Typical Financial Advisor Fees.

[zanemoseley]

So my mom is nearing her retirement in about 2 years and she just received a good sum of money from inheritance that she needs to invest. I'm not savvy enough with finance to confidently help her. An older friend I know has over a million invested through a particular advisor with Edward Jones and he highly recommends him. My mom met with him once and he had some options and reports prepared, I'm meeting with both my mom and him this Saturday to review further, she wanted me involved as much of this will one day pass to me.

I understand advisors have fees to establish and manage the account. My mom said they have a couple options. In one she pays roughly 3.5% up front but no yearly fee except for transaction fees I presume, the other route she pays roughly 1% each year as long as she has the account with them. Now she might not be explaining this well to me but does this sound in line with typical financial advisor fees.

What I find funny is they've proposed an entire proposed portfolio up front without paying a dime which means if you wanted to screw them you could set up an online trading account and just buy what they have in the portfolio. Obviously this would mean you don't have the advantage of an advisor managing your portfolio year to year.

Can you guys help me get the fees straight before I meet with them. Are the fees ever negotiable or are the pretty much set in stone?

 

[rcpratt]

Assuming she's in good health, considering her age, pay up front. That'll be the better deal for longer-term investing. Can't comment on specific numbers, although I would guess that EJ fees are pretty set.

Although yeah, personally, I'd never pay for this. Throw it in an account online, there's plenty of guides out there. But that's not for everyone.

 

[KB]

Have her put her money in a vanguard etf/mutual fund. Their fees are as low as 0.05%.
https://personal.vanguard.com/us/funds/snapshot?FundId=0540&FundIntExt=INT

Just go to their website and set up an account.

 

[dr150]

Paying an advisor is the worst thing you can do with your money.

You don't need to be a genius. Do some basic research. Go to https://www.bogleheads.org/forum/index.php Ask away and build a simple portfolio. ........An advisor won't be able to do better than them.

Heck. If you put your money with Schwab, Ameritrade or Etrade, they have FREE advisors that can hand hold you through the entire process.

As the previous poster said, stick with Vanguard ETFs as they're the cheapest around.

You can also choose an all-in-one retirement date Vanguard fund that takes the guesswork out for you (it'll have bonds, domestic, international, etc all wrapped up in one package). https://investor.vanguard.com/mutual-funds/target-retirement/#/

 

[ponyo]

Run from Edward Jones. They're nothing but glorified mural fund salesmen and will rip you off with high commission. Look and find a fee only financial planner.

 

[jlee]

Agh, no. What everyone else said - go with a Vanguard ETF/index fund.

 

[Gunslinger08]

Disclaimer: I am not a financial adviser, just a regular guy who reads the Internet.

I consider retail FAs to be for people who don't care to learn the basics for themselves. Investing isn't really that complicated if you don't make it hard on yourself. Things that you should know:

1. You probably shouldn't buy individual stocks and bonds. Mutual funds are a mash up of a bunch of stocks/bonds/assets. You've heard of diversification. That's what mutual funds are. They diversify you while only buying/owning 1 thing.

2. You want funds with low expense ratios. The expense ratio of a mutual fund is the amount of your holdings that you pay each year for the privilege of owning that fund. So if you have $100 of a fund and the expense ratio is 1%, you pay (read: lose) $1 of that investment in the first year. This continues for as long as you own the fund. Index funds can be had for around 0.1-0.2%. Actively managed mutual funds could be up to 1-2%, or even more. This may not seem like a huge difference, but it works against you with "compounding interest" over time.

3. You probably shouldn't buy actively managed mutual funds. These are funds that normally have sector names or lifestyles attached to them - "energy fund", "lifetime income fund", etc. The two big kinds of funds are actively managed and index funds. Index funds try to follow a market index (ex. S&P 500), so their performance generally tracks the entire market. This is a huge diversification. Given that these are pretty much set-and-forget funds, the expense ratios (fees) are considerably lower. You could lose thousands over the lifetime of your investment. Check this out: http://www.begintoinvest.com/expense-ratio-calculator/

4. You probably want to diversify index funds. You should own some stock based funds and some bond based funds. You should own some international and some domestic. The typical "extremely basic" portfolio is 3 index funds - a domestic stock index fund, an international stock index fund, and a bond fund. The ratios are governed by your risk tolerance and age. Given that your mom will be retiring soon, she's probably very risk averse, unless she already had retirement taken care of and this is just a windfall. If she wants to avoid risk, she should probably invest quite bit into bonds. Places like Vanguard have composite funds that are target retirement date specific that could give you a good guideline. For example, their 2015 fund is about 35% domestic stocks, 42% bonds, 15% international stocks, and 8% other: https://personal.vanguard.com/us/funds/snapshot?FundId=0303&FundIntExt=INT

5. You probably shouldn't buy funds with a front load (up front % commission) or pay expense ratios over 1% max. Go research actively managed fund performance vs. the typically lower expense index funds. Index funds tend to outperform them, even when you don't add in the pain of the front load and higher expense ratios.

6. If you understand the first 5, you can probably do this yourself at a place like Vanguard/Fidelity/whatever and save yourself some money. Keep in mind that things can get different when you're retired - you're actually drawing on your savings, so you need to be smart about which assets you sell and how you fund your lifestyle, to minimize taxes. This is probably a better discussion to have with an accountant.

 

[ponyo]

http://www.clarkhoward.com/news/clark-howard/personal-finance-credit/fee-only-financial-planners-are-in-your-best-inter/nDKZ/

http://napfa.org/

 

[Exterous]

1% of assests under management is pretty standard. You might be able to negotiate down but I highly doubt it. As for the 3.5% with no yearly I would be concered about what the transaction fees are.

Are you meeting with them regarding your mom's money or your own? If its your mom's I would be cautious about those suggesting you do it on your own. Money can be a weird issue between family members and you have to balance your comforts with hers.

You might want to consider getting a fee only advisor. Take a look at Napfa.org. You meet with them and they set a plan for you. They don't work on commission, dont get any benefits from what you buy so no worries about them pushing something you dont need on you. You could make a checkup appt a couple of times a year if you needed and still come out ahead. Usually though it can be pretty easy to set a plan and rebalance occasionally. Most people only need an appointment once a year for a 'checkup' on the plan

 

[jagec]

Paying an advisor is the worst thing you can do with your money.
https://investor.vanguard.com/mutual-funds/target-retirement/#/

Hey now, that's not really fair. You could buy a bunch of penny stocks, or invest in a high-yield investment program, or put it all on black, or use it to lease a fleet of Range Rovers.

A financial advisor is certainly going to do worse than low-cost indexing, but with all of the other stupid things that people do with their money, most peoples' finances would actually be BETTER OFF if they used such services.

It's like homeopathy...sure, the whole thing is a waste of money, but it gets people thinking along the right lines, which is better than doing nothing at all.

 

[Brainonska511]

Paying an advisor is the worst thing you can do with your money.

Not only that, but you need to watch out for them. If you do want professional financial advice, you should find one that has a fiduciary duty to you (ie: legally required to do what's best for the customer). There are all sorts of financial adviser labels out there that sound legit, but they can look out for their bottom line first instead of you. There are several resources on the internet to help you out on this front, but you should really read over some articles first before settling on a professional.

But with fees like that, just invest it in some Vanguard funds. They're incredibly low cost and they have plenty of information available. Just pick a few from their recommended fund sets - maybe a balanced one (split between stocks/bonds), a total bond and stock index fund, etc...

 

[edro]

I thought most of the big guys gave free financial advice if you have an account with them and they usually give you the advice up front to switch to them anyway.

She probably shouldn't be heavy in stocks anyway if she is in retirement age.

 

[zanemoseley]

Thanks for all the info guys, we definitely have a lot of thinking to do before making a decision. The fees seemed high which is why I'm a bit reluctant to advise her to use this advisor. I was anticipating more of a transaction fee based structure. I may need to recommend she go with a fee based advisor or just buy some balanced mutual funds like the vanguard funds so many of you suggested. She is wanting to grow a large portion of the money over time to pass on which makes it a bit more difficult.

 

[Vdubchaos]

Financial adviser = someone you PAY to take your money and make money for themselves.

There is only one person that looks out for your money, and that's YOU.

 

[kranky]

That is probably the highest fee I have ever heard of for managing assets. I'm stunned. Stop and think about this: if they take 3.5% a year, how much will they have taken after 20 years of your mother's retirement? Answer: 3.5% X 20 = 70% of the money. Isn't that crazy?

Best option: learn to do it yourself, it's not hard. Read "The Bogleheads' Guide to Retirement Planning".

But I understand it can be daunting for people with no experience and nobody wants to make a major screwup with life-changing money. Next best option: find a fee-only planner at napfa.org and pay for a comprehensive plan. Go there with the investment goals in mind (not: "I want to make a lot of money") Is the goal for $X per year in retirement with low risk? Leave an inheritance or not? Growth or income? Whatever it is, guide the advisor on what the goal for the money is. And don't choke on the cost for the plan and guidance.

People refuse to pay a couple grand for a comprehensive plan from someone with no bias or incentive to manipulate a client, but they'll pay many multiples of that to let an Edward Jones person manage the money and take their cut year after year. It makes no sense.

 

[zanemoseley]

Kranky the one time fee is 3.5%. The yearly fee is 1%. I agree they both seem high which is the reason for this post.

 

[Exterous]

if they take 3.5% a year

They're not?

In one she pays roughly 3.5% up front but no yearly fee

I thought most of the big guys gave free financial advice if you have an account with them and they usually give you the advice up front to switch to them anyway.

She probably shouldn't be heavy in stocks anyway if she is in retirement age.

You can get free advice but how good it actually is varies. At the big firms its usually a canned, generic response which may be helpful but often ignores potential options offered by unique situations. Others will try to push you towards the fund of the day

You may be able to find a fee only adviser that, in addition to helping make sure stock\bond\etc ratios change with age, could offer insights into tax considerations and help with deciding when to take SS

 

[Exterous]

She is wanting to grow a large portion of the money over time to pass on which makes it a bit more difficult.

Chasing yield is a dangerous game esp for someone who is close to retirement. A lot of people were doing this in the run up to 2008 and got burned, badly. Lots of stories about people who wanted to pass on a larger inheritance but then got screwed out of retiring how\when they wanted when the market turned

 

[Jeff7]

4%/year = commonly suggested "safe withdrawal rate" for retirement income.

1% of assets per year = 25% of annual income.

Edward Jones? There'll probably also be mutual funds in there which will themselves have fees of 1-2%/year.

Financial adviser = someone you PAY to take your money and make money for themselves.

There is only one person that looks out for your money, and that's YOU.

And there's not much you can do if their "expert advice" falls flat when the market tanks. Just look at how skillfully the expensive experts at American Funds navigated the tumble in 2009.

Oh....right.


That fund there has a 5.75% front-end load. 5.75% of your investment gone right at the start, which I assume is to pay the "Dammit, not another paying customer" hassle.

 

[Jumpem]

Do not use, or pay, any advisor that charges by percentage. Find a fee only advisor, that charges a set amount hour, meeting, etc.

 

[JimKiler]

Do not use, or pay, any advisor that charges by percentage. Find a fee only advisor, that charges a set amount hour, meeting, etc.

+ a million. You are getting ripped off if you let them get a commission on your investments and they will not pick the best investments, they will pick the ones with the best commissions for themselves.

Pay them out of your pocket for their time only, that way they do not take money from your retirement fund.

 

[Brainonska511]

+ a million. You are getting ripped off if you let them get a commission on your investments and they will not pick the best investments, they will pick the ones with the best commissions for themselves.

Pay them out of your pocket for their time only, that way they do not take money from your retirement fund.

Yep. And be sure to ask them about "fiduciary duty". You want one that actually has that obligation to you and puts your best interests first. You do not want someone who will simply offer you a "good" investment, but really be putting money into their own pockets by offering those crappier investments.

 

[DaveSimmons]

The "no charge" funds are probably filled with high-expense kickbacks and high annual fees.

I'd just get index funds / ETFs with Vanguard, where the annual expense on many funds is lower than 0.1% with no hidden fees.

If she really needs guidance, Charles Schwab has fee-based advisers where you pay once and they set you up with low expense funds instead of overpriced garbage.

 

[EOM]

It sounds like A shares vs C shares when investing. A shares are about 4-5% one time payment upfront when buying shares. C shares are no fee for buying, but a 1% annual fee. For any holdings over 5 years, A shares make more sense, short term can take advantage of C shares.

I have a financial adviser that gets his cut out of that 5%. I have my Life insurance, IRA, Rollover IRA, some stocks, bonds, and several college funds as well as my wife's IRA through him. He's available to answer questions anytime i call with various questions and he does do what's right for me, not for him. He always takes time to thorough answer my questions and not just shluff me off with a quick answer. It's why it sometimes takes him a bit of time to return calls since i know he's doing the same with another client. It's a value-add service and for now while I've got lots of things in flux i think it's worth it.

 

[EOM]

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