How much are you paying your financial advisor?

Many financial advisers charge fees based on how much money they manage on your behalf, and typically 1% of your total assets is the standard fee. It can be more or less than this based on the size of your portfolio.   Regardless, you shouldn’t feel locked into this. There are options when investing in order to minimize the impact of fees in your growth modeling.

You can choose an investment advisor that charges based on a flat fee structure, for example.  But there are also safe and effective money strategies for retirees that will eliminate fees all together for you. In fact, a fee free strategy is often preferable to retirees, when every penny you make in your portfolio becomes an essential part of your future income plan.

Flat Fee Modeling

Let’s begin by looking at the flat fee structure. This may make more financial sense if you have an account balance of $1 million or more under the management of your advisor. For example: If you have, say, $3 million to invest and you hire a financial adviser at a typical fee — 0.8% to 1% — that is going to cost you $25,000 – $30,000 a year. But a flat fee can often be far more affordable than that, says Kaleb Paddock, certified financial planner at Ten Talents Financial Planning. He says on a portfolio like this you might pay a little under $10,000 a year with a flat fee, which “would save them between $15,000 and $20,000 annually,” he notes.
 
In general, clients would do well to understand that percentage fees work well on smaller balances while flat fees are best for larger asset balances — and using the $1 million dollar threshold can be an easy way to draw a line in the sand for a client.

Now, consider this: If you rolled a $500,000 balance into your $1 million dollar account — and now had to pay a set percentage of the now $1.5 million balance — is it really worth it to pay 50% more (that’s more than $400 a month) just because you put more money into the account? Although the 1% fee is standard and normal, it does not align with the time, energy, and expertise required to provide you with financial services. It’s just too much to spend.

Many consumers don’t feel the cost of these fees until they start losing money.

If your portfolio value drops 20% during a market correction, has your adviser provided 20% less value? Percentage-based pricing is only affordable for both advisers and clients within a small portfolio range, say between $250,000 and $1 million dollars and even then, there may be a better “fee free” option for you to consider. Though the 1% assets under management (AUM) fee is normal it does not have to be your normal.

A Common Question: “Can I negotiate the percentage I pay my adviser?”

The short answer is yes. While a 1% fee may be common, advisers who charge based on AUM will often scale down from 1%. But should you have to pay fees at all?

Fee Free Modeling

One might think the only way to invest is to pay an advisor to manage your money. But, when you are paying fees, this fee is coming out of your nest egg, out of your growth/gains, and is going straight into your advisor’s pocket. This can affect your compounding growth over time. Some financial professionals, like Summerlin Benefits Consulting, practice “safe money strategies” that protect clients from losses and also eliminate fees. 

You might be thinking “this is too good to be true”, so we will go a bit further into how exactly this works.  Summerlin Benefits Consulting focuses on investment vehicles called Fixed Index Annuities (FIA’s). This type of annuity offers a reasonable rate of return of return over time utilizing a variety of steadfast market indices (like the S&P 500 for example). When these indices experience growth your FIA will grow based on the index values. However, during years where the stock market is in correction and/or certain indices are losing money for other investors, your FIA will be protected, and you will not lose any value during market declines. 

With this approach, when utilizing a Fee Free model, not only is your savings and growth protected for you, but the financial professional is paid a commission by the insurance company holding your FIA, thus there are no fees taken out of the client’s account for the adviser or the financial institution. 
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In summary, you don’t have to pay large amounts of money in fees for a financial plan that is tailored to your retirement needs. And you can protect your assets along the way so that your money is always there when you need it. No fees mean a higher principal, reasonable growth margins, and therefore a solid nest egg for you in retirement or to pass down to your loved ones.