With so much industry jargon in the personal finance world, it can be hard to know exactly what you\u2019re paying for. What\u2019s more, it\u2019s possible that you\u2019re paying hidden fees you don\u2019t even realize are associated with your portfolio or your financial planner. \u201cWhen working with a financial planner, there are usually three layers of costs,\u201d explains Mark Brinser, certified financial planner at My Stewardship Advisor.<\/p>\n
Planner\u2019s fees: <\/strong>First, there\u2019s the planner\u2019s fee, which could be either a flat fee, an hourly fee or a project-based fee (all of which are often billed via an invoice), or an assets-under-management fee, which is typically a percentage (1%) of the portfolio the adviser managers for you. The AUM fee typically shows up as a line item on a client\u2019s statement, says Brinser.<\/p>\n For reference, AUM fees are generally somewhere in the 0.75% to 1.5% range depending on the amount of assets managed. Advisers who work hourly tend to charge between $200 and $500, and project-based advisers typically charge between $1,500 and $7,500 per project, depending on the scope of work. (You can use this free tool to shop around for a new financial planner<\/a>, from our partner SmartAsset, as well as sites like CFP Board or NAPFA.)<\/p>\n Investment costs: <\/strong>Second, there are \u201cunderlying investment costs like mutual fund or ETF expense ratios, trading fees, platform costs and in some cases commissions or revenue-sharing tied to proprietary products,\u201d says David Busch, co-chief investment officer at Trajan Wealth. <\/p>\n The cost for actively managed mutual funds ranges from roughly 0.50% to 1% while low-cost ETFs can be as low as 0.03% to 0.10%. When it comes to trading, mutual funds often charge small transaction fees (under $100), while major brokers charge nothing to trade most ETFs. <\/p>\n Mutual fund fees are not usually a cause for concern as long as they\u2019re disclosed and competitive. \u201cThere are also internal expenses on investments such as mutual funds and ETFs. You just want to try to keep your expenses between 0.25% and 0.65% unless higher expenses are warranted by performance and risk management,\u201d says Nick Bour at Inspire Wealth.<\/p>\n \u201cIf you\u2019re investing in alternatives, expect higher and more complex fees, sometimes including performance incentives. These fees are also disclosed in the investment prospectus,\u201d says Brinser.\u00a0<\/p>\n Clients should also be aware that any investments owned inside of an account may have internal expenses. \u201cThese are outlined in any prospectus, but clients should discuss these fees with their adviser and have a sense of what that additional weighted average cost might be,\u201d says Chris Kampitsis, financial planner at The SKG Team at Barnum Financial Group. \u201cThis is where there can be great confusion. We come across families all the time who are aware of the fee they are paying to an adviser to manage an asset but are unaware of the level of expense of the funds and other underlying investments held within the portfolio,\u201d <\/p>\n Custodian fees:<\/strong> \u201cThird, custodian fees [are typical]. The firm holding the account may charge for transactions or account services like distributions, margin or loans,\u201d says Brinser. Platform fees can range from 0.10% to 0.30% per year, or sometimes the brokerage or investment platform charges a flat fee, somewhere in the ballpark of $100 to $300 annually. Proprietary funds can carry embedded costs of 1% to 3%, which don\u2019t show up on a statement, but instead reduce the fund\u2019s return.<\/p>\n When paying for financial advice, it\u2019s common for investors to assume the advisory fee is the only cost they\u2019re on the hook for, says Busch. \u201cIn reality, there can be several layers of fees that quietly erode returns if not disclosed clearly.\u201d\u00a0<\/p>\n Other fees: <\/strong>Additionally, there can sometimes be some other expenses. \u201cWill the company charge for paper statements? Will there be a charge if the account falls under a certain minimum? Are there fees or expenses to be aware of when wiring funds?\u201d says Kampitsis.<\/p>\n Ask for a detailed breakdown of fees<\/p>\n In an advising relationship, a detailed breakdown of fees should be provided to the client by the adviser. \u201cThis should include internal mutual fund expenses, ETF internal expenses, financial planning fees, AUM fees, the adviser\u2019s hourly or annual retainer and any fees associated with separately managed accounts,\u201d says Bour.<\/p>\n When working with any professional, fees are really only a problem in the absence of value. \u201cYou want to make sure you are getting value for whatever expense it is that you are paying. Know the professional you\u2019re working with and what they have to offer so you can make a concise decision whether the fees are justified,\u201d says John Jones, certified financial planner and enrolled agent at Heritage Financial. \u201cNo one works for free and there is an extent of fees that it takes for everything to go round, but if you do your homework, you can validate if the fee is excessive for the services provided or if it\u2019s exceptional and quite valuable.\u201d (You can use this free tool to shop around for a new financial planner<\/a>, from our partner SmartAsset, as well as sites like CFP Board or NAPFA.)<\/p>\n Understand how your adviser is paid<\/p>\n To avoid unnecessary fees, start by asking your adviser how they\u2019re paid. \u201cThat answer will give you clues about where to look for costs. Ask about transaction fees, account fees and what the all-in cost will be to ensure there are no surprises later,\u201d says Brinser.<\/p>\n If your adviser can\u2019t explain how they\u2019re paid or if the fee structure sounds too complex, Busch says that\u2019s a red flag. \u201cLook for fiduciary advisers who use low-cost, transparent investment vehicles and who don\u2019t get paid to sell you investment products. It\u2019s essential that your adviser\u2019s fees are aligned with your goals, not the product shelf,\u201d says Busch.<\/p>\n It\u2019s also normal for fees to pop up if additional services are needed. \u201cIf you need in-depth financial planning and tax planning, if you have a change in investment strategies, if there are capital gains taxes on non-qualified investment accounts or if additional professionals need to be hired, [you can expect additional fees],\u201d says Bour.<\/p>\n That said, not all fees are bad. \u201cSome reflect real value and investors shouldn\u2019t be afraid to pay for advice that improves outcomes and is aligned with their financial goals. A reasonable, transparent advisory fee that covers personalized financial planning, investment management and fiduciary guidance is entirely appropriate. The key is value for the fee,\u201d says Busch.<\/p>\n Things to beware of<\/p>\n Something to keep an eye out for are fund-of-funds strategies. \u201cThese often sound appealing because they promise diversification, professional management and access to multiple asset classes, but the danger lies in the hidden cost structure and lack of transparency. In these strategies, investors are often not just paying one manager, they\u2019re paying two and sometimes three layers of fees,\u201d says Busch.<\/p>\n Other things to watch out for are loaded mutual funds, transaction fees and revenue-sharing agreements. \u201cI recently met with a prospective client who proudly told me that his current broker did not charge him any fees for his bond portfolio. I asked to review the bond portfolio and discovered something troubling: the broker was marking up his bond purchases by 1 to 2 points, that\u2019s 1% to 2% per trade, baked into the price and completely hidden from view,\u201d says Busch. (You can use this free tool to shop around for a new financial planner<\/a>, from our partner SmartAsset, as well as sites like CFP Board or NAPFA.)<\/p>\n","protected":false},"excerpt":{"rendered":"With so much industry jargon in the personal finance world, it can be hard to know exactly what…\n","protected":false},"author":2,"featured_media":164222,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[177],"tags":[79,18,18131,41592,25817,3334,19,3442,41557,17,47521,5759,234,235,9436,44285,19363,26243,41591,41555],"class_list":{"0":"post-164221","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-eire","10":"tag-financial-services","11":"tag-financial-vehicles","12":"tag-funds","13":"tag-general-news","14":"tag-ie","15":"tag-investing","16":"tag-investing-securities","17":"tag-ireland","18":"tag-mpsmartasset","19":"tag-mutual-funds","20":"tag-personal-finance","21":"tag-personalfinance","22":"tag-political","23":"tag-political-general-news","24":"tag-securities","25":"tag-synd","26":"tag-trusts","27":"tag-trusts-funds-financial-vehicles"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@ie\/115497169462722510","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/164221","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=164221"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/164221\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/164222"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=164221"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=164221"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=164221"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}