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Fee structures; what is normal?

I am currently using a financial advisor who charges me 1.5% to manage my portfolio; is this within a normal range for a portfolio of less than $500,000?

Jun 14, 2014 by David from Miami, FL in  |  Flag
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3 votes
Reed Bermingham Level 18

I'd say it's a bit high, especially if your advisor is simply managing a portfolio for you. Do they do comprehensive financial planning, tax planning, estate planning, risk management, etc? How often do you meet? What is covered in each meeting? Attach a value to your relationship, and determine if it's worth $7,500 a year to you.

You also have to look at what's in the portfolio, and any fees associated with each investment. If it's a mutual fund portfolio, you might be paying another 1%+ to each fund family. If it's an ETF portfolio, it will be substantially less but there is still an added fee. You might be paying closer to 2-2.5% a year in fees when you total it all together.

Comment   |  Flag   |  Jun 19, 2014 from San Diego, CA

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Phil A. Matheson Level 11

I would say that is high for the amount you have in the account. I would definitely take a look at what services you get for the fee you are paying and what the underlying investment costs are in addition to the Advisor's fee. Also good to see if the Advisor is willing to drop the fee by simply asking to do so.

Comment   |  Flag   |  Jun 24, 2014 from Costa Mesa, CA

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David,

There isn't a set amount that is "normal" because it really depends on what else you are paying that person or what they are doing for you. There are three things I would look at. First, make sure you are not paying any trading fees (the advisor/firm should pay them but some push them onto their clients) on top of the advisory fee. Second, dive into the details of what your advisor has you invested in. Are there high fees to any investments they use? These are called 12b-1 fees or internal costs. If so, ask the advisor why. It's almost like double paying when the advisor does that. Lastly, what type of allocation is the advisor using? For those looking to generate income, you may be in more fixed income holdings that don't change a lot and thus shouldn't pay so much. If on the other hand, you have quite a bit in individual stocks or sector funds/ETFs, that fee is very reasonable.

I would also add that you should always be monitoring the other advice you are getting from your advisor. I believe everyone should receive comprehensive advice in regards to financial planning and not just investment advice. If you are just receiving investment advice, you may want to find an advisor that can give you advice in regards to taxes, savings, and investments.

Hope that helps, Nick

Comment   |  Flag   |  Jun 16, 2014 from King of Prussia, PA

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An AUM fee of 1.5% is within the normal range for an account of the size you indicated, although they are at the high end of the range in my experience. Here are a few things to think about when considering the advisory fees that you are paying:

What services are your advisor providing as a part of your fees? Do they do tax preparation, for example? Do the provide a comprehensive written plan and annual updates? If your advisor is doing any of this work for you without billing separately, you should consider the value of that in light of the total costs to you.

Also, take into account the internal cost structure of the investments that your advisor is using, as they can weigh heavily on your overall investment performance. An advisor that uses low-cost ETFs in their clients' portfolios, for example, may be providing you with total costs that are lower than another advisor that has lower fees but uses investments that have higher internal costs.

Ultimately, it should be all about the value you are receiving for the advisory fees that you are paying.

Comment   |  Flag   |  Jun 23, 2014 from La Verne, CA

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Yes. That is typical for protfolios of less than a million.

Comment   |  Flag   |  Jun 15, 2014 from Canton, GA

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David, A fee of 1.5% is within the range of industry practice but it's at the top of the range. For that fee you should be getting some personal attention and a portfolio that's designed to meet your objectives. If this is not the case, you may want to do some shopping.

Comment   |  Flag   |  Jun 18, 2014 from Suffolk, VA

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Depending on the complexity of your situation 1.5% would seem reasonable however 1% seems more common in my area.

Comment   |  Flag   |  Jun 18, 2014 from Hooksett, NH

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It also depends on what services you are receiving. If you are receiving financial planning advice along with investment advice, and your advisor is attentive, then this is a reasonable fee. If you are not receiving personal attention, and only get small adjustments to the portfolio on a rare occasion (i.e. it's passively managed) then the fee is probably on the high side. At the end of the day, it's all about the value you are receiving for the fee; it's not just the price.

Comment   |  Flag   |  Jun 24, 2014 from Arvada, CO

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