Home » I’m 63 and semi-retired with a pension, Social Security and $1.2 million in investments. I like my financial adviser, but I’m sick of his fees. What’s my move?

I’m 63 and semi-retired with a pension, Social Security and $1.2 million in investments. I like my financial adviser, but I’m sick of his fees. What’s my move?

by WorldFinance
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Question: I am 63 and semi-retired. I collect Social Security and a pension and have $1.2 million in investments, and $1.2 million equity in my home. I currently have a fiduciary financial manager that manages my portfolio at a percentage of my account. I am happy with the manager but don’t like the cost. How do I find a fee-for-service manager? Will this help solve the problem?

Answer: Congratulations on semi-retirement and saving a nice nest egg — and the very short answer is that you probably could pay less for an adviser. (Looking for a financial adviser? This free tool can match you to a fiduciary financial adviser who might meet your needs).

Let’s start some of the most common ways advisers get paid and what a typical fee is under each arrangement so you can get an idea of what costs might look like under different models.

  • Percentage of assets under management: Typical fee is about 1% of your assets under management. 

  • Flat fee: Typical fee ranges from $2,500 to $10,000

  • Hourly: Typical fee ranges from $150 to $500 per hour

  • One-time planning engagement: Typical fee is $4,000 to $5,000

Note that if you have over $1 million invested, it might make more sense not to use the AUM structure. Generally, percentage fees work better on smaller balances, while flat fees are best for larger asset balances. To see how the math checks out, this MarketWatch Picks story highlights an AUM vs. flat-fee arrangement.

If you have a small amount of assets, an AUM schedule can be more cost effective than paying a flat-fee because you’re only paying roughly 1% of small amount of money. If you have over a million dollars, a flat-fee arrangement can be beneficial as you’re essentially capping what you’ll pay an adviser, regardless of the amount of money you have in your portfolio. If you don’t require ongoing advice, but you have some specific questions or just need a financial plan drawn up, an hourly engagement can be the most economical choice. But, if you feel like you’ll need continuous hand-holding, hourly fees can seriously start to add up and take you well over the amount you’d pay for an AUM or flat-fee planner. (Looking for a financial adviser? This free tool can match you to a fiduciary financial adviser who might meet your needs).

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That said, there are things to consider when going away from the AUM model. A pure fee-for-service adviser working on an hourly basis may struggle to know you the way an adviser with an established practice with a stable source of income will. Moving away from the AUM relationship could also mean your adviser will be less likely to encourage investments, since they won’t profit from how much you have invested. When you have an AUM relationship, the adviser is typically paid from the investments, whereas under a flat-fee arrangement, you’ll have to pony up and pay them on your own up front.

Another thing to think about, according to Mark Struthers, a certified financial planner (CFP) at Sona Wealth Advisors, is the behavior coaching value an adviser may bring to the table, like giving you confidence in bad markets. “When you opt for an hourly fee structure, also known as a fee-for-service arrangement, you only pay for what you use but it’s not proactive and the outcome can be bad for the client,” says Struthers.

Another option? “If you have more than $500,000, you can pay Vanguard 0.3% of your assets for access to a CFP who will be a fiduciary holding the key financial planning designation,” says Jim Hemphill, a CFP at TGS Financia. “This adviser will be on the younger and less experienced side but that’s the absolute entry level cost of an ongoing relationship with a CFP who isn’t selling anything. You should understand that you’ll mostly be running your portfolio yourself and that the adviser won’t try to talk you out of making an investment mistake, whether buying at the top, chasing performance or selling at the bottom.”

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Similarly, says Struthers, “If you don’t need much financial planning, you could look at robo-adviser firms like Betterment. They may even have a CFP in a call center that you could talk to.”

Note too, that while there’s no perfect fee schedule, the AUM model can work for some. “It puts you on the same side of the table as the adviser: you do well, they do well,” says Struthers. “But many advisers and robo-advisers charge too much for what you get. If the adviser is doing a lot of financial and tax planning, then 1% to 1.5% is not outrageous. The problem is that many advisers do little financial planning as financial and tax planning is very labor intensive and not scalable. Investment management is very scalable, even with tailored portfolios.”

Be careful that you opt for not only a good price, but also a good adviser. “You can find someone who costs less and you may even be able to find someone who costs less, holds a CFP designation and works on an hourly basis but you need to understand that no professional sets out to get trained, licensed and incur the cost of setting up a practice in order to be unable to sustain a professional income and lifestyle,” says Hemphill. 

Ultimately, if you wish to pay less, it’s possible you get less, potentially in the form of “a less-experienced adviser, someone who’s in the early stages of establishing an advisory practice and who’s willing to discount fees to attract clients,” says Hemphill.

You can find advisers who work for hourly fees, flat or annual fees on the National Association of Personal Financial Advisors website or XYPlanningNetwork.com. “But be sure you’re clear about the adviser’s service models and what’s included and not included. It’s unlikely that an hourly adviser will handle the investment management, so you’d need to be comfortable doing that yourself,” says Cristina Guglielmetti, a CFP at Future Perfect Planning.

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Regardless of which payment model you choose to move forward with, consider asking prospective advisers these eight questions to ensure you have a solid understanding of what services they offer and what your relationship will entail.

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