Question: I have $800,000 in my IRA account and my financial broker is charging me $850 a month. I am only getting less than $200 from interest-dividends. How do I go about finding a financial adviser that gets better results and fewer fees?
Answer: Based on your description, it seems like you’re paying about 1.3% per year for your adviser — and that’s on the higher end, though that can depend on what you’re getting for that money, says certified financial planner Steven Sivak at Innovate Wealth. (Looking for a new financial adviser too? You can use this tool to get matched with an adviser who may meet your needs.)
In general, if your fee includes other financial planning services or possibly complex assets, a 1.3% fee could be reasonable. “It’s higher than the 1% fee that’s more common in the industry, if it’s for portfolio management only. There are certainly many highly qualified advisers charging 1% and less to choose from,” says certified financial planner Eric Ross at F2 Wealth.
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How to find a good financial adviser for less money
But you, understandably, want to pay less for a quality adviser. One option is “by managing your own investments and hiring an advice-only planner,” says certified financial planner Kaleb Paddock at Ten Talents Financial Planning. Advice-only planners charge a flat price or project-based rate to help you create a financial plan, a target rate of return and an investment mix to most likely reach that return over a certain period of time. “This path is [often] the cheapest but requires you to self-manage your investments and not tinker with the account unless you consult your advice-only planner first,” says Paddock. (Here’s what to ask any adviser you might hire so you can help ensure they’ll do a good job and meet your needs.)
Certified financial planner Al Faber at Woodson Wealth Management also recommends the advice-only route, noting that these advisers tend to have fewer conflicts of interest than, say, someone who is commission-based, because there are no hidden fees from product sales or funds. To find advice-only advisers, visit AdviceOnlyNetwork, National Association of Personal Financial Advisors (NAPFA) and the FeeOnlyNetwork.
However, one of the biggest issues in your email is that you and your adviser don’t appear to be on the same page, says certified financial planner Terrance Hutchins at Logos Financial Group — and that’s something to remedy this time around. “Any level of fee you pay whether big or small should result in you feeling heard and your expectations properly aligning with your strategy. I would start there with the conversation, as performance is a fleeting thing to chase in the investment world,” says Hutchins.
And what is this adviser’s investment strategy? “The question I would have is are you investing solely for dividend income? If so, why do you value the dividend much more than say appreciation?” Hutchins says. “You could certainly find an adviser or even funds you could purchase on your own that would produce more dividend yield. The current yield of the S&P is around 1.55%, versus your portfolio which is yielding .03%.”
You may want an AUM adviser who charges a percentage based on the amount of assets they manage for you. The typical fee for an AUM agreement is about 1% of assets under management — though you can negotiate less — which would be about $8,000 per year for your portfolio, versus the $10,200 you’re paying annually.
How to figure out if the financial adviser is doing a good job
If you want better results than low-cost index fund investing, Paddock says, “You need to communicate this with your financial adviser and collaborate together to figure out how to do that while protecting your IRA from large market declines along the way, especially if you’re pulling money out during retirement.”
Tim Parker, certified financial planner at Regency Wealth Management says, “The manager shouldn’t be measured by the income generated if it’s a growth portfolio, rather by total return and versus benchmarks,” adding that “it’s a good idea to discuss your concerns with the adviser to learn more about the thoughts behind the way the portfolio was constructed.”
In the end, you’ll want to think of your financial plan as wanting to marry three things, says Neela Hummel, certified financial planner at Abacus Wealth Partners. “Overall growth including interest, dividends and capital appreciation, your risk tolerance and the ability to withstand market volatility and overall financial objectives. Only with those three things can you identify if you’re in the wrong portfolio,” says Hummel.
Looking for a new financial adviser too? You can use this tool to get matched with an adviser who may meet your needs.
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