Financial Advisor Fees & Costs

One of the advantages of finding a financial advisor through Zoe Financial is that we provide you with professionals who have transparent fees. That’s because you shouldn’t need a Ph.D. in Finance to figure out which financial advisor fees you’re paying and what services you’re receiving. The advisors in our network have undergone a rigorous vetting process and represent the top 5% of independent advisors in America. We take great care in matching you with not just any available financial advisor, but the right financial advisor for you.

 

The most common type of financial advisor fees are:

  • % of Assets Under Management Fees – The AUM fee structure is typically the most commonly offered amongst advisors. It encompasses comprehensive financial planning and investment management services. The fee is typically calculated as a percentage of the assets being managed. In addition to providing holistic financial planning for their clients, under this fee structure, the advisor also creates a customized allocation that directly relates to the financial plan. They implement and maintain the portfolio which includes trading, rebalancing, and tax-loss harvesting throughout the year.
 
  • Flat Fees – Flat-fee relationships are financial planning focused. The advisor will not directly manage your investable assets but can provide guidance on your investment strategy. In this type of relationship, the advisor focuses on cash flow, tax strategy, and financial planning to help you achieve your short and long term financial goals. These are typically ongoing relationships so the advisor can update and adjust your financial plan as your life changes.    

 

Questions to ask a financial advisor about fees

When conducting your own due dilligence, be sure to ask your advisor the right questions. Here are some specific fee-related questions you should ask any advisor before hiring them: 

1. Are you licensed to receive any commission for insurance products?  

If the answer is “Yes,” the follow up questions should be “are you associated with a broker-dealer?”  If the answer is “yes,” be aware that advisors associated with a broker-dealer have significant monetary incentives to sell products that might not be in your best interest.

2. Do you receive any compensation from any investment company for recommending any of their products? 

 This should also be a “No”. Some advisors will say that they do not receive commissions specifically, but they actually still receive backdoor kickbacks that you are paying via 12-1B fees from mutual fund companies. Those additional fees can range from 0.25% to 1%, which can really add up!

3. Do you earn a commission from private funds or other investments? 

The answer should be “No”.

4.  Are all of your fees itemized in writing? 

 The answer here should be “Yes”.

5. How many clients per ‘client-facing’ advisor does your practice have? 

If the practice has more than 200 clients per advisor, then its important to find out how much support staff does the advisor have to service the client.  If an advisor has primary coverage of 600 clients, it is fair to assume that they do not offer a high-touch service. Thus, fees should be well below what full-service advisors charge.
 

 

Are advisory fees worth it?

Like any service, advisors can be considered expensive or cheap depending on the value they provide. Paying $3,000 for generic financial advice from a salesperson that manages 300 clients is a waste of money. Having said that, a top Certified Financial Planner that manages no more than 70 clients who charges $6,000 might end up saving you multiples of the cost via behavioral coaching and tax optimization alone. In fact, both Vanguard’s and Morningstar’s research estimate that good advisors generate an additional 1.5% – 3% annual return when compared to clients who invest alone. This means that even after accounting for a 1% annual investment management fee, the financial advice can still have a significant positive impact on a client’s financial future.

Does that mean a higher cost implicitly means a higher value? Not necessarily. There are plenty of advisors who promise a personalized, high touch service but in reality provide generic asset allocation implementation that a robo-advisor can do for a fraction of the cost. That’s why it’s important to do the due diligence up front!

Paying advisory fees should be a small price to pay for behavioral coaching, vigilance, and peace of mind that a great advisor provides each of his or her clients.

The broader benefits of working with a financial advisor are in the comprehensive planning, personalized portfolio construction, behavioral coaching, and day-to-day wealth management services – all of which should be based on your specific goals and risk tolerance. In addition to the advisor’s alpha, the time you will save and stress you will avoid should not be underestimated. Sure, they are tougher to quantify, but they make a huge impact on a client’s personal happiness and fulfilment.

Where to Find Your Financial Advisor’s Fees

Advisors must itemize all financial advisor fees on the Form ADV paperwork filed with the SEC. You will find a brief overview in Section 5 of Part I, and greater detail in Part II. To keep overall costs low, you may consider working with a fee-only financial advisor where there are more transparent fee structures and fewer possible conflicts of interest. Don’t be afraid to ask questions!

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