By: Tony Christensen 1/5/17
During the early years of my married life, I was a Mr. Do-It-Yourselfer.
We didn’t have the money to hire everything out, but we still wanted certain things done.
This led me to watch a number of Youtube videos as well as get advice from my Dad on how to complete certain tasks.
As time has passed and income increased, I have done less and less do-it-yourself projects.
I find it interesting that as I get older, I place increased value on hiring help that I can trust and those whom I can count on to do quality work.
I have a painter, who is now a friend, that I call every time my wife needs something painted in our house.
In fact, I refer him to everyone.
He gives me a bid as part of his process, when the reality is- I don’t need the bid.
I already know, before he shows up, that he will charge me a reasonable rate. I know he will get it done on time, and do it to my satisfaction.
This relationship is the type of relationship that any of us want from those whom we hire.
I’m sure you can think of professionals that you have so much trust in, you don’t even think twice about the “fee” you will be charged for the task at hand.
You view them as a professional and recognize that many long hours go unseen, to the client, intending to provide the best possible service.
As a famous quote once said, “Price is only an issue in the absence of value”.
So how do we develop this relationship with our Financial Advisor?
Increased pressure has mounted over the past few years on Financial Advisors to take a closer look at the fees they are charging their clients.
Most notably, the importance of providing them with increased transparency on the total fees being charged in addition to the Advisor fee.
This has led our firm to strongly analyze what we do for our clients with the intent to create a relationship as I described above.
Some of the questions that you may be asking yourself are:
- What is my total fee?
- Are there hidden fees that I’m not aware of?
- What is a reasonable fee?
- What value does my Advisor bring to the table in exchange for his/her fee?
Every product and strategy could have a different fee schedule.
You may have an annuity, A-Share mutual funds, or professionally managed portfolios.
I will focus the rest of this article on managed portfolios as annuities and mutual fund share classes have their own fee structure.
Like anything you purchase or hire out, you can always find someone or something less expensive.
I think it’s safe to say, we know how that story typically ends.
What information do you need to know to determine if your Advisor is providing the value you deserve for a reasonable fee?
- Identify the Client / Advisor relationship you are looking for. This step is commonly overlooked.
The fee you are charged for the value provided should be in-line with what you need.
There are investment Advisors that solely focus on managing your money and don’t do comprehensive planning.
You may be satisfied with one over the other and pay a different fee to do so.
You may also require many reviews per year or be satisfied with an annual review.
Identifying these relationships is crucial in determining if you are paying too much.
- Determine your total fee. Typically, the total fee will encompass 3 to 4 different items and include the Advisor fee, Asset manager fee, technology and custodial fee, and expense ratio.
It’s been our experience that you should have a well-managed portfolio with all fees included starting under 2% and decreasing with increased portfolio size.
Caution: Many Advisors only tell their clients about the advisor fee, which is typically around 1%.
This has misled many clients into thinking their total fee is lower than it really is.
Another good practice is to find out if you are charged a fee per trade, or if it is a flat fee, regardless of what trades occur.
- Evaluate the value your Advisor provides. Value can be identified in a few key areas.
Life happens. When it’s happening, it’s crucial to surround yourself with those who can help you remain calm through the many decisions that will occur.
As a given, your Advisor should know everything about you- including your passions in life, and reviews should happen frequently.
Some of the intangibles a good Advisor provides are in the following areas:
- Avoid Major Mistakes – Through experiences with other clients, an Advisor can ensure you avoid catastrophic mistakes.
- Organization – Putting your financial house in order will allow you to spend more time doing what you love.
- Objectivity – The #1 reason for poor portfolio performance for the average investor is “emotions”. You need a partner that can help you avoid emotionally driven decisions.
- Accountability – Help you follow through on your financial desires and commitments.
- Partnership – Have a partner to help you navigate life transitions that occur when family is aging, your spouse needs long term care, etc.
At first, it is hard to know if you can trust those you hire.
As a universal rule, do as much research as you can about them.
What are their philosophies?
What background and education do they have?
How long have they been in business?
Do they have a team or are they a one-person show? Are they independent?
As you find answers to these questions, your initial interview with a new Advisor will become much simpler and will provide you with the confidence needed to start that new relationship.
As always, feel free to reach out if you would like us to analyze your current portfolio fee structure.
Until next week!
Securities offered through World Equity Group, Inc, Member FINRA/SIPC. Advisory services offered through BCJ Capital Management. Statera Wealth Management, World Equity Group, Inc and BCJ Capital Management are independently owned and operated.
BCJ FG 17-394