the advice they provide, says Kyle Ryan, a certified financial planner and executive vice president of advisory services at Personal Capital. How they’re getting paid determines how much that financial advisor costs.
How Much Does a Financial Advisor Cost?
Generally speaking, 1% per year is a reasonable fee to pay for financial guidance, Ryan says. This should include financial advisor fees plus any fees on the investments you use.
“Unfortunately we see quite a few that are double that when you add them together,” he says. Personal Capital found that a 1% higher fee can cost an investor nearly $250,000 over her lifetime.
Every investor should know how much their financial advisor costs. Otherwise, how can you evaluate if the service is worth the money?
It would be great if financial advisors wore the fees they charge pinned to their chests like price tags. Unfortunately, this likely won’t ever be the case. So it’s up to you as the client to ask about a financial advisor’s fees. Even fiduciary advisors, who are required to disclose all fees and conflicts of interest, can do so in the fine print.
Here are questions to ask a financial advisor about her compensation:
- How are you getting paid?
- Do you earn commissions?
- How much money are you and/or the company making to put me in this investment?
- What are my total costs for working with you?