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Question: A new financial adviser has just completed two initial free sessions with me. Her initial fee — which I have verbally agreed to, but not yet officially signed — is $4,350 for implementing changes to both a $102,000 retirement account and my $33,000 current work pension pot.
She is also managing my savings pot and looking at moving part of this for more efficient tax planning. Her ongoing fee was agreed at 0.75%, although this agreement was based on my previous financial adviser’s rate. But after reviewing the documentation, I realized it was actually 0.5%. However, my previous financial adviser did a very poor job, which is why I am in the process of switching. This fee may be reasonable in comparison. However, my pension pot is not huge and I’m rather reluctant to part with that one-off fee unless I’m confident that I’m not being overcharged. What should I do?
(Looking for a new financial adviser? This tool can match you to an adviser who may meet your needs.)
Answer: You’re completely right to question what you’re getting for $4,350, which seems expensive relative to a $102,000 retirement account and $33,000 pension. “The recommendation would be to clarify with your new adviser exactly what that fee covers and to get it in writing. Does the fee cover a comprehensive financial plan or simply a fee for investment help?” says certified financial planner James Daniel at The Advisory Firm.
Have an issue with your financial adviser or looking for a new one? Email picks@marketwatch.com.
Some advisers do charge a separate one-time fee for a comprehensive financial plan fee, and then an ongoing percentage of assets under management (AUM) fee, but plenty will also include a financial plan in the AUM fee they already charge. Not to mention that $4,350 is a pricey for a one-time plan, pros say.
The percentage of assets under management (AUM) fees is more reasonable. “Most advisers will charge an ongoing annual fee of 0.5% to 1% of assets under management and that’s inclusive of all advice. Why are you being charged a separate $4,350?” asks certified financial planner Alvin Carlos at District Capital Management in Washington, DC. “If your adviser is charging $4,350 for implementing a few changes to a $102,000 retirement account and a $33,000 pension pot, that seems to be an unreasonable fee.”
Something to note: Most planners do have minimums, which may be what’s happening here, and can make it difficult for clients who don’t have high net worth. The costs of this planner seem “really high” in your case, and “I wonder what the planner is providing for that fee. Do they have a certified financial planner (CFP) or accredited financial counselor (AFC) designation? You’re probably better off looking for someone who either charges a lower flat fee or hourly with an estimate in your budget,” says Tara Unverzagt at South Bay Financial Planners in Torrance, California.
How to evaluate an adviser beyond the cost
Whenever you are faced with an adviser’s fee, first, look at what’s reasonable (see above). “When financial planning and other financial services are included, those services need to be clearly identified and evaluated considering total fees as well,” says certified financial planner David Maurice at Worthwhile Wealth.
And then, “if you don’t see the value in what the new adviser is proposing, consider interviewing several others to compare rates. Advisers have different fee structures depending on services, and you may find someone that fits your needs at a much more cost effective rate,” says certified financial planner James Daniel at The Advisory Firm. Check out this Marketwatch Picks list of powerful questions to ask an adviser in your first meeting.
For his part, Maurice says, “When the primary focus of advisory services is investment recommendations and management, the consumer has a straightforward value proposition. The total advisory fees — aside from costs associated with fund fees and transaction costs that are likely to be encountered on the consumer’s part on their own or with another adviser — are better risk-adjusted returns than the consumer would expect to achieve on their own or with another adviser.”
The key to finding a good financial adviser to work with is finding someone you trust. “If you don’t understand anything, especially their fees, I would recommend kindly asking them for some education. If you ask and they don’t give you a sensible response, that’s not a good sign. If you’re afraid to ask, that’s not a good sign. If you ask and they don’t respond at all, that’s also not a good sign. If they respond that they have a $5,000 yearly minimum, that’s at least clear, but likely a bit expensive given the amount you’re investing,” says certified financial planner Josh Chamberlain at Chamberlain Financial Advisors.
To begin your search for a new planner, you can look at the National Association of Personal FInancial Advisors (NAPFA), Garrett Planning Network, the CFP Board’s Let’s Make a Plan site or SmartAsset’s tool that can match you to an adviser who may meet your needs.
Have an issue with your financial adviser or looking for a new one? Email picks@marketwatch.com.
Questions edited for brevity and clarity.
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