Have you ever thought how much your adviser is earning on an hourly basis?
Most investors never think about this because they never write a check. The fee is conveniently deducted from their account.
So lets do some simple calculations to see what you are paying:
Lets say you have $500,000 that you have invested through a bank or with an advisory firm. The fees will generally be about of 1% of your assets whether the adviser is guiding you in stocks, bonds or mutual funds. You will also be charged fees inside the mutual fund (I wont factor that in). If you invest in mutual funds you may also pay a initial charge of up to 5%.
Lets assume the bank or adviser places you in loaded funds at a 5% charge, you will pay $25,000 off the top.
And,
Then add the $5000/year in fees (1% x $500,000)
Next, lets also assume you keep your money in place for 10 years. You will easily average $7,500/year in fees.
Now lets say your adviser spends 20 hours a year completely focused on your account (meet 2 times/year for 2 hours each time + 4 hours of preparation + 6 hours of additional calls etc during year)
You are paying that adviser/bank $375 per HOUR for advice. If you are investing in mutual funds there could be an extra 1% or more charged for the management of the mutual funds.
If you had $1,000,000, your hourly rate could be $750/hour assuming 20 hours/year of service.
This is interesting: is the adviser spending any more time on your account because you have twice the $500,000?
Many will have a declining fee schedule, but not until the fees on the first million are earned.
Are you getting $375/hour of value?
Is your adviser directing you to consistent market beating performance?
If not, you may want to consider negotiating a lower rate or paying on an hourly rate.
If your adviser is consistently beating the market for you on a risk adjusted basis and net of fees please share, I would like to invest with this person.
In fact, I don't know if this adviser exists at all.
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