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We often hear about the power of compounding returns—how investments grow exponentially over time. But there’s a lesser-known side to compounding: the cost of ongoing financial advisor fees.
Consider a $1,000,000 portfolio growing at 7% annually. Over 10 years, that could grow to about $1,967,151—if left untouched. But add a seemingly modest 1% annual advisory fee, and your ending value drops to roughly $1,779,056. That’s a $188,000 difference.
Why such a large gap?
Each year, the fee reduces your balance before it compounds. And as your portfolio grows, the fee—calculated as a percentage of a growing total—gets larger. You’re not just paying 1% on your original investment. You’re paying it on your gains too.
Here’s how it breaks down:
This isn’t to say advisors don’t provide value. Many offer guidance that can help investors avoid costly mistakes. But before paying ongoing fees, ask yourself:
A 1% fee may seem small, but over time it can quietly erode a significant portion of your wealth. Understanding the compounding cost is essential to making wise long-term financial decisions.
if you do not want to educate yourself on investing, which is quite easy with one or two great books, a fee based advisor would work just fine
paying an arm fee is overkill and will surely be obsolete in short order
even .3% is 3k per million
I agree and love this article but am seeing a lot of references to flat fee advisors. But are we talking about Unicorns? How do you find a guaranteed hourly fee advisor that is authentically capable of improving your portfolio performance relative to investing, taxes, and savings or withdrawals? Please help because I don’t believe the beast exists.
I don’t see this topic as an argument for or against hiring an advisor. I agree with you that many people would be better off having one. The question is how to put a value on the services provided. I prefer a flat fee for time spent, just as my CPA or lawyer would use in billing me.
This is a good article. And, while I agree with the math and conclusion, there are circumstances in which someone using a 1% advisor would be better than not doing so.
One of my friends is a great guy and has a lot of abilities that are different than mine. He is quite handy and knows a lot more about building things than I do. However when it comes to finances, he is ignorant about investing, and lazy. A few years ago, I learned that he was keeping $200k in an ordinary savings account in a bank earning .1% on his money. Mostly, I have the good sense not to try to get into someone else’s financial life. This is one instance when I did. It took me 18 months and many discussions, ridicule, arguing etc. to get him to move the money into a MMF at Schwab. Now 2 years later he has earned almost $20k in MMF dividends and acknowledges (reluctantly) that he is better off. I think that there are many other people like my friend.
Using an advisor is better than doing nothing. Using a advisor can be better than getting scammed, trying to time the market, day trading, or any of the myriad pitfalls readily available in the financial world. And, for some, they provide a degree of hand-holding that help people cope with the risks/fear of investing.
I agree many are or would be better off having an advisor. My concern is how much they must pay for those services, and would many be better off using a fee-based advisor.
Imagine a continuum which at one end represents perfect knowledge about personal finance and investing, and at the other perfect ignorance about these subjects. Now, take people that you know and place them on this imaginary line. Then, consider for each what would be an improvement in their knowledge, which could be converted into an improvement in their circumstances.
For example, someone who keeps their cash under their mattress would be better off with their money in a bank. Any FDIC bank or FSLIC S & L or federally guaranteed C Union would be better than the mattress. A perfectionist might criticize the result if this person had to pay higher fees at the chosen bank than at an idealized bank, and they would be correct. But the person is still better off than they were with money under the mattress.
All of us are born ignorant about finance and investments. These subjects are not generally part of what is taught in schools so we should not be surprised about what folks don’t know. And, the amount one could learn is pretty vast. Finally, there is no easy, perfect solution to fill this educational void.
Someone who arrives at retirement with enough to retire is a success. It would be hard to find someone who, if we really analyzed their details, we were unable to find some area where they could have done better. The fact that we could do this is immaterial. Having enough to retire on is success and that is good enough.
Be aware that there is a big difference between a financial adviser and an investment adviser. I know a person who inherited a million dollar equity portfolio and needed money for day to day expenses (they are unemployed). The investment adviser at a large brokerage first offered a margin loan and then when the borrowing limit was reached offered to convert the equities to Treasuries to increase borrowing limit. The client did so and is now paying 11% on the margin loan to “own” Treasuries paying 4%ish. They don’t want to “give up” their inheritance. Financial literacy is harder and harder to find these days. On the cynical flip side, since I own shares in the entity offering the margin loan in my mutual funds, I am indirectly benefiting from financial illiteracy. Weird position to find oneself.
My sibling decided to switch from managing his own money at Fidelity to using Fisher Investments to manage his Fidelity assets. FI promptly sold all of his mutual and etf funds and bought 70 plus individual stocks. When I asked how the portfolio was doing compared to a passive index my sibling responded not as good but didn’t care because s/he did not want to manage the money. On top of it, s/he was surprised to learn FI was charging AUM fees even assets in the money market account. This sibling has a propensity to fall for minor scams and I have given up on trying to have him/her change course. Go figure, to each his own. Obviously, it could be an issue if s/he runs into financial difficulties in the future.
We have done both during the past 40 years and have done well. Now that I’m retired we have someone who is very knowledgeable, asks us what our goals are, tells us what rate of interest he can guarantee us (based on the market’s past performance), and keeps us informed all along the way. We’re happy with the returns and the level of risk; and are willing to pay 0.75 of our balance so we can spend our time and mental energies elsewhere. We’re glad there are people out there who are experts and more knowledgeable than us regarding investing. At the end of the day we are making the decisions and they are executing our plan. They too have to make a living and we don’t mind paying a fee. I don’t pull my own teeth, repair my own car, or perform surgery on myself b/c I lack the expertise. We could put all our funds in a passive mutual fund on autopilot if we wanted, but we also want the ability to pick up the phone and ask questions or get advice when making large and life changing financial decisions; especially during turbulent periods. With a financial advisor that’s exactly what we do. Different strokes for different folks. Thanks for the conversation.
“tells us what rate of interest he can guarantee us (based on the market’s past performance)”.
What market are they referring to as you say they guarantee a rate of INTEREST?
If they are referring to the stock market the historic returns for the past 100 years it is 10%.
Does that mean your portfolio is 100% stocks?
If we go through another lost decade like in the 2000s how are they going to make up the difference between what the market returns and what your portfolio returns?
Agreed. Would be interesting to know the portfolio. And while we all need to make a living, that doesn’t mean that all potential jobs are necessary.
I have been with Fidelity and Vanguard since 1987. In all instances I did all the trading, except one time. I let Fidelity do their thing with 1% fee on $200,000. They traded so much my head spun, and it seemed they did not beat the S&P 500. That did not last long, and although it took me another 15 or 20 years, to learn the Buffett approach, which turned out was right for me. I have less than 10 stocks, and about 70% in the indexes. That works for me, and no FEES. It seem only you yourself cares about your future and how to achieve it. Happier.
Yes!
I’m 75 and have never been married or had children. I did very well (“lucky” might be a better term”) investing in individual stocks. I retired from full-time work at 51. I have a total of a little over $2 million, mostly in a traditional and a Roth IRA, nearly all in index ETFs.
I have never really had a financial advisor. Vanguard used to have a program where I qualified for free financial advice. I tried it twice and both times the advisor essentially said, “keep doing what you’ve been doing”.
I feel that I’m still competent to manage my own finances. When I’m no longer able, I plan to turn my investment management over to a Vanguard advisor with a 0.3% annual fee and my day-to-day finances over to a local non-profit. The latter will pay my bills from my accounts for a fixed monthly fee based on assets and handle other transactions, like selling my home, for reasonable fees. It was set up to combat financial abuse of the elderly and is partially funded by the state, county, and the local United Way.
The big conundrum is how do I decide when to relinquish control of my finances? A woman with the non-profit said that it usually becomes obvious, but I’m not sure about that.
My only close relative is my sister, who doesn’t require any financial help from me. I plan to leave most of my estate to local non-profits. I would like to give them as much as possible while I’m alive but am having trouble deciding how much is prudent.
Two years ago we started using a fiduciary financial advisor when I realized that I was getting progressively more anxious managing our investments on my own. We had used a flat fee advisor one other time but he retired and this firm and specific advisor was recommended to us. I was relieved to have someone actively managing our accounts but still uncertain if we had made the right decision. To answer this, I created a hypothetical portfolio on Yahoo Finance using the same starting balance and choosing the Fidelity funds that I would if I were managing them on my own – a Total Stock,Total Bond and about 10% in International. I regularly check on my hypothetical portfolio and reinvest the cash from the hypothetical dividends. The total balance has been and is still higher in my managed portfolio after fees than in my hypothetical one. This gives me confidence that our decision to move to an active advisor wasn’t such a bad one.
As I read all of the comments, I’m wondering if I’m missing something? Is my hypothetical portfolio not accurate?
Based on your hypo portfolio is there a reason you didn’t choose Vanguard’s advisory services for at most 0.3%? What was it about your chosen advisor that made you think, he’s worth the extra?
There’s no wrong answer, just curious.
Thank you for your reply, Mr. Dichter. Good friends have had this advisor for several years and have been happy with that relationship and their portfolio performance. I’ve been with Fidelity for many years, first through my employer and then when I retired 8 years ago. I’m very familiar with Fidelity’s reporting platform and customer service. This advisory group is a 3rd party management firm affiliated with Fidelity so our portfolio is still under the Fidelity umbrella and everything stayed the same with my access and the reporting features online. I did, however, look at Vanguard’s services when I first decided I needed help but they were an unknown to me and have had some customer service issues reported recently so I didn’t move forward with it.
And as long as my actual portfolio outperforms my hypothetical portfolio, I’ve been thinking that the fee we’re paying to have someone we can reach at anytime with questions about our investments and estate planning, combined with the relief I feel not being “in charge” is money well spent for us – so far.
Perfectly reasonable. Familiarity and comfort matter.
I’m not a particular fan of Vanguard these days, they’ve really ratcheted back on customer service, but they do charge a lot less.
I’m Scott, no formalities needed.
Thank you, Scott.
Since you are employing the advisor are you not still ultimately in charge? There would be no point in running the hypothetical portfolio if you were not.
If I understand your question correctly, yes I could request any changes I would like to make, such as reduce my real estate exposure which is currently around 10%. But since the reason we chose to go with an advisor was because of my dwindling confidence in managing things on my own and my increasing anxiety about doing so, I dont think I will. The point of the hypothetical portfolio in my mind is to monitor the situation in case I was wrong to “hire” a manager.
Because the platform is still Fidelity, all activity within our portfolio is transparent, including fees charged. This was another reason that I felt more comfortable choosing this group.
I apppreciate your question, Kathy.
Jan, two years seems like an awfully short period of time to conclude that your advisor will continue to outperform your hypothetical investment portfolio.
There are two things you haven’t mentioned:
(1) The investments your advisor has placed in your account.
Is it possible that your advisor invested in riskier stocks or funds that have done well recently, but whose performance may decline as markets change going forward?
(2) The annual fee your advisor charges you.
Your advisor will have to beat the returns of your hypothetical portfolio by more than the advisory fee each year to continue to outperform. If history is any guide, doing this over an extended period, say 10 years, is unlikely.
Your hypothetical three-index fund Fidelity portfolio sounds like a good, basic core holding to me. I suspect that your advisor may later struggle to outperform this portfolio if you’re invested in actively-managed funds or ETFs.
That said, as mentioned in the comments below, if your advisor provides more services than just portfolio management, you may find that additional guidance worthwhile and worth the fee you are paying.
Thank you so much for responding, Mr. Stein. I was afraid that no one would. You have a good point about the short term for evaluation. Me being me probably means that I’ll keep watching and comparing the portfolios. He and his team are available to give us more than just the managing of our portfolio. The value of the “extras” has yet to be seen. The fees are about .9%, not including any cash options he may help us with through Fidelity (no fee for that).
He recently moved us closer to a 50/50 asset allocation from the 65/35 it was, which I appreciated. We are in some real estate funds and a mix of short term and long term corporate bonds in addition to some of the same Fidelity funds I would have had. Our portfolio balance is back up to where it was before the recent market volatility (but is that true for everyone anyway?).
The thing that you didn’t say, and what I was most afraid of hearing, was that there was something inaccurate about using Yahoo for my hypothetical portfolio as a benchmark. As I said, I’ll keep watching but in the meantime, I’m feeling good about not being 100% in control in the day to day stuff but knowing that I can pull the emergency break if needed.
thank you again for replying.
Jan, I’m glad you found my comments useful.
You indicate that you wouldn’t feel comfortable managing your investment portfolio by yourself. That’s okay. Getting assistance with managing something as important as your nest egg is perfectly fine.
I think that using a hypothetical three-fund portfolio of Fidelity funds to track the performance of your advisor’s investments is an excellent idea. Just be sure that the ratio of stocks to bonds in your hypothetical portfolio matches that of your real portfolio. That should make it a reasonable benchmark.
If your advisor’s performance deviates significantly from your benchmark, you could have a meaningful discussion with him/her covering not only the reasons behind the performance gap, but what you can expect going forward. It’s probably not a bad idea to let your advisor know that you are tracking your investment performance using your own benchmark.
You mention that you are in “some real estate funds” (plural). You might wonder why one real estate fund isn’t sufficient.
I will do that and rebalance periodically. If I was still doing this on my own, history tells me that I would only rebalance on an annual basis, so I’ll probably stick with that timeline.
I have made him aware of my benchmark portfolio. I had made an error in the comparison last year and included some money that had come in through a small inheritance from my husband’s family after I had created the hypothetical portfolio. This error threw my calculations off and made it look like our managed portfolio was significantly underperforming. I contacted him and while he was surprised by that difference, he was not defensive at all. He was very willing to review everything with us and determine how that could be. However, I discovered my error before we did that and reached out to him with egg on my face. That was humbling and embarrassing for me.
I don’t know the answer to your real estate fund question, Mr. Stein, but I’ll find the answer. Thank you for asking.
My nature is to trust but verify. Hopefully that will serve us in this case.
Jan, I just wanted to add that in my opinion, while it’s great to have your hypothetical three fund portfolio benchmark, I wouldn’t freak out if your managed portfolio should underperform it. If the portfolios are different, sometimes that’s going to happen. It doesn’t necessarily mean either portfolio is wrong.
I wonder how much more complex the managed portfolio is. For example, how many funds is it, and are they all publicly traded?
Michael, I really appreciate your caution to not “freak out” as that could very well happen. I have been diving deep into the current and past HD postings and Jonathon’s guides and subsequently feeling like I’m trying to drink from a fire hose lately. When we married 8 years ago, I brought a significant investment portfolio into our partnership and my husband brought a generous pension, which I’ve spoken of in previous postings. I feel a huge responsibility as the “financial” person in our union as my husband hadn’t needed to be that with his pension. I feel my financial anxiety spiking once again with some uncertainty about the possible future events and our preparedness.
Anyway, to answer your question – yes, our portfolio is more complicated now. It has funds in private equity, infrastructure, corporate lending/income and a small amount of Bitcoin. The largest percentage is still in Fidelity Total Market. When I realized that I couldn’t verbalize (to myself) what and why we were in the other funds, I reached out to my advisor who quickly put together a short descriptor of each of them for me to increase my understanding. I keep coming back to my self-soothing thought that if our portfolio does equal or better than the hypothetical one, we’re still okay. But I thought I should ask the opinion of the learned minds of HD members such as yourself to weigh in on that thinking.
I’ve recently looked at some similar things. As Kathy says, such a portfolio may well outperform. But meanwhile it’s taking more of my time to understand than our current simpler low-cost portfolio, would take more energy to keep an eye on, and would be more expensive. So for me the other side of the potential outperformance is, if we don’t need the complexity to achieve our goals, why introduce it?
Still thinking about it. Probably good that whatever else happens on the periphery, a total market index fund is at the core.
That doesn’t sound like a portfolio I would want, but it may well out-perform, at least for a while. You might consider posting it over at bogleheads.org and see what people there think.
Thank you for the suggestion, Kathy. I didn’t know that was an option.
I’d steel myself for some negative reactions before doing so. Not saying anything against the portfolio or the bogleheads forum, but they call themselves bogleheads for a reason. I predict the bulk of the reactions will be that it’s too complicated and probably too expensive.
That makes sense to me, Michael. I think I’ll do nothing for right now but continue watching both portfolios. Thank you for your perspective.
Good post and I mostly agree on AUM advisors, however under 1M the value proposition may not be terrible based on current fees in the marketplace. Unfortunately however there seems to be a bit of an awareness gap in HD readers on the growing number of flat fee only and advice only advisors, some of whom have retirement planning credentials and the potential value proposition. Many of these folks are small, independents and they focus on holistic planning first and investment management second, typically primarily in passive index funds, although the mix may be important. My wife and I have had such a planner for the past 8 years. Our (flat) fee amounts to about 0.2% (and that percentage has decreased as our assets have grown substantially). I prefer to delegate the responsibility for tax efficient retirement planning and appreciate the wide ranging advice I get on a variety of subjects-insurance, annuities, estate planning, long term care etc.. Having an advisor helps my wife and I get on the same page and will also be helpful to the surviving spouse, not to mention optimizing our performance while managing risk and preserving our assets while avoiding stupid mistakes. We have a comprehensive written retirement plan with 35 year projections and get a detailed monthly update and our guy is very prompt in answering questions and concerns. I was DIY during my accumulation and working years but I find having an advisor in retirement very helpful and reassuring and feel we are paying a reasonable amount for professional service. For some folks DIY is just fine, for others limited planning/advice is fine and for others a robo advisor or light touch advice at brokerage with low fees works.
It’s interesting that 15 years ago I was considering changing professions and becoming a CFP. At the time I envisioned focusing on general financial planning with the client’s investment portfolio consisting of passive index funds.
I finally came to the conclusion that no one would pay for someone to perform such a basic investment plan that they could perform themselves, and didn’t pursue it further.
What a surprise to learn a decade later that that is the direction the profession would move towards.
I am the treasurer of a small non-profit with a disproportionately large (seven figure) endowment. The funds are split and managed by two firms, each charging about 0.55% annually. I report regularly to the finance committee on returns and total fees paid. I also give presentations and handouts comparing account performance to hypothetical investments in low-cost balanced funds and index funds — as could be guided by the organization’s own investment policy. The two managers have outperformed relative to inflation, but not to the low cost options. Their fees now total an amount equal to about 20% of the organization’s budget. Even with this knowledge, trustees have not been pursuaded to switch to lower cost portfolios, though I’ve been trying for several years. I surmise a reluctance to take collective responsibility for investment choices and the very real fear of doing the wrong thing are operative here. On the plus side, the managers are local and so the fees help indirectly to support the local community.
I recently completed a stint as Treasurer of a not-for-profit that has $70 million in investments. We had two investment managers for our stock holdings. I instituted a process where the manager’s performance was measured against a benchmark of ETFs that correspond to our investment objectives. The question was: Are we getting value for the fees above what we would pay in expenses on passive ETFs? The answer was that the manager with the higher fees was routinely beating the ETF benchmark by a solid amount. The manager whose fees were well below 1% was rarely beating the benchmark and also lagged when we looked at long term performance. (Performance is always measured after fees.) We are in the process of changing out the lower cost manager.
One additional consideration for board members: you are not investing as you would at home. You are investing “in trust” for the beneficiaries of the organization’s work and mission. By contracting for professional advice, you are protecting yourself and the organization against claims of mismanagement. Also, the investment manager is not only choosing investments but also allocations between asset classes, sectors, etc.
I have had some success managing my own investments, but I would never substitute my investment judgement for a professional when acting on behalf of an organization. Board members and management staff come and go; the organization’s assets are permanent and need to be managed with essentially an infinite horizon.
Howard, you didn’t mention if the manager charging the higher fees and posting better performance ran a higher-risk portfolio than the lower-fee manager.
Are there any reputable, outstanding CFPs in the Philly area who provide fee based, as needed advice?
I don’t know about CFPs in Philly but I would consider engaging an advisor elsewhere if you find the right person / company. I live in NC and have a flat-fee advisor in MA, and we meet by Zoom – it works fine for us. We found our advisor through Humble Dollar (happens to be the new editor) and it’s worked out well so far.
It depends on what you are getting – is it full personal financial services, or just investing? If they advise you on insurance, estate planning, your businesses, and your taxes, they may be adding a lot of value. A good financial planner will look at your total financial situation, not just your investment account.
Many of those are very specialized areas so if your financial advisor has limited expertise (yet acts as if hie does), it could cost you greatly. I day this based on my parents experience of having their wealth manager do estate planning after my dad’s illness. It cost them tens of thousands of dollars.
Great article. At 10 years in your above example, the investor ends up with 91% of what they could have had. But the penalty increases with time. At 40 years using the same assumptions, the investors ends up with only 69% (keeping 10,285,718 instead of 14,974,458). So this is one of those cases in life where it only gets worst over time.
Addendum: I have several friends who simply do not have the desire, knowledge, confidence, discipline, or temperament to manage their finances on their own. For them, working with a trustworthy financial advisor would likely be a wise and beneficial choice.
Amen to that.
Another thought – is it the human advisor they need to manage their finances or would a robo-advisor suffice? There certainly seems a movement in fintech to sell Millennials and Gen Z on a drip investment model with pre-determined allocations into low cost funds/ETFs. I’d have probably bought into that when I was younger rather than staying too much in cash because stock investment was voodoo and anyway I was paying into pension savings.
I suspect that most human advisors are going to increasingly be robos running the show so why pay a premium for a reassuring smile?
Moot question probably – we’re emotional beings and sometimes we need a bit of human reassurance even if the value of that is more to the advisor retaining business than our strict fiduciary interest.
It’s easy to think of jobs that have largely disappeared—like the video store clerk, the travel agent, or the switchboard operator. It makes me wonder: will AI do the same to financial advisors?
I hope so. I’ve seen too many examples of 1.5 or higher fees, proprietary fund with additional fees, and absurd annuity costs. To me this a scandalous issue in our country, especially with the great boomer generation, that few people are talking about.
Yep. I wonder whether I’ve poisoned myself for ever taking advice with my complete dismay around the ridiculous AUM fees my parents suffered with a relatively small portfolio and a main street advisor (in their case a double whammy as also put into the advisor’s own labelled funds with a cost uptick). Although since my dad died I’ve made traction with some of my mum’s financial decisions it’s still hard to wrest this one away.
It seems that people truly are afraid of the scare stories that the slick suits put about and sales patter and meaningless robo-written/cut+paste annual reviews give some comfort. My dad would dilligently read such reports and then take no action whatsoever.
Fortunately I have a few contacts that I trust who I can bounce my technical understanding off where I am clear I do not want advice.
Agree that an active market in fee-only advisors prepared to act on one off strategic reviews or around particular technical issues would be helpful. But most don’t want to operate like that and to some extent with potential liability for advising where fact patterns are incomplete or inaccurate I don’t blame them. In the UK for example there is a requirement to have an independent advisor’s opinion to take certain actions in relation to pension funds. Unfortunately the fees involved in such an opinion can easily exceed upside from such actions.
I wrote this above:
I hope so. I’ve seen too many examples of 1.5 or higher fees, proprietary fund with additional fees, and absurd annuity costs. To me this a scandalous issue in our country, especially with the great boomer generation, that few people are talking about.
Your poignant article on fees is the reason I have never paid AUM fees, but occasional fee only consults as needed (seems to be about every other year), but not sure I will need again. Based on your calculations I have saved over $95K in management fees in the past five years, and I doubt that a financial advisor would keep me in such low mutual fund fees, nor that they could substantially beat my returns. I also don’t require hand holding during down markets as I am a long term investor and have been through numerous downturns over my nearly 30 year investing history, have not made any rash decisions, and thus my portfolio has always rebounded.
My only consistent investing costs are my Vanguard portfolio expenses (0.05%) due to 85% passive index funds, $250 Morningstar Premium annual membership (great investing information, able to glean data about my portfolio), and occasional use of either Laurence Kotlikoff’s Maxifi, or Boldin’s (formerly New Retirement) Planner Plus calculators.
Thank you. I have calculated how much the fee itself would cost, and been beyond shocked at the answer, but not the effect of compounding. If I had hired an advisor when I retired 25 years ago, I am sure I would be a lot poorer today.
An advisor is also likely to increase other costs. She can hardly justify her fee by putting clients in low cost index funds and rebalancing annually.
For some people saving/investing their excess money is … well … icky. They don’t want to have to think about it.
Advisors can provide good value for them.
My guess is that most HD readers enjoy the challenge of where to save/invest.
So advisors may not provide good value to us.
Blessedly, everyone is different.
What a boring World it would be if we were all the same.
Winston, I agree. I have penned some negative stuff about my experience in that business, but not all firms are like the one I worked for. People who are unable/afraid to manage their own investing are usually better off using an advisor, IF, they can find one of the good guys.
I think a 1% fee to manage a 7 figure portfolio is ridiculous, but the same fee for a 5 figure portfolio is reasonable. After all, the advisor has to make enough to feed his/her family. An advisor I know well caps his fee at $2500 per year. Contrast that with the 1% guy who makes $10K for every million you have with him.
Not sure what “icky” is supposed to mean in this context. I am an HD reader, and I do not find investing an interesting challenge. I find it an unfortunate necessity arising from the lack of a COLA on my pension. When I was working I put my money in boring index funds and forgot about it. Now I have to pay a certain amount of attention as my Social Security plus pension are not quite covering my living expenses, a situation, thanks to the missing COLA, that will only get worse.
A fee for service planner may indeed provide good value, especially if consulted only occasionally, I remain unconvinced that a 1% AUM fee for an “advisor” can ever be justified.
Kathy, do you feel that your stock market investments have provided you with returns that, over time, have exceeded the inflation rate? After all, as useful as a COLA might have been, it would only have enabled you to match inflation with a zero real rate of return. Your stocks may have enabled you to earn a positive real rate of return and, thereby, increased your spending power.
I would be very happy just matching the inflation rate. What worries me is the possibility of running out of money because I live “too” long. If I had a COLA on my pension that would not be a concern. A COLA should be a guarantee, stock returns are never guaranteed.
Exactly. A 1% annual fee for AUM sounds like a small amount, until you do the math. For many, the question isn’t necessarily whether to hire an advisor, but to understand how much it will cost and what value will they get from it. A fee-only advisor, consulted perhaps every five years would seem like a better choice for many. Personally, I prefer to go it alone, and read everything Jonathan and others write.