Question: “I signed up with a financial company a couple months ago, but now they’re being bought out by another company. I also noticed they’re charging me $100+ a month to manage my IRA account while I can’t tell from their graphs how much money they’re making me monthly. I’m worried that this move is too costly. Is that a normal fee? How should I proceed?”
Answer: You don’t say how much money is in your IRA, so it’s hard to tell whether you’re paying a reasonable amount. “A $100-per-month fee on a $1 million IRA account is a deal, while $100 per month on a $10,000 IRA is ridiculous,” says certified financial planner Jay Zigmont at Childfree Trust. “It also depends what they’re doing for that $100 per month. You need to understand the fees and what they cover before you can determine whether it’s appropriate.”
And if you feel you’re paying too much, it might be time to jump ship. You can find advisers at CFP Board and NAPFA, or get matched with a fiduciary adviser with this tool from our ad partner SmartAsset.
What are typical fees for a firm or adviser?
Every firm has its own fee structure. Fees for many companies are set as a percentage of assets under the firm’s management, often with a minimum. “Some charge a percentage of assets, others a flat fee, and some earn commissions. In general, firms that charge a percentage are usually around 1% of assets per year,” says Zigmont.
Flat fee advisers offer hourly engagements, project-based arrangements or retainer services. Hourly advisers charge between $200 to $500 per hour while project-based advisers range between $1,500 and $7,500 depending on location and the scope of work. Advisers working on a retainer fee can vary from $100 per month to $15,000 per year, depending on whether they’re managing a portfolio or just offering advice and guidance.
Andrew Hart, partner at American Estate and Trust, provides custody infrastructure for qualified accounts to many RIAs and family offices, giving him a unique back-end view into how fees are structured. “The AUM model is still the default for RIAs and robos at 0.25% to 1.0%. Most SDIRA [self-directed individual retirement account] providers charge flat fees between $100 and $500 per year. I’m also seeing $50 to $100 per month pricing from boutique firms catering to high-net-worth clients who are often investing in alternative assets within their IRAs,” says Hart. In short, Hart says, for retail investors, the only way he would expect to see something close to your $1,200 per year number is when the adviser is providing niche services like investing in alternative assets (outside of AUM).
The bottom line is that a flat $100 fee per month is unusually high unless it comes with truly comprehensive, ongoing financial planning, says registered investment adviser Pam Krueger, CEO of Wealthramp. “A lot of people don’t realize that IRA management alone is a very low-touch service. Charging north of $1,200 per year for basic oversight is a red flag. A normal IRA account fee is practically zero and with a robo, might be 0.20% of assets,” says Krueger.
There are other fees to look out for, too. For his part, Asher Rogovy, chief investment officer at Magnifina, an SEC RIA, says the most excessive fee arrangements he knows of involve hidden fees called 12b-1 fees. “These ongoing fees are added to other mutual fund expenses and are paid to the adviser who chooses the fund. They may persist so long as a client holds that fund in their portfolio. Although perfectly legal, we view these fees as highly improper and they are often only disclosed in fine print. Because they are deducted from the fund’s performance, they don’t appear on brokerage statements. Every time I’ve seen a client with 12b-1 mutual funds, I’ve been able to find a lower-priced alternative with virtually identical portfolio effect,” says Rogovy.
Furthermore, when a firm is acquired and fee structures change, Zigmont says you should receive a notice. “It’s a good time to look at the value of the fee and move if you don’t feel you are getting what you need,” says Zigmont. Meanwhile, Rogovy says there is currently a massive consolidation happening in the financial planning industry. “Our view is that when a firm’s owners change, so too could the advice. Every client should be asking, ‘Is this what my adviser really thinks or is it coming from their new boss?’” says Rogovy. You can find advisers at CFP Board and NAPFA, or get matched with a fiduciary adviser with this tool from our ad partner SmartAsset.
It’s about more than fees, though
No matter how much you’re paying, it’s imperative that you see the value in what you’re getting in return for a fee. “The value of an adviser is directly related to what you need as a client. Some people are OK managing their investments themselves without an adviser, while others want to delegate investment management to a professional. Some advisers provide only investment management while others provide comprehensive life and financial planning. The key is to pay for the services you value and not for the things you can do yourself,” says Zigmont.
When comparing different IRA management options, Peter Reagen, financial market strategist of Birch Gold Group, says he recommends taking a behavioral approach. “Robo-advisers remove the emotion from investing, keeping it a methodical process. Traditional advisers provide guidance to help you stay on track with long-term goals during market volatility. Self-directed investing is for those confident in their ability to manage risk and manage common investing biases,” says Reagan.
When looking for an adviser, keep in mind that the certified financial planners designation is often considered the gold standard in financial advising. CFPs complete extensive coursework, pass exams, perform thousands of hours of work-related experience and uphold a fiduciary duty, meaning they’re required to put their clients’ best interests ahead of their own at all times. Working with a fee-only fiduciary adviser eliminates the potential for conflicts of interest, as there’s no incentive involved for the adviser.
Have an issue with your financial planner or looking for a new one? Email questions or concerns to picks@marketwatch.com.
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