Home  >  Financial Articles and Q&A  >  How can I tell if I am paying too much in fees,...

How can I tell if I am paying too much in fees, commissions, etc.?

I don't want to get in to specifics, but It seems like my current financial advisor is charging me way too much in fees. How can I find a more transparent way to find out exactly what for I am paying him so much?

Jun 01, 2015 by Nick in  |  Flag
9 Answers  |  7 Followers
Follow Question
2 votes

Hi Nick,

Great question. There are a few ways you can go about looking into your expenses such as those mentioned above. The limitation with most online services is that they are only an estimate. If you want a true understanding you'll need to look at a few different components such as adviser fees, fund fees, account fees, etc. Most advisers offer this service for free to prove competence and earn your business. So if you're questioning your adviser's ability, it may be worthwhile inquiring into other options.

Once you discover what the expenses are, how are you going to use this information? Although your expenses may be higher than average, you may be left with few options to change (for instance, if you are in a 401k with limited choices). I'm assuming that this topic didn't come up with your Tax adviser in April? You may be able to write off your financial advising fees if you are itemizing deductions and they add up to over 2% of your Adjustable Gross Income (AGI). Good information to know, but the biggest impact will come from how it is applied.

Best,

Nathan

Comment   |  Flag   |  Jun 01, 2015

1|600 characters needed characters left
1 vote

Hi Nick! You ask a big question here that plagues investors and advisors alike. First, don't think about fees in terms of cost, but in terms of value. Define the services you expect to receive from an advisor, then find out exactly what you are paying. You can then research other advisors and compare apples to apples.

Some advisors will charge commissions based on the products they purchase for you, while others may charge a percent of assets or a flat fee for services. Some provide financial planning only, others only manage investments, and other advisors do both. Deciding what you need in terms of personal contact and advisement will help you determine if you are receiving the value you want for the services provided to you. Examining the advisor's Form ADV Part II may help as well.

If you are not happy with your current advisor, definitely shop around. Good luck to you!

Comment   |  Flag   |  Jun 01, 2015 from River Hills, SC

1|600 characters needed characters left
1 vote

Hi Nick: An excellent resource to calculate the cost of your mutual funds is personalfund.com. High cost funds are typically the domain of actively managed funds. I myself believe the markets are fat too efficient to use actively managed funds. This debate has raged on for years. Active vs passive. My advice is to find a fiduciary adviser and have them build a prudent portfolio designed for you. With the advisers help you can remain disciplined throughout all market cycles. Hope this helps.

Comment   |  Flag   |  Jun 01, 2015 from Green Bay, WI

1|600 characters needed characters left
1 vote
Matthew B Goff Level 18

A simple way to determine the answer to this question is to ask your financial advisor for a one page report which shows all the fees and commissions you are paying each year. You should ask your advisor to break down this total expense figure into the following areas:

1) Total fees you are paying your advisor each year; 2) Total fees you are paying to third party managers such as mutual funds and other funds in your portfolio; 3) Total commissions you are paying your broker.

The sum total of these three items above is what you are paying each year in fees and commissions. You may discover for example that your advisor is charging you 1% but you are also paying an additional 2% in other fees and trading charges. The total cost would then be 3% per year in this example.

For best results, ask your advisor to present the fee and commission information to you both in total dollars and as a percentage of your portfolio. Also, be sure to ask your advisor to disclose on this one page report the total fees and commissions they may be receiving from the financial products held in your account. Fee sharing is important to know because if your advisor receives fees and/or commissions from financial products held in your account, this is a potential conflict of interest which can also greatly increase the total cost of managing your account.

If you financial advisor refers you to a prospectus for this information, ask your advisor to save you some time by preparing a simple one page summary of your total fees and commissions.

Comment   |  Flag   |  Jun 01, 2015

1|600 characters needed characters left
0 votes
Matthew B Goff Level 18

A simple way to determine the answer to this question is to ask your financial advisor for a one page report which shows all the fees and commissions you are paying each year. You should ask your advisor to break down this total expense figure into the following areas:

1) Total fees you are paying your advisor each year; 2) Total fees you are paying to third party managers such as mutual funds and other funds in your portfolio; 3) Total commissions you are paying your broker.

The sum total of these three items above is what you are paying each year in fees and commissions. You may discover for example that your advisor is charging you 1% but you are also paying an additional 2% in other fees and trading charges. The total cost would then be 3% per year in this example.

For best results, ask your advisor to present the fee and commission information to you both in total dollars and as a percentage of your portfolio. Also, be sure to ask your advisor to disclose on this one page report the total fees and commissions they may be receiving from the financial products held in your account. Fee sharing is important to know because if your advisor receives fees and/or commissions from financial products held in your account, this is a potential conflict of interest which can also greatly increase the total cost of managing your account.

If you financial advisor refers you to a prospectus for this information, ask your advisor to save you some time by preparing a simple one page summary of your total fees and commissions.

Comment   |  Flag   |  Jun 01, 2015

1|600 characters needed characters left
0 votes
Peter C. Karp Level 20

Nick,

There’s a wide range of different possible fees that can be incurred on an account. There could be management fees, trading fees, or even fees associated with owning a certain position ( “see the prospectus” for more information). An experienced financial advisor knows how to avoid unnecessary fees for their clients. We can review your most recent statement to determine what fees from your current advisor may be inappropriate or exorbitant. You are welcome to contact me at 415-345-8185 to set up a review session (it’s complimentary and free of charge).

Regards,

Peter C. Karp

Disclosure: The posted information is for informational purposes only. This message does not constitute an offer to sell or a solicitation of an offer to buy any security. All opinions and estimates constitute Karp Capital's judgment as of the date of the report and are subject to change without notice. Accordingly, no representation or warranty, expressed or otherwise, is made to, and no reliance should be placed on, the fairness, accuracy, completeness or timeliness of the information contained herein. Securities offered through Infinity Securities (a registered broker-dealer, member FINRA, SIPC). Infinity Securities and Karp Capital Management are not affiliated companies.

Comment   |  Flag   |  Jun 04, 2015 from San Francisco, CA

1|600 characters needed characters left
-1 votes

Hi Nick! You ask a big question here that plagues investors and advisors alike. First, don't think about fees in terms of cost, but in terms of value. Define the services you expect to receive from an advisor, then find out exactly what you are paying. You can then research other advisors and compare apples to apples.

Some advisors will charge commissions based on the products they purchase for you, while others may charge a percent of assets or a flat fee for services. Some provide financial planning only, others only manage investments, and other advisors do both. Deciding what you need in terms of personal contact and advisement will help you determine if you are receiving the value you want for the services provided to you. Examining the advisor's Form ADV Part 2 may help as well.

If you are not happy with your current advisor, definitely shop around. Good luck to you!

2 Comments   |  Flag   |  Jun 01, 2015 from River Hills, SC
Tony Krance, MBA, CFP®, AIF®

Hi Nick

Flag |  Jun 01, 2015 near Green Bay, WI
Tony Krance, MBA, CFP®, AIF®

Hi Nick

Flag |  Jun 01, 2015 near Green Bay, WI

1|600 characters needed characters left
-1 votes

Hi Nick: An excellent resource to calculate the cost of your mutual funds is personalfund.com. High cost funds are typically the domain of actively managed funds. I myself believe the markets are fat too efficient to use actively managed funds. This debate has raged on for years. Active vs passive. My advice is to find a fiduciary adviser and have them build a prudent portfolio designed for you. With the advisers help you can remain disciplined throughout all market cycles. Hope this helps.

Comment   |  Flag   |  Jun 01, 2015 from Green Bay, WI

1|600 characters needed characters left
-1 votes

In my opinion your TOTAL fees should be no more than 1% if you are using an advisor. This would include the advisors AUM and the individual fund costs. If the advisor is just managing your money and providing no planning advice regarding other related topics, the fees should be considerably less.

There are many low cost providers out there that are very affordable if you are just looking for money management services. I would ask your advisor for a percentage and dollar amount for all the fees you pay and the services you receive.. If they are unwilling to provide this in a comprehensive form, find another advisor. More people need to ask this question. Good Luck!

Comment   |  Flag   |  Jun 01, 2015

1|600 characters needed characters left