Embarrassing question

[Kayzmum]

I’m such a noob. I have a financial advisor now and he says 1.55% is the going rate and that’s what their fee would be for handling our IRA and 401K. Is this true.

Any advice/comments are appreciated.

 

[Mr. Tightwad]

All you have to do is shop around and you can determine the going rate.

Hint: its not 1.55%

 

[Out-to-Lunch]

No, that is a very high rate.

 

[SecondCor521]

Vanguard will do it for 0.3%, or let you do it yourself for 0.04%.

 

[gamboolman]

Kaysmum,

Welcome, it is good your here and looking to learn.

Suggest you go to the "Hi, I Am" forum here and read up on the many posts from folks looking to learn also. That was how I started here and it is really helpful - at least it was to me.

You can see how to generate a Post with the needed information to allow you to get good feedback and suggestions.

All the best in your endeavors....

gamboolman....

 

[RetiredHappy]

1.55% is very high. There are several variables. Vanguard and Schwab are much lower and robo advisors also charge much less. It often is also a function of the amount of money under management.

We are with a large wealth management company and pay 0.8%. We have excellent communication with our FA who is also the head of the branch, as frequently as we want to meet him for portfolio review, on email and phone etc.

 

[SnowballCamper]

Run away from that advisor. Have you read If You Can? https://www.etf.com/docs/IfYouCan.pdf

 

[MRG]

Nonsense. Run away.

 

[brett]

You FA is taking you to the proverbial cleaners.

Dump him. Fast.

 

[Errollyn]

If you need help deciding what to do with your money, I'd recommend going to a fee-only financial advisor (you can find them on the Garrett Planning Network). They'll charge you a fee to help you get things figured out, but then they don't drain your growth potential for years and years like the guy you're using now.

One thing that helped me realize how bad those 1-3% advisors are--I started considering them in context of the 4% rule. If I intend to live off 4% of my retirement savings each year, then an advisor charging 1% effectively means I'll either need to drop my withdrawls to 3%, or increase my nest egg substantially in order to cover that extra 1% per year. What I'm trying (and maybe failing) to say is that a 1% fee can actually reduce your available funds in retirement by 25%. That's not even to mention all the growth you'll lose out on during pre-retirement accumulation years due to the fee.

Frankly, I'd just dump my money into a lifecycle fund before I dealt with one of those guys.

 

[Kayzmum]

Thank you everyone so much! I made a new member post, and I'll email the financial guys right now. They let me put all my info on their eMoney site. I spent a lot of time doing that and should have checked their fees before I did! Should I delete it all before I tell them forget it -- no deal?

 

[teetee]

Put everything in zero fee index funds in Fidelity or others with low expense ratio and forget about it. At the end you will beat at least 70% actively managed investors and that is even before the fees are taken into performance calculation.

Or do what your advisor told you and help them pay for their kids' college and take all the risks by yourself.

 

[athena53]

One thing that helped me realize how bad those 1-3% advisors are--I started considering them in context of the 4% rule. If I intend to live off 4% of my retirement savings each year, then an advisor charging 1% effectively means I'll either need to drop my withdrawals to 3%, or increase my nest egg substantially in order to cover that extra 1% per year. What I'm trying (and maybe failing) to say is that a 1% fee can actually reduce your available funds in retirement by 25%. That's not even to mention all the growth you'll lose out on during pre-retirement accumulation years due to the fee.

The "advisors" would argue that their superior returns more than make up for their fees but that's rarely the case.

I agree with the others- 1.55% is NOT the going rate, run fast from these people, do some research and invest in a mix of 4-5 index funds with periodic rebalancing. And do NOT panic and sell in downturns. If you're tempted, take a look at any index in March, 2020 and see what it's done since then. Not selling in a down market is half the battle.

If you can erase all your data from the eMoney site that's a good idea- it may prevent them from hounding you later as they see your balances.

 

[Sniggle]

Unless he guarantees you 12% return every year, or his fee is free, dump him.

 

[Jerry1]

1.55% may be the going rate if your balances are below a certain threshold. I think most advisors have a sliding scale and that typically doesn’t go below 1% until your overall assets with them is over $1M. Whether to use an FA is up to you, but that cost may be in line. If you do want to use them, don’t be afraid to negotiate the rate down. $1M or not, I’d never pay over 1% and, as others have pointed out, there are way less expensive options.

 

[Kayzmum]

Thank you so much for your reply! My balance is about 500,000 including assets like paid off house (Worth at least 250,000, it hasn’t been appraised ) and vehicles The total 26,000 worth. And that is their only fee the 1.55% of earnings. They say they’re a fiduciary company and that the percentage based fee give them incentive for my accounts to grow. Should I move forward and negotiate them down to at least one percent?

This doesn’t seem like a lot, but my husband is already retired has pensions and annuities coming in that aren’t included in this. I have some survivor benefits they come along with this.

 

[Jerry1]

The line about incentive for them to do better is complete bs. If your account balance goes down, they’re not going to refund you anything. That they are a fiduciary is good and if you want to stay with them, I would definitely try to negotiate a better price. However, I think you should look at other options and see if you can get comfortable with those. Full disclosure, I have an FA, but I don’t recommend them because the 1% is a hefty cost that weighs on your portfolio. I accept the cost for personal reasons, but I can’t in good conscious recommend the use of one. Look into other options. Also, share your concerns on this board. There’s a lot of good help here especially if your only reason for looking at an FA is because you don’t think you know how to invest.

Don’t be shy. There’s a lot of good help here for you.

 

[easysurfer]

My going rate is 0.0% because I'm a DIYer.

When comes to my $, prefer to do on my own.

Less potential for conflict of interest .

 

[kevink]

Paying a % of assets-under-management (AUM) is absurd no matter who the advisor is. If you feel the need for an advisor - and there's nothing wrong with that! - hire one who charges a fixed fee.

I no longer use them because I eventually outgrew the need for the hand holding, but here's a great post from Evanson Asset Management, which charges 3-4K a year regardless of account size and provides not only sophisticated advice but access to DFA and other institutional funds and a host of other services used by high net worth investors. There are many other such firms but their analysis here of just what you lose over time paying a percentage ought to have you running away from your current FA right away.

https://www.evansonasset.com/advisory-fees-98.htm

 

[CRLLS]

Thank you so much for your reply! My balance is about 500,000 including assets like paid off house (Worth at least 250,000, it hasn’t been appraised ) and vehicles The total 26,000 worth. And that is their only fee the 1.55% of earnings. They say they’re a fiduciary company and that the percentage based fee give them incentive for my accounts to grow. Should I move forward and negotiate them down to at least one percent?

This doesn’t seem like a lot, but my husband is already retired has pensions and annuities coming in that aren’t included in this. I have some survivor benefits they come along with this.

As has been said, stay away. 1.55% AUM (assets under management) is too high. BTW if I understand correctly, you have to only count the money under his management. You need to subtract the house and cars from that 500K.
Consider if an account has ~250k, and assuming annual returns around 7.5%, he gets paid 1.55/7.5, or ~20%, of your annual earnings. Putting it another way, a year's 7.5% return on 250K is 18.75K and he'll get 20% of that for his "service" leaving you with only 15k earnings. Worse yet, he'll get paid his 1.55% even when your account looses money. Not a fair deal for no risk on his part IMO.

I find the bolded part above to be contradictory. He can't be a fiduciary if he stated his incentive is being paid more. I know it is always in the back of a fiduciary's mind, but the fact that he actually came out and said that, would make me wonder what his primary goal really is.

 

[Tailgate]

I'm paying a much, much smaller percentage of AUM for Vanguard Personal Adviser Services solely because my wife has zero appetite for financial matters. She will be able to talk to a live person who is familiar with our finances and goals in case of my demise.

 

[GalaxyBoy]

+1 to what many others have already said.

Don't forget to consider the expense ratio (ER) of each mutual fund this advisor has you in, which will be in addition to the advisory fee you've already mentioned. If you don't know what the ER is, you can look it up in the prospectus or online. Try googling the ticker symbol if you don't have the prospectus handy. I'd be willing to bet the ERs are quite high. For comparison, index funds are readily available with ERs of less than 0.1%.

Your FA will undoubtedly claim his fees and the high-expense-ratio funds I'll bet he has you in will pay for themselves by outperforming passive, index funds. Tell him to prove it. (Spoiler alert: he can't.) If he shows you numbers documenting performance, make sure he's included the impact of the fees.

 

[Go-NoGo]

I’m such a noob. I have a financial advisor now and he says 1.55% is the going rate and that’s what their fee would be for handling our IRA and 401K. Is this true.

Any advice/comments are appreciated.

1.55% is the "going" rate because The FA's have to make their boat payments. And it is also a very good rate - for him.

As other's have mentioned - the advisor will take about 20% of the gains in your portfolio year after year after year. DIY and with some discipline, you will be able to afford that boat.

 

[cathy63]

Thank you so much for your reply! My balance is about 500,000 including assets like paid off house (Worth at least 250,000, it hasn’t been appraised ) and vehicles The total 26,000 worth. And that is their only fee the 1.55% of earnings. They say they’re a fiduciary company and that the percentage based fee give them incentive for my accounts to grow. Should I move forward and negotiate them down to at least one percent?

This doesn’t seem like a lot, but my husband is already retired has pensions and annuities coming in that aren’t included in this. I have some survivor benefits they come along with this.

A financial advisor's fee base does not include your house or vehicles. It also may not include your 401k if it's held by your employer. So if your total net worth of $500K includes a $250K house and $26K vehicles, it's really more like $225K that's under the advisor's management, or less if the 401k is also subtracted.

Also, the 1.55% is almost certainly based on Assets Under Management, not earnings, which makes a big difference. Let's say they are managing $225K and your money grows 20% to $270K. If they were charging 1.55% on earnings, they'd take $697.50 out of your accounts. If the fee is based on AUM, they'd take $4185. If the stock market loses 20% and your assets go down to $180K, then the fee will be $2790. (They probably take it quarterly, but this is roughly how much you'd pay over the year.)

You need to make sure you're very clear on what assets they base the fee on and how it's calculated. Ask them for an example like the one I just gave so you're seeing actual numbers rather than percentages. Only you can decide if the advice you'll be getting would be worth the fee. This is a fairly small account and I doubt if they'll negotiate down to 1%, but it's certainly worth a try if you do decide to go with them.

 

[braumeister]

You need to make sure you're very clear on what assets they base the fee on and how it's calculated.

Quite right. Read all the small print, as always.

I once considered a financial advisor and they were very clear (once I read their whole spiel) that their 1% fee was based on my total net worth, no exclusions. That was so ridiculous that it was easy to dismiss them as a possibility.

Interestingly, this was one of the companies that came up when I used the NAPFA site. NAPFA claims to be just fee-only advisors, so definitions matter.