{"id":3049,"date":"2016-08-02T08:00:58","date_gmt":"2016-08-02T12:00:58","guid":{"rendered":"http:\/\/www.incredibleretirement.com\/?p=3049"},"modified":"2016-07-08T10:06:17","modified_gmt":"2016-07-08T14:06:17","slug":"how-to-understand-financial-advisor-fees","status":"publish","type":"post","link":"https:\/\/brianfricke.com\/how-to-understand-financial-advisor-fees\/","title":{"rendered":"Incredible Retirement Tip: Fees, Fees, and More Fees"},"content":{"rendered":"

\"incredible<\/p>\n

If you\u2019re a smart consumer, you usually ask questions before you spend your money. For example, if you\u2019re hiring a decorator, you usually ask whether you\u2019re paying a flat fee, hourly rate or percentage of what you buy. In the same manner, you should ask\u2014and understand\u2014how your financial advisor is being paid.<\/p>\n

Here is a portion of a letter I once wrote to a prospective client. In it, I explain why some advisors who claim they\u2019re not charging you anything may actually end up costing you quite a lot! A financial advisor should be upfront about how you are paying them for their services, so don\u2019t be afraid to ask for the details.<\/p>\n

Dear George,<\/em><\/p>\n

After I met with Pat, she asked me to write you to explain our fee schedule. She mentioned that you two have a friend who is invested through Fidelity who \u201cdoesn\u2019t pay anything!\u201d She was wondering why you are paying a fee if your friend isn\u2019t.<\/em><\/p>\n

Since I am always honest, I feel strongly about clearing the air. Everyone knows that there is no free lunch in life. No company is going to provide services for free. Your friend is paying although he just doesn\u2019t know how a percentage of his investment holdings are paying for the brokerage\u2019s fees. <\/em><\/p>\n

Let me show you the easy math of fees. A do-it-yourselfer using no-load mutual funds will typically pay 1.25% – 1.50% in fund fees and expenses each year. The investor doesn\u2019t see this charge as a dollar amount (since the fund companies aren\u2019t required to do so) but instead the share price is lower. You and Pat have Fidelity brokerage accounts worth about $786,000. If you apply 1.25% in fees, you would end up paying nearly $9,825 in fees every year! However, your fund fees are only about $3,930 annually the way we invest. In fact, you\u2019re saving $5,895 each year in expenses. If you deduct the money you\u2019re saving ($5,895) from our $10,000 yearly fee, your \u2018net\u2019 cost for our services is $4,105. I would like you to think about your fee in the following way:<\/em><\/p>\n