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Is your financial planner charging you too much?
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Question: My resolution this year is to make saving money a bigger priority and I thought it would help to have someone much more qualified than myself to review my 401k, ESPP and IRA contributions. I’m meeting with a financial advisor for the first time tomorrow, but in our intro phone call he mentioned it would cost about $1,000 a year for his services. Is it worth it in the long run? (You can use this tool to get matched with a financial adviser who might meet your needs.)
Answer: First and foremost, we applaud for implementing this resolution. Now, as to whether $1,000 is a lot of the services of a financial planner, it depends on what is actually being offered for that $1,000, among other factors.
A MagnifyMoney survey from 2021 revealed that 61% of respondents said they pay less than $3,000 annually for related financial services. While Lauren Gadkowski Lindsay, a certified financial planner at Beacon Financial Planning, says $1,000 annually seems like a very reasonable fee, you must do your homework. “Find out how he is paid and what this covers and if he sells any products,” she says adding that: “I would ask about the fee and services before you start doing too much work together and certainly before you sign an agreement.” If the adviser is reluctant to share this information, view that as a red flag.
Have a question about working with your financial adviser or hiring a new one? Email chill@marketwatch.com.
Here are some of the various ways that advisers get paid: Some advisers seemingly work for free (but that’s typically because they take commissions on products they sell), others charge a flat-fee (a flat annual retainer fee is generally in the range of $2,000 to $7,500), others a percentage of assets under management (1% of assets under management is typical) and still others an hourly rate (roughly $200-$400 an hour is typical).
What’s more, some advisers have minimums that depending on your financial situation, may make them too expensive for you. For example, certified financial planner Rick Kahler charges minimums to handle investments — and his fee starts $3,500. “You wouldn’t want to come to me with $100,000,” he says, because it wouldn’t be worth the investor’s while to pay 3.5% annually.
You can use this tool to get matched with a financial adviser who might meet your needs.
“You should ask what you’re getting for your money. Are you getting a solid financial plan or just advice? The best case scenario is for any fee, you should receive a tangible financial plan in some form that also integrates advice you can implement,” says Bill Van Sant, certified financial planner at Girard, a Univest Wealth Division.
How should you evaluate this adviser?
While “$1,000 annually is not an unreasonable amount of money to charge,” explains Van Sant, “it’s important for you to consult with several different advisers to compare fees, fee structure and the collateral you’ll receive to get a better understanding and feel for what each adviser will do you for.” Be sure to ask questions beyond just compensation too: Here are 15 questions to ask any adviser you might hire, including questions about how an adviser is paid. And, just as importantly, go with your gut: Do you trust this adviser?
