A reader reached out this morning asking this, so thought I’d open it up to you all today and see if we can help her out :)
Many of us are accustomed to managing our *own* investments, but when does it make sense to partner up with an advisor to take the reigns? And when you DO find a good one you like and trust, how much is fair to charge for such services?
I didn’t know the answers to the last one until some Googling this morning, but I’ve got some opinions on that first part I’ll share in a bit.
But first, Doris’s email:
I have followed you for several years now and made several changes to my finances to boost my retirement savings due to information from Budgets are Sexy. I have a question for you and perhaps your readers:
I am 4 years from retirement and widowed. I recently met with a financial adviser to discuss my retirement. She works for a larger company and is a fiduciary so she should have my best interest at heart, HOWEVER I was burned early in my widowhood by someone else who consistently lost me money while taking 4% for himself, so I am understandably very wary of all financial advisers. I did like the person I just met with and feel like we have similar values. She will earn 1.5% based on my accounts- not on trades.
My question for you and the readers is this: When should someone use a financial adviser and what is a fair amount to pay for those services?
Financial planning is not my strength, however I can pinch pennies with the best of them. I will enter retirement with only a small mortgage- perhaps $50K and no other debts. I am living below my means currently. However I was left w/multiple accounts, several brokerage accounts, traditional IRA, Roth IRA, my 403b. I decided to just let this new person manage one account and see how that turned out.
I do see the sense in letting someone else manage my money, but I have a deep-seated fear of not having enough, and wondering how I can trust that this is a good move? My new adviser has shown me that I will not run out of $ until I am in my mid 90’s, but I’m still shaking in my shoes over this move.
Any advice is appreciated,
Thanks for your note – it’s SO GREAT that you’re reaching out and doing some homework on this stuff!! I know it’s not fun (even for us $$$ lovers), so I applaud you for taking the time to investigate, and of course all of your concerns here are valid.
First off – a 4% fee is just RIDICULOUS. And especially if they’re LOSING you money!! At least give you a decent return if they’ll be bending you over like that!
Secondly – I’m not too sure anyone feels 100% safe with how they’re managing their money, whether they’re doing it themselves or hiring someone else to. But hopefully the more you research and learn the more comfortable you get with such things :) And remember – you can always tweak your plans when situations change as nothing’s ever permanent! Life is a constant adapting act!
As for determining *when* to look into getting help with your finances, I feel like there’s a good number of reasons for this, depending on the severity of things:
- When you’re finances are super complicated
- When you don’t know what the hell you’re doing
- When you don’t WANT to deal with your investments at all
- When you’re not *able* to deal with your investments at all (disability, time constraints, etc)
And the more any of these overlap, the stronger the case you have ;)
Of course, in a perfect world you’d educate yourself enough and then magically want to take it all on AND find the time to do so, but we all know there’s a million things vying for our attention, and not all of us are as enthused by such things as others.
So I feel it’s perfectly fine to seek help if it’ll improve your quality of life and/or wallet more in the end. If I wasn’t so sold on index funds myself and enjoyed tinkering with everything, I’d probably have hired someone long ago to help me with it! It’s when you need help and DON’T ASK FOR IT when you really get yourself in trouble!
And btw, let me just clarify for everyone that there are *varying* professionals you can hire for financial stuff, all depending on what you’re trying to get out of it.
If you’re looking for *investment* help or *financial planning* help, then a “financial advisor” or “financial planner” would be your person. However if you’re looking for *debt* help or *budgeting* help, then a “money coach” or “financial counselor” would be your ticket who specializes in such stuff (while “advisors” are more for the next level of wealth growing).
And then of course you have “estate planners” and “wealth managers” and even something called “daily money managers“ who will literally BUDGET and PAY ALL YOUR BILLS for you! Great for those with “advanced age” as well as those who can’t be bothered by the thought of managing it all (CEOs, Celebrities, those with big britches).
Many situations where hiring someone to help you with your money makes sense. So don’t feel bad for ever going that route if it’s the right call for you!
As for *how much to pay them* once you determine an advisor is the route you want to go?
I had to look that one up as I admittedly wasn’t as versed in the going rates these days, but a quick google search pointed me in the right direction, and hopefully that, along with what our community here has to say, will give you a better overall feeling of it.
Average fee for a professional financial advisor’s services is 1.02% of assets under management annually for an account of one million dollars (the industry average fee is 0.99% and decreases depending on the size of your account). For high-net-worth individuals, however, the appropriate fee may be lower. “A reasonable fee would be 1% at $1 million down to 0.50% at $10 million and 0.10% thereafter,”…
And then from NerdWallet:
- Assets under management (AUM) for a traditional in-person financial advisor: 1% annually
- Assets under management (AUM) for a robo-advisor: 0.25% to 0.50% annually
- Flat annual fee (retainer): $2,000 to $7,500
- Hourly fee: $200 to $400
- Per-plan fee: $1,000 to $3,000
So looks like the 1.5% fee your advisor is charging you, Doris, is higher than the average, but not absorbitantly like your old 4% friend. And perhaps she’s doing other things for you as well, outside of strictly managing your funds? (Is she helping you with a financial plan too? Or perhaps some embedded consulting hours you can tap?)
Also note that there are a number of *other* ways you can work w/ a planner as well, such as one-time costs or hourly fees, etc, as you see there in the NerdWallet breakdown.
If it makes you more comfortable you can always hire them for their *advice,* and then go out and make your own decisions/moves after you decide what’s best for you. Just make sure to actually *make them* or else you’ll be left in the same spot you already were, so you might as well have just paid them to do it all for you!
Again though – just depends on how well you know yourself, and how much you want to be bothered by it ;)
So that’s my take on this stuff, anyways… Let me now open it up to our community here and see what other opinions we can get for you! I’ll be sure to forward over any emails I get, and then just make sure to come back to the comment section of the blog post too every now and then to check what others are saying there as well.
Lastly, if you’ll allow me to, I’d like to wish you an early Congratulations on being so close to retiring now :) I’m sorry it wasn’t as you probably envisioned with your partner in crime in tow, but I’m glad you’re laying down the foundations now so you’ll hopefully be enjoying the fruits of your labor well into your 90’s and beyond!
Keep on going!! We’re cheering you on over here!
Friends – what advice do you have for our dear Doris? Anyone working with an advisor right now and willing to share their fees/setup with us? Any other thoughts on coping with the fear of not having enough in the end?
All opinions much appreciated, thank you!!
A note from Doris after reading today’s post :)
Thank you so much for the blog post. To clarify, I took my investments away from the 4% guy about 3 years ago and after some extensive and frustrating research I started an account with Schwab and chose my own investments (and did just fine). As I approach retirement I realized that I was unable to figure out what to do with my multiple accounts, like which ones should I drawn down first, how should I handle social security since I can get widow’s benefits, etc. I needed advice. The new person can do more than just managing accounts, she will help me choose investments in my 403b (and she has no ability to profit from that advice for now), work with my accountant on tax management, etc. She would also not charge for trades as that would be included in the fee. I am sure she realizes she is on “probation” managing this one account for now. If she does well with my returns I will turn more of my accounts over to her. I appreciate your efforts (and your blog) to address my concerns.
Merry Christmas !!!