We're going to talk advisor fees, which I know is not the most exciting thing, but it's important. If this is some version of you…I just inherited $180,000. My advisor wants 1.3% to manage it. Is that really normal?

 

Great question, Rich Person!! (And congrats on the inheritance) Let's actually do the math.

 

1.3% sounds like nothing. In dollars it looks like this.

$180,000 at 1.3% over 20 years = roughly $160,000 out the window.

 

Here's where it gets confusing - that $160,000 is actually two separate losses:

That second number is the one your annual statements will not show you and they're sneaky. The real cost is everything that money would have become.

 

Before you panic Tho…not all fees are bad.

A fee is a price, don't confuse it with a scam and a ripoff! Most financial advisors will not Bernie Madoff you lol. The right advisor is genuinely worth it for the right person.

 

You should probably pay for advice if you have things like complicated taxes, your own business, equity comp, a blended family, a significant inheritance, etc.

 

You probably don't need to pay if you have a straightforward situation and a few index funds. The math suggests you can do this yourself.

 

The question is never am I paying a fee. It's am I getting something worth this number.

 

How to find what you're actually paying.

Most people have no idea bc fees don't show up as a line item. They're quietly deducted in the background while you're living your life.

Where to look:

Ask for your all-in annual cost in dollars including fund expenses. Not percent - dollars. 

 

The four questions. Screenshot this right now.

Send these to your advisor. In writing.

A good advisor answers all four quickly and clearly. How long it takes to get the answers is also sort of an answer (unless it's tax season, give them a break)

If You're Investments Are underperforming the market.

If your advisor's returns look way below the S&P, don't completely lose your sh*t right away. Beating the S&P is not the right benchmark *IF* your portfolio is diversified. A mix of stocks and bonds should not be compared to 100% stocks.

 

The right comparison is a benchmark for your actual investment mix, after all fees. The real red flag is if it is consistently lagging an appropriate benchmark with no clear explanation. 

 

That's when you have to have the harder conversation. 

 

And leaving an advisor doesn't have to be drama filled. Your new provider walks you through the transfer and it's not that complicated.

 

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