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I'm paying a financial advisor 1.5% plus a $750 annual fee to manage my 450K portfolio. Is this too much?

Jun 14, 2014 by David from Miami, FL in  |  Flag
13 Answers  |  14 Followers
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3 votes
Rich Winer Level 20

I believe the answer to your question depends on the size of your investment portfolio, "how" your advisor is investing your money, your return expectations and whatever additional services your advisor may be providing. 1% is pretty standard for the management of a diversified mutual fund portfolio funds. If your portfolio is greater than $500,000 or $1,000,000, some advisors will charge less. Some advisors will also charge around 1% for the management of an individual stock portfolio.

However, if your advisor is employing a more complex strategy that demands more time, research and costs on his end, and if his objective is to outperform the S&P 500 over a full market cycle net of fees (and if he can actually accomplish that goal, then 1.5% or even more is not unreasonable.

At our firm, we start at 1% for the management of mutual fund portfolios and our fee goes down when the client's assets under management reach certain breakpoints. We also charge more for more complex individual stock strategies where our goal is to outperform the S&P 500 over a full market cycle with less risk and volatility than the index. However, we also pay all the trading costs.

Hope this helps.

View all 4 Comments   |  Flag   |  Jun 14, 2014 from Woodland Hills, CA
Rod Miller, CFP®, CLU, ChFC

Rich, you did put a lot of thought and good discourse to the discussion... as such, I'm offering up a positive vote to offset the person who didn't like hearing the truth...

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Flag |  Jun 16, 2014 near Springfield, MO
Rich Winer

LOL! Thanks Rod!!!

Flag |  Jun 16, 2014 near Woodland Hills, CA

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3 votes

Hello David,

At first glance it looks high to me. But the answer depends on the total package of services you're actually receiving from the advisor and whether it's valuable to you.

A few questions you'll want to consider:

1) Does the advisor only provide portfolio management and nothing else? Some advisors charge a fee for assets under management, but then also provide routine financial planning and consulting services at no extra charge.

2) Does the advisor actually manage your portfolio? In other words, do they take "discretion" where they carry the responsibility to buy and sell investments without first consulting you? The weight of discretionary management is worth more than non-discretionary advising, where the advisor merely makes periodic portfolio recommendations to which you say yes or no.

3) Is the advisor managing your portfolio using strategic asset allocation or tactical asset allocation?

Strategic asset allocation divvies-up your portfolio to different asset classes based on a model portfolio and then provides some periodic rebalancing. There's no attempt to side-step market downturns or deliberately take advantage of underpriced assets.

On the other hand, tactical asset allocation attempts to avoid large draw-downs in the financial markets. In such cases, the manager may reduce weighting (even to 0%) on asset classes that are overpriced relative to historical averages or overweight asset classes that appear to be a bargain. Tactical allocation is much more difficult than strategic allocation and, if the advisor is any good at it, deserves a higher fee.

Coming full circle now . . . .

• If you're only receiving basic portfolio management using strategic asset allocation and nothing else (along the lines of planning/consulting), then the fee you're paying is highway robbery. You should be able to find that level of service for 0.50% annually, give or take.

• If you receive basic portfolio management PLUS financial planning/consulting, I still think the fee is a bit high. But you have to be the judge of whether or not value has been delivered. I think you should be able to find good service along those lines for 1.0% to 1.25% annually or a comparable flat retainer fee negotiated with the advisor.

• If you receive tactical portfolio management and your advisor is good at it, then the fee is probably fine. And all the more so if you receive any financial planning/consulting along with it.

Hope that helps. All the best.

View all 4 Comments   |  Flag   |  Jun 14, 2014 from Clackamas, OR
Rod Miller, CFP®, CLU, ChFC

Thanks... just bein' the person my Dad raised me to be... you guys put a lot of work into what you do... It takes a lot of time and thought, as each case is different, and in the end, there are really no "right" or "wrong" answers... it's often just what the client wants to hear at any given moment... right or wrong... ~8^) Still, I respect those who answer with conviction and in the best interest of the client, given the limited information we are often presented with...

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Flag |  Jun 16, 2014 near Springfield, MO
Larry McClanahan, CFP®, ChFC, CLU, CASL

Thanks, Rod!

Flag |  Jun 16, 2014 near Clackamas, OR

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2 votes

That's a hard question to answer. I would generally expect an avisor to charge between 1% and 1.5% for personal management. Whether it's too much depends upon performance of your portfolio, and any added services s/he might be providing for you, along with the performance based upon your risk tolerance. In addition, with what the investment expenses are within your existing 401k.

1 Comment   |  Flag   |  Jun 14, 2014 from Springfield, MO
Rod Miller, CFP®, CLU, ChFC

PS... it appears that with the annual fee, the expense charge for his services are actually 1.666?

Flag |  Jun 14, 2014 near Springfield, MO

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2 votes
Peter Cacioppo Level 16

Sounds high to me. Most advisors charge less. Check out a few web sites to compare fees. As the other answers state: a lot depends on what the advisor is doing for you in addition to basic investment advice. A true advisor should give you a copy of his government ADV or something similar as it gives you lots of information.

Comment   |  Flag   |  Jun 14, 2014 from La Jolla, CA

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1 vote

It's high, especially if you are only receiving investment management services (no financial plan). For that portfolio size we would charge 1.35% and that would include a full financial plan, which is arguably the more important part of the ongoing relationship. If you like your advisor it can't hurt to ask them to lower your fees. Feel free to reach out if you need more info.

Comment   |  Flag   |  Jun 14, 2014 from Minneapolis, MN

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1 vote

The only thing that I can add to all the answers you received is. If you are paying 1.5% and advisor only buys individual stocks, then its one thing. However if he/she is purchasing mutual funds, then you have to add the expense ratios of the funds on top of that. In addition to that he might be getting 12b-1 fees back or commissions for selling the them. you could be paying north of 2.5%. What I would suggest you do is contact an RIA, not an independent Planner because they are still able to get compensated for selling products, but contact a Registered Investment Advisor, RIA, we legally not able to accept a commission or get compensated for positioning of certain products. They will run a cost analyses of your portfolio for you and you will know if you are paying anything above 1.5% annual fee. Let me now if you have any questions, best of Luck.

View all 8 Comments   |  Flag   |  Jun 16, 2014 from Farmington, CT
Michael V Mezheritskiy

I am sorry Geoffrey but requirements by CFP board means very little compared to a requirement by SEC. you don't really believe that CFP board is a governing buddy? I do commend you for being a fee only.

Flag |  Jun 16, 2014 near Farmington, CT
Michael V Mezheritskiy

CFP board will not do any thing other then potentially strip some one of their CFP if they are not following the "fiduciary" duty as defined by the CFP board, they will not protect the consumer like SEC would, because legally CFP holders can accept the commission (unless they are like you and I fee only RIA) and does not have to put customers interest first by SEC rules. I am not saying that all CFPs do it but legally they could and the only thing they can stand to loose is their CFP designation. If, as an RIA, you do not follow your fiduciary responsibilities your consequences are much greater, getting banned from industry to potential jail time.

Flag |  Jun 16, 2014 near Farmington, CT

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1 vote

David,

That sounds high to me, but as others have suggested, are you getting your money's worth? Maybe or maybe not. You've taken the first step by asking if you are indeed paying too much. It never hurts to get a second opinion or portfolio review by an experienced advisor and see how your current advisor compares with the competition. This will also keep your advisor on his/her toes to provide the level of service that he/she should be providing.

Comment   |  Flag   |  Jun 16, 2014 from Newport Beach, CA

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0 votes

David. For nearly half a million dollars, It is too high, period! Whether it is discretionary or non discretionary, Whether strategic or tactical, its all too high. If someone says for instance you should pay more because Im going to attempt to protect you from market downturns or turmoil, then you should run away from them, because they cannot do it (no one can without constant luck), and they are trying to sell you something you dont need.
What you pay us for in the financial planning industry is the quality of our advice based on the education, training and experience we have to help guide you towards your particular goals. Managing a portfolio is only part of this guidance. I say it is too high because that is not where the market is now, and you can find plenty of quality professionals that will do as good or better of a job for less. I think its time you started interviewing new financial planners.

1 Comment   |  Flag   |  Jun 15, 2014 from Malvern, PA
David A. Kring, CFP®

David, I wanted to clarify one item. If the adviser fee you are paying is 1.5%, then that is much too high. If however, the 1.5% +$750 is the fee for all services, including the cost of investments and portfolio management & custody of assets, then that is fair. Judging by the way you worded your question, I suspect the 1.5% is just the adviser's share.

Flag |  Jun 16, 2014 near Malvern, PA

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0 votes

The 1.5% for that size portfolio is fairly typical. Without a further breakdown, I don't know what the additional $750 could be for.

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

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0 votes

Fees are only an issue in the absence of value. While your question seems straight-forward enough, my guess is that the advisor may be providing services (in addition to portfolio managment). Still seems a little high.

Comment   |  Flag   |  Jun 16, 2014 from North Haven, CT

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