Travis Russell

Travis Russell, CFP®

Travis employs many of the disciplines of success that he learned as a Division 1 hockey player – namely, persistence, practice, and a having passion for what you do – to his role as Principal and Client Advisor.

At some point, many people come to a place where they need to hire professional help, especially when it comes to managing their wealth and future. For those who don’t have the time to manage their own investments, or want access to on-going professional financial advice, working with a financial planner or investment advisor can be a rewarding decision.

At Glassman Wealth Services we’re often asked, “How much does a financial advisor (planner) cost?” There seems to be a lot of confusion about the fees for financial planning services, which is understandable because compensation models vary across the industry.

In this article, I hope to shed some light on the different fees you may pay in your portfolio. Keep in mind, you may pay some or all of these different fees depending on which type of advisor you have:

Transaction Costs

The first layer is the transaction costs involved in purchasing or selling investments. For example, E*Trade charges $9.99 per stock trade. These types of trading costs are incurred by almost all individual investors and are paid directly to the company that holds your account, regardless of the type of advisor you employ.

Depending on your advisory relationship and the firm with which your adviser works, your adviser may earn some of this transaction cost. If your adviser is a fiduciary, they do not earn any portion of these fees and have no added incentive for trading.

Investment-related Fees

The second layer is your investment or product-related fees. If you’re investing in a mutual fund or exchange-traded fund, you will pay a percentage fee directly to the fund company. This fee is also known as the “expense ratio” and can be found on the fund prospectus, and you typically won’t see these fees listed on your account statement because they’re included in the fund’s performance.

The level of these fees has dropped significantly in the past decade or so. According to Morningstar, the average expense ratio was 0.64% in 2014, but many funds cost more than that. Again, these costs are incurred by any investor who holds a mutual fund, ETF, or other pooled investment.

Advisory Fees

The third layer is fees paid to your financial advisor, which can take the form of a flat or hourly fee, a project fee, or a percentage of the assets under management (AUM). We’ve seen these fees range anywhere from 0.2% to 2% per year. This is often a “tiered” structure, where the fee percentage drops as your portfolio grows.

Hidden Trails

Depending on your advisor, you may also pay indirectly through product-based trail commissions. For example, imagine you have an advisor who charges a 1% fee per year to manage your portfolio, which you pay directly. However, based on a mutual fund you purchase, she also collects a 0.25% trailing commission for each year you own that fund. Certain types of “fee-based” advisors and brokers charge these commissions.

People are usually surprised to learn about the trailing, or 12b-1 fee that brokers can make on certain funds. Clients do not see these fees on their statement because they’re included in the performance of your mutual fund. It’s important for brokerage clients to know of this hidden revenue stream.

To make matters more confusing, funds are still allowed to label themselves “no-load” even if they charge an annual 12b-1 fee that is 0.25% or less.

Fees Vary by Type of Advisor

Many firms, like Glassman Wealth Services, are fee-only fiduciaries, meaning they cannot accept any commissions or hidden fees, so clients know exactly what they are paying. For example, our fee normally starts at 1% on the first $2 million of assets, and the percentage declines at higher levels.

Since these costs influence your return on investment, transparency is key. It’s important to keep investment and transaction costs low to preserve and grow your capital.

So, should you pay an hourly fee for a simple consultation, commissions, or a fee based on the percentage of assets for on-going work? That depends on how complex your financial situation is, how much help you need, and your philosophy on conflicts of interest.

Want to know for sure?

Ask your advisor the best question possible: What did you make on our relationship over the past two years? Your advisor knows this number, but unless you’re working with a fiduciary firm, it’s a challenge to figure it out for yourself.

And here’s a secret from my days working with a brokerage firm. Our copy of client statements showed revenue year-to date on each statement. Brokers and advisors know the total amount earned through your relationship and can tell you. This will include hidden trails on mutual funds, bond markups (called spreads) and advisory fees.

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how-to-change-your-financial-advisor“Learn more about which type of advisor is right for you, The Four Types of Financial Advisors.”


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