How Do Financial Advisor Fees Really Work?
Financial Services is littered with jargon, and many firms rely on smoke and mirrors to confuse you so you cannot discern what you are paying your advisor.
You should be able to discern what your costs are relatively easily.
One of the very first things we share with families when we are exploring working together is how we are compensated for the services we provide.
We share a slide during our complimentary consultation that outlines the investment families are making in their future. The slides lay out how that fee ranges from .60- 180 basis points (or bps), and yes, there is that jargon again. So simply, 50 bps is the equivalent of .5% and 100 bps is 1%.
The range provided is fairly wide, and we explain that the fee they will pay depends on several factors. After we have all the information we need about the family, we provide them with what the fee will be for them. This total fee includes all the costs associated with investing, this is where many in the profession are not fully transparent.
Are You Paying More Than the 1% Advisor Fee You See?
A family we were exploring the opportunity to work with was taken aback when we got to the slide mentioned above. They went on to express that they were paying their current advisor significantly less than what we were outlining.
I asked them how much they believed they were paying and they informed me they were paying their advisor, from a big bank investment arm, 1%. I asked them if they would be open to sharing their most recent statement with my team so we could take a look to confirm what they were telling us.
We let them know that if this was the case we would simply confirm and if it was not we would outline what their costs were and they agreed.
What Other Investment Fees Can Be Added to an Advisor’s Fee?
In reviewing the statement from the bank it was clear that the advisor was charging this family an asset management fee of 1%. When looking at the investments themselves, they were exclusively invested in mutual funds, which have expense ratios and were not included in the advisor fee.
We were shocked to find that the funds carried, on average, an additional 1% expense.
Yes, you read that right, they were paying the advisor 1% and the investments were costing another 1% so all in they were paying 2% so their total cost was twice what they had thought!
Once our review was done we met with the family again and reviewed this information with them, they had no idea.
When they asked how they did not know about this I simply explained that unless the advisor informed them of the additional expense they would have had to read the prospectus or done research on their own.
The family was disappointed, not only because of the higher expense that they were not aware of but also because they were not getting any planning or advice beyond that of the investments.
The fee we were speaking with the family about, with our firm, was for investments as well as for planning.
What Should You Look at When Comparing Financial Advisor Costs?
When evaluating the investment you are making in your family by working with an advisor you cannot simply look at the advisory fee you are paying, you need to look at the costs of the underlying investments in your portfolio too.
What Does Investment Management Include?
Money Doesn’t Have to be Complicated. By leveraging a disciplined investment process, you receive transparency of information, seamless proactive service and the trust and accountability you need to pursue your financial objectives.
How Does Mitlin Financial Monitor Your Investments?
Using a combination of the latest technology and our team of financial professionals, we regularly monitor your portfolio to ensure you are taken care of. While working with your advisor, you will build out your model and continually evaluate your portfolio in order to help you towards your goals.
How Do You Choose the Right Investment Strategy?
There are many factors that affect choosing an investment strategy. The first set of factors begins with you, our client.
Our disciplined discovery process is key to understanding the right investment strategy for your specific situation. Once we have the answers from our clients, we begin to think about the second category of factors which involve the overall health of the economy.
Why Is Financial Advisor Fee Transparency Important?
At Mitlin Financial, we use individual securities and exchange-traded funds for the most part within the portfolios of our families which have no, or low expenses associated with them. This is something we disclose to be as transparent as possible, as we are driven by the desire for those we serve to understand.
Advisors can add an incredible amount of value to you and your family, and they deserve to be fairly compensated.
You deserve to understand what the total fee is for engaging the advisor and their team. This leads to a better long-term relationship on both sides.
How Can You Find Out What You Are Really Paying Your Financial Advisor?
We would be happy to schedule a time to discuss how you are paying for the advice and guidance you are receiving.
If you are concerned about what you are currently paying or confused about how your advisor is being compensated feel free to schedule your free, no-obligation discovery call with the Mitlin Team as we would be happy to assist you in understanding your total costs.
