Financial Advisors Compensated by an Hourly Fee

What do you think about financial advisors who are paid on an hourly basis for advice about an investor’s portfolio? The advisor serves as a consultant, and is paid for the time taken to evaluate a portfolio and make specific recommendations. The investor takes care of the transactions.

SAVAGE SAYS: Well, given computer programs, it shouldn’t take much more than one hour to analyze anyone’s portfolio — so it can’t be a bad deal! Seriously, just an “analysis” of a portfolio is totally useless without a lot more time spent understanding your total financial picture, goals, obligations, and issues ranging from taxes to estate planning. That should take a lot longer than one hour!

I would suggest that you deal with a Certified Financial Planner (www.cfpboard.org) and get a firm understanding of what the fees will cover. Many are “fee-only” advisors (www.feeonly.org) who do not take commissions from selling products ranging from mutual funds and stocks to insurance policies. Instead they charge hourly fees — and that is an excellent way to proceed — if you find a planner who makes you comfortable by asking enough questions about your situation to be sure they are giving appropriate advice.

But just a “fee for portfolio advice” misses the boat. It’s not just about the investment itself, it’s about the appropriate role of that investment in a total strategy that is worth paying a fee to an advisor.