5 Signs You’re Overpaying Your Financial Advisor

Do you get the value you deserve from your financial advisor?

No one wants to pay excessive fees or costs in connection with financial advice and planning, but it can be hard to pin down what you’re actually paying for, even if you have a good grasp of your quarterly statements. It all comes down to whether you have a financial advisor you can trust — or someone who is merely doing business with you for their own gain. Keep reading to find out if you have a financial planner worth the cost.

How Much Does a Financial Advisor Cost?

According to the 2018-2019 report of financial advisor fees from Advisory HQ, the percent of Asset Under Management — aka AUM — fees make up the most common fee structure today. Under AUM, financial advisors charge clients an annual percentage of the assets being managed. The smaller the amount of your assets, the higher the fees.

For example, a client with a $50,000 investment would incur an average AUM fee of 1.18 percent or $590 per year, whereas the average annual fee for a client with a $500,000 investment would be 1.05 percent or $5,250. According to the report, these average fees include record keeping, accounting services, trading, due diligence, financial planning, investment advice, tax management, portfolio rebalancing and monitoring.

Other types of fee structures that financial advisors might charge include AUM flat-fees, in which a fixed fee is charged depending on the amount of assets managed; an hourly fee with or without a retainer; or a mixture of different types of fees.

Related: Worst Fees in America — And How to Avoid Them

Here are five signs you might be overpaying your financial advisor.

1. You’re Being Charged More Than 0.5% for Investment Management

You should not pay a financial advisor more than 0.5 percent if all you’re getting is investment management, according to Certified Financial Planner Liz Weston’s advice in the Los Angeles Times. For example, if you’re paying 1 percent, you should be getting help with all of your financial advice and planning questions, including taxes, insurance, college funds, retirement, long-term care and estate planning, as well as regular updates to your comprehensive financial plan, Weston said.

Find Out: Do You Need a Financial Advisor if You Aren’t Rich?

2. You’re Not Using a Fiduciary Financial Advisor

Fiduciary financial advisors are held to a higher standard than non-fiduciary advisors. They are bound by the Securities and Exchange Commission to act in each client’s best interest at all times and can face being charged with fraud if they don’t, which means that you shouldn’t have to worry about being advised to invest in products that won’t benefit you.

Avoid financial advisors that are dually registered as a fiduciary and a broker and only work part-time as a fiduciary. Brokers earn commissions from vendors for selling products to investors, which means that you might be investing in products that are not in your best interest.

3. You Can’t Get a Good Answer About How and Why the Advisor Gets Paid

When you’re paying financial advisor fees or financial planner fees, you have the right to know whether the advisor’s pay structure is commission-only, fee-only or fees plus commission. So, make it a point to ask if you haven’t already. There’s no written rule that says that one way is better than the other. But if your advisor becomes impatient, brushes you off or just can’t seem to explain to you — in a way that you understand — how they are paid, as well as justify why that payment is worth it from your perspective, then reassess your relationship.

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4. Your Advisor Ignores You When You Reach Out

If your financial advisor doesn’t make an effort to reply to your emails or return your calls within a reasonable amount of time, you’re paying too much. A financial advisor who is truly interested in you as a client will not ignore you. Financial services should be focused on, you, the client. A good financial advisor should strive to develop and maintain a personal relationship with clients, be proactive and responsive and contact them on a regular basis — especially when it concerns quarterly earnings and other important updates, according to Forbes.

Check Out: I Didn’t Understand Investment Fees and It Almost Cost Me $250K

5. The Financial Advisor Won’t Provide References

When a financial advisor — or financial planner — won’t provide references, that’s a red flag. Either they don’t want to pass along previous clients’ information because they fear what they might say, or they have such limited experience that they have no references to provide. Either way, you likely won’t be dealing with an advisor that can provide you with the best value possible — which means you’re paying too much.

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About the Author

Cynthia Measom is a Texas-based writer specializing in finance, business, parenting and education. With almost a decade of online writing experience, her work has appeared on websites such as Chron.com, The Bump and The Motley Fool. Measom received a Bachelor of Arts in English from the University of Texas at Austin.