Ask Terry Questions Advisor fees — how do you find out?

Advisor fees — how do you find out?

By Terry Savage on March 30, 2018 | Financial Planning / Retirement

How do financial advisors make money on accounts, and how much?

Terry Says

Aha -- that is the billion dollar question -- literally.  And the answer is, you won't know unless you ask each advisor.  There are many methods --  and unless the "advisor" is a "fiduciary" -- someone who agrees to reveal all fees and commissions, and to put your interests first -- you are unlikely to know.  So before asking about fees, ask the first question: " Are you a Fiduciary ,and will you put that in writing?" The second thing you want to figure out is how the advisor is registered, and what services he/she provides.  Are you just looking for investment advice?  Or do you need overall financial planning advice  -- including tax and estate planning, college savings planning, budgeting?  Be sure to check for a financial planner who is a CFP -- Certified Financial Planner.  They may charge fees, commissions, or a combination of both -- but they agree to uphold the highest standards.   Some  CFPs agree only to charge a fixed fee.  See below. To find a CFP click here To find a "fee only " CFP,  click here. How do advisors charge?  Here are a few methods:

  1.  An overall fee on Assets Under Management (AUM).   This fee is likely to be at least 1% of your assets.  That's expensive -- especially if most of your assets are kept safe in CDs or money market funds.  A 1% fee in this case would wipe out all of your interest earnings!  Thus, many advisors do not charge a fee on "chicken money" assets such as these.  There may be additional "custodial" fees if the account is an IRA.  Ask about that.
  2. Commissions on products sold.  You might not see the word "commission" or sales charge.  But if the "advisor' is selling you these products, you can be certain it is buried in there somewhere!  There could be an up-front commission, and/or an ongoing annual cost of these products.  Likely there is both, which is how the "advisor" gets paid.  Likely it's a combination of both.   It's especially hard to spot the commissions on an annuity product, but they typically contain the richest commissions to salespeople.
  3. Fee-only.  There should be a free first meeting with any financial advisor.  At this point, after you have researched his or her credentials, you should not be afraid to ask SPECIFICALLY about how he/she charges for services.

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