Average financial advisor fees – are you paying more than you should be?
What financial advisor should charge as fees is a topic of much debate. Unfortunately, there is little centralized reporting of data on what average financial advisor fees are. Here is our take, based upon industry data and our anecdotal experiences as financial advisors.
Does the cost of financial advice matter?
Yes, absolutely.
What it costs to work with a financial advisor matters.
As we’ve discussed in other blogs about the cost of financial advice, high fees are destructive to the long term creation of wealth. If you had a $1MM portfolio earning 6%, and you were paying a 1.5% fee (which we think is high), you’d have $3,745,318 in 30 years. However, if you had only been paying 1% in fees, you would have saved over $570,000. This by no means typifies every scenario – the numbers vary from person to person – but this simple example illustrates the large effect that a seemingly small reduction can have over time.
As financial advisors in Philadelphia serving clients across the country, we have a view of advisor fees from inside the industry. We have seen firsthand the negative impact it can have on a person’s overall wealth.
When looking for a financial advisor, consider the cost. Before engaging, we highly recommend that you become familiar with all aspects of the cost of advice to learn how financial advisors make money and what fees a financial advisor may charge you.
Despite cheaper options available, people pay for “name value”
In our experience, average financial advisor fees are skewed to levels higher than they should be when it comes to high net worth portfolios. Usually we see this when a client comes to us after working with an advisor from a wirehouse or a large brokerage firm. When they show us their portfolios, usually the advisory fees are about 1.5% for a $1MM account.
In our view, this is expensive. It’s not only harmful to the client’s long term wealth accumulation (as explained above), it’s also unwarranted expenditure. In most cases there was no clear evidence of extraordinary; and according to the clients, they weren’t doing anything special. This happens frequently, in our view.
Our perspective can’t speak for what happens in the industry as a whole with 100% certainty. But we have been in the business for quite some time and talked to many wealthy families. Over time, the trends we have seen are consistent and significant.
Conclusion: how to avoid getting overcharged by your financial advisor
The cost of financial advice matters; avoid paying above average financial advisor fees. Start by knowing what your advisor is charging you. During the interview phase, use a diligent process when looking for a financial advisor.
Also, evaluate what you are getting for the price paid and consider what its true value is. Perhaps there is a premium paid for doing business with a “brand name” firm; but the bottom line matters. There are many less costly wealth management firms to choose from who will provide equal or greater service.
We are a fiduciary financial advisor in the Philadelphia area, but we work with clients across the country. We provide fee-only, objective advice to our clients. If you would like to discuss a possible relationship, contact us.