Ask the Money Lady,

Dear Money Lady,

I received a large severance from my employer that recently eliminated my job after 38 years.  I plan to find an Advisor, but because I have never had one before I am wondering what I should agree to pay for their services?


How to pick a good Investment Advisor

Ed you are not the only one looking around for a new investment advisor.  With the volatile stock market environment, many people have sent me comments and questions about how to move their portfolios to a new advisor.  I would caution those investors on making any quick changes and selling stock at this time.  Remember the key is to maintain a well-diversified portfolio which includes bonds, cash, and high-quality stocks.  When you are looking for an investment “partner,” try to pick an advisor who really has your best interests at heart; something you will definitely need when weathering future market uncertainties.  Please make sure to do your homework and find out what the firm and the new advisor’s value proposition is.  It goes without saying that you should interview more than one and make sure you find a good fit with not only the advisor but the brokerage firm.  Now let’s talk about fees.  What should you pay?  There are 2 types of fee structures – transactional or fee-based.

Many people use direct investing options these days to avoid high advisor’s fees and we are seeing an increased shift with millennials who simply don’t see the value in having an investment advisor.  The young simply don’t want to pay the thousands of dollars just to sit down with an advisor and have a relationship with a banker.  As more funds transfer into the hands of these new investors, advisors and brokerage firms may need to shift their thinking about their future fee structures.  Many bank financial planners typically are paid a base salary with a commission matrix based on how they grow their book of business and bring on new clients.  Typically, fees are preset based on the mutual fund you choose for your portfolio ranging from 1% to 2.5%.   Investment advisors are generally paid differently and on straight commission making them highly motivated to ensure you make a profit of which they in turn are compensated on.  I have seen advisor fee-based services range from .75% all the way up to 3%.  Some advisors act as personal bankers for ultra-rich clients, doing everything for them, hence I can see the higher fee structure.  But for most of us we do not need someone to pay our bills and handle are budgets, so if you are paying more than 1.5% for a fee-based portfolio, you may be paying too much.  If you have different SMA products or Separately Managed Accounts your advisor may increase their fee up to 1.8%.  Bottom line, fees are all over the map and vary from one advisor to another and really should be based on your comfort zone.  Do you feel that you are getting your money’s worth on your fee-based portfolio or would you prefer a transaction-based portfolio?  Is your advisor a valued partner that you are willing to pay for, and most importantly are you satisfied with their services?  It is always a good idea to periodically check out the competition, talk to your friends and see what they pay.  Only you will know what feels comfortable to pay for investment advice.

Good Luck and Best Wishes,
Money Lady

Written by Christine Ibbotson, Author of “How to Retire Debt Free and Wealthy”  Follow on Facebook & Instagram

Written by Christine Ibbotson, Author of “How to Retire Debt Free and Wealthy”  Follow on Facebook & Instagram

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