When should someone use a financial advisor? And what is a fair amount to pay for such services?

by J. Money -

financial advisor

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,

– Doris

Hi Doris!!

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.

Per Investopedia:

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!!

——-
***ADDENDUM***

A note from Doris after reading today’s post :)

Hi J!

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 !!!

{ 29 comments… read them below or add one }

1 Paul December 23, 2019 at 6:56 am

Vanguard, Schwab and Fidelity all have actively managed funds and/or accounts. Not as good as just indexing yourself but still WAY better than paying even that garbage 1.5%… I think vanguards fee to manage accounts is something like 0.30%. I just did a quick Google search and its called – Vanguard Personal Advisor Services. Seems to me if you are scared to do it yourself then this would be the next best solution.

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2 J. Money December 23, 2019 at 12:11 pm

Excellent tip! Always forget Vanguard does that! (Though do they help with other parts of financial planning too, or just investments? Thinking Doris here gets more than just the fund advice from her person, though you could also hand different parts out to different places too)

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3 Lee S. December 26, 2019 at 5:35 pm

Just the investments that you have with them. Help you come up with a goal number and help you reach it and every quarter they touch base and see if anything needs to change. Anything outside of that you’d need a planner.

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4 Barb December 23, 2019 at 7:55 am

I suggest using a fee only planner. Our planner this year is charging us 7 hours at $275 an hour. She puts together a plan of how we should be taking our money out and set a plan for years ahead of what our outlook is and the probability of our money lasting. This is well below 1% of what our net worth is. She provides a plan telling us where to allocate our savings. For a higher fee she will manage the money for us but our investments are not complicated enough to pay the extra money to do that. There is a network of fee-based planners that you can access to find one in your area. I would never pay a percentage of our savings for advice.

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5 J. Money December 23, 2019 at 12:11 pm

Thanks Barb!

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6 John December 23, 2019 at 8:04 am

My wife and I interviewed a bunch of advisors, even going through the Dave Ramsey group. They all seemed to charge 1.4% to 1.5% of AUM. There was one big outfit that we tried, but their portfolios were not flexible at all. They gave you a “risk” quiz and put you in a predetermined bucket. They did offer some long term planning and other things, but for now, we are back to doing it ourselves.

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7 J. Money December 23, 2019 at 12:12 pm

Were you impressed with Ramsey’s advisors outside of the costs? I’ve always loved him for his debt/budgeting helps but he’s notorious for not having the best *investment* advice (or products).

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8 Tammy December 26, 2019 at 2:56 pm

I used to use one of Ramsey’s advisers, he was smart and competent but after I learned about Vanguard and index funds, I sat down with him, ran through my long term index fund plan and asked him to tell me what else I needed to know. His response was that I didn’t need him anymore :)

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9 J. Money December 27, 2019 at 7:08 am

Haha… sounds about right :)

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10 lvs December 23, 2019 at 8:16 am

I like doing as little as possible when it comes to investing. I don’t have a lot, but I have some money saved up. Since I’m military, I have TSP, but I like to use Betterment although I don’t have any retirement account with them, only a savings account and some other goal accounts.

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11 J. Money December 23, 2019 at 12:14 pm

Betterment and other apps are great :) A nice middle ground for people who aren’t ready to go out on their own, but also not ready to hire out too. It’s so much easier to save and invest these days than it was pre-internet!

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12 Christine December 23, 2019 at 9:02 am

My personal opinion is that while some financial planners who earn off of the funds they recommend (I think those are called fiduciary…I have no idea TBH) can be good, objective advisers, I personally think the fee for service ones are more objective and more invested (pardon the pun) in assisting their clients. Many years ago, I “hired” one of the former on advice of my cousin who raved about her. She wasn’t bad–she just didn’t do any better for me than I could have done for myself and was not what I was looking for. I hired her based on 1) fear 2) lack of desire to pay attention to my finances 3) my cousin’s enthusiasm that she was “great” and “made her money.” This is not what to do! I didn’t understand how she was being paid and was afraid to ask questions (don’t be!). I was looking for someone who could discuss goals and steps to meet them, who could advise me on what funds to invest in, and also give me advice on taxes and other financial issues. I wanted someone who was part educator. To help me understand more than I did. I didn’t get that.

I eventually yanked my money back under my control when I got my annual statement during the recession that said that my portfolio went down but it was keeping pace with what the market was doing. Well, duh. That’s when I woke up and said to myself if that’s the best they can do, then why TF were they managing my money? I stuck my money in a random assortment of funds and I am fairly certain (and shamefully, no, I am not monitoring these things…) that I am doing as well if not better than when I had a “planner.” I am a “set it and forget it” retirement investor. I probably should be more active in understanding how exactly I’ve distributed the money and the funds’ performance, but honestly, I don’t think I’d be doing much better if I was constantly moving it around. The important thing is to keep investing and don’t do anything rash. Now, I have way more years ahead of me to work (I’m not a FIRE person–and am young enough to not be nearing retirement yet), so that’s different than Doris, but I bet she’s shortchanging herself and her abilities to look at the investments. I know I did! My advice is just don’t be afraid to trust yourself AND to treat hiring a financial adviser like you would an employee. Don’t settle and don’t just trust a friend or family member who raves about them. Make sure you’re going to get out of it what you want.

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13 J. Money December 23, 2019 at 12:18 pm

Love this Christine, thank you!

I think it helps a lot hearing others’ experiences and what they’ve done since then, so I appreciate you taking the time to share. And well done taking back the reins again!

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14 BC | FrugalWheels December 23, 2019 at 10:55 am

Normally I almost never advise people to pay financial advisers since simple index funds are proven to do the best in the long run. But you do have a number of different types of accounts and that will require a lot of learning on your part to make sure you’re withdrawing correctly, the tax implications, etc. So you have to decide if hiring a financial advisor is worth the time you will save (and possibly the trepidation) of taking the time to learn all the different implications of each of those types of accounts. That’s not something anyone here can tell you – that’s a very personal decision.

My dad’s advisor has saved his bacon a couple of times, especially when it came to health care premiums – he nearly got hosed on health care premiums (I don’t recall the amount but it was enormous) and his advisor helped him sell some assets for losses to prevent it. Things can and do get complicated as you get older. I’m less worried for myself because I’ve kept my finances very simple and also plan to spend very little in retirement, so I won’t encounter the same problems high earners do.

So bottom line is that it really depends on the situation and what you’re comfortable with, but I think it’s a choice of a lot of self-learning (and the self confidence to put what you learn into action) or spending the money on a financial advisor.

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15 J. Money December 23, 2019 at 12:22 pm

Thanks BC!

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16 Paul H December 23, 2019 at 11:26 am

This source, which is extremely reliable, has the All-In fee pegged at over 1.5% AUM in 2017 and I suspect it is in ballpark @ 1.5%

https://www.kitces.com/blog/independent-financial-advisor-fees-comparison-typical-aum-wealth-management-fee/

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17 J. Money December 23, 2019 at 12:23 pm

Thanks Paul! Big of of Kitces over here – super nice (and smart!) guy.

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18 Linda December 23, 2019 at 12:31 pm

I think there is a lot you can do on your own. Finding a financial planner or adviser is important for those big life changes or even to set up goals. Pricing varies as to your needs CFP designations worthwhile but chemistry even more important.
For what its worth, here’s a write-up we did:

https://thecentsofmoney.com/how-to-choose-a-financial-advisor/

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19 J. Money December 23, 2019 at 3:04 pm

Thx for the link, Linda! Happy holidays!

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20 Tonya December 23, 2019 at 6:29 pm

Thank you for sharing this! We are working through debt pay down and emergency savings building. We decided after the new year to meet with a financial advisor. I was still not sure if it was the best move but I have sooooooo many questions. My son is 6 and I am paralyzed by ESA versus 529. And apparently, there are different 529s (?) What if he doesn’t go to college? (He better go to college). We only have one child. What happens to the money if he doesn’t go (I am not interested in “giving” it to someone else). My husband has a 401k and I have a 403b but I’m not sure we have it invested in the best way. I’m also thinking about Roth IRAs but I have no idea where to begin. I’ve been trying to do some research but I can’t bring myself to just open one. I’m paralyzed by fear and ignorance. I would love to do this myself but I’m just not confident. For example, for a Roth IRA do I just “go online and open one”? Where/how do I even do that!?! Ugh! I feel so confident if other financial areas but investing has me all sweaty. Have you thought about doing detailed posts for dummies?

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21 J. Money December 24, 2019 at 8:02 am

A perfect reason to reach out to a $$$ professional and get some answers! :) Might even be worth hiring a Money Coach just for a session or two to help you wrap your head around things :) If you’re in the LA or NYC area the Financial Gym might be a good place to start, founded by a fellow $$$ blogger — https://financialgym.com/ Here’s a list of other Money Coaches in the community too, though the link sometimes goes down every now and then (it’s currently up!): https://directory.rockstarfinance.com/coaches/money-coaches

As for Roths – yup, you can just go online and start one :) Most of us like to use Vanguard, and they even have people you can call up and talk to about all your investing questions too. Many places do nowadays, especially if you’re wanting to give your money to them ;) Hope this helps!! Keep on going until you get your answers and can make moves!! Once you figure it out you’re good forever!

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22 Tonya December 24, 2019 at 2:06 pm

Thank you for your reply. I was on the Vanguard site yesterday looking at 529s. I noticed they had a number I could call with questions. This might be my answer. Thank you also for the link. I am in Chicago and not sure how to best connect or check for a good fit coach/advisor.

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23 liz December 26, 2019 at 9:15 pm

Tonya see my comment (comment 20) below. For some reason it wouldn’t let me “reply” on my cell phone.

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24 Petra December 25, 2019 at 11:01 pm

I think a 1.5% fee is very high. In retirement, you’re supposed to live off of roughly 4% of your savings (the safe withdrawal rate). So the 1.5% advisor fee means that a wopping 37.5% of your annual income goes to your financial advisor! That means if you want your portfolio to last, you’ll only have 2.5% per year of your savings left to spend on your other expenses!

So, Doris, I’d go with a one-time advice from a fee-only fiduciary advisor, who can create a plan for you on how to handle the next five years or so. Then, five years from now – or maybe just before you actually plan to retire, reach out to them again to create your next “battle plan” for the next couple of years.

Most often this will be a lot cheaper than 1.5% of your portfolio per year, and it will still help you create a solid plan that you can execute by yourself.

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25 J. Money December 27, 2019 at 7:09 am

Thanks for chiming in, Petra!

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26 Liz December 26, 2019 at 8:54 pm

Tonya,

I went to a financial advisor through my job. He said a lot of people use Roths as college funds. You can withdrawal penalty free after having the account for 5 years. That way if he doesn’t go to college you still have the money.
https://www.schwab.com/ira/roth-ira/withdrawal-rules

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27 Tonya December 30, 2019 at 5:28 pm

Thanks for the info Liz! I actually wondered about this. What then is the benefit to a 529 versus a Roth IRA? Can I open it in my son’s name or does the amount I contribute to his college Roth count toward my $6,000 max (or $12,000 max for my spouse and I)? Thanks for sharing. I’m going to check it out.

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28 Liz December 31, 2019 at 8:11 am

You can’t open a Roth IRA in your sons name unless he has earned income. I guess that’s the downfall? but on the positive side you don’t have a ROTH IRA established yet so it might be the kick start to getting one opened up :-) . My Roth is with fidelity it was pretty simple to open up and I picked index funds such as FIDELITY TOTAL MARKET INDEX FUND and FIDELITY ZERO TOTAL MARKET INDEX. They charge .015 per 1,000 and the last one charges 0%. They both have done well for me. I’d make sure when picking a mutual fund to look at the fees because some of them can be ridiculous. I set up a monthly transfer from my bank to fidelity and then I have it invest the money automatically into each mutual fund. I like to keep all my accounts separate so I get why you would want your son to have his own “account” but you could always keep the money separate within the roth. So this 1 mutual fund is for college and this other 1 is for my retirement.

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29 J. Money December 31, 2019 at 3:25 pm

Great setup!

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