Do you know what you’re paying your Financial Advisor – in Fees or Commissions?
More than one in five investors don’t know what they pay in investment fees, according to a survey by Personal Capital. Another 10 percent don’t even know if they’re paying any fees at all.
Financial advisors/brokers are getting paid for the advice they provide. Generally speaking, 1 percent per year is a reasonable fee to pay for financial guidance, according to reports. This should include financial advisor fees plus any fees on the investments you make.
According to the Personal Capital survey, a 1 percent higher fee can cost an investor nearly $250,000 over a lifetime.
There are generally three ways financial advisors get paid:
- Fee-based – financial advisors charge an annual, hourly or flat fee.
- Commission-based – financial advisors are paid according to the investments they sell.
- Combination of fees plus commissions. Some advisors who are fee-based are also earning commissions. (See: Financial Advisor Double-Dipping of Commissions)
Independent Broker Dealers Earning the most in Fees
According to Investment News this week, there has been a shift in the past decade with independent broker-dealers earning more of their revenue from fees rather than commissions. Last year independent broker dealers earned 54% of revenue while commissions represented 34%; in 2013, commissions were 52% of revenue for top firms and fees represented just 34%
The following is a list of the independent broker dealers who earned the most in fees last year and their fee revenue, according to a survey of firms prepared by Investment News:
- Ameriprise Financial Services: $3.9 billion, % of total revenue: 65.5%
- LPL Financial: $3.5 billion, % of total revenue: 45.7%
- Advisor Group: $1.9 billion, % of total revenue: 49.4%
- Commonwealth Financial Network: $1.5 billion, % of total revenue: 76.3%
- Northwestern Mutual Investment Services: $1.3 billion, % of total revenue: 69.8%
- Cambridge Investment Research: $818.4 million % of total revenue: 59.7%
- MML Investors Services: $729.5 million,% of total revenue: 46.3%
- Kestra Financial: $481.5 million, % of total revenue: 64.1%
- Equitable Advisors: $404.6 million, % of total revenue: 32.3%
- Lincoln Investment Planning: $281.9 million, % of total revenue: 66.7%
Fee-only Financial Advisors
The most common fee-only financial advisor structure is to charge a percentage of the assets under management (AUM). In this case, the advisor deducts her fee from your account, usually on a quarterly or monthly basis, based on your account balance. If you have $100,000 with an advisor charging 1 percent of AUM, you’d pay $1,000 per year in fees. Since flat fee advisors have no affiliation with the investments you use, they’re often seen as the most unbiased financial advisors, according to the article.
The average AUM fee for a human financial advisor is 1 percent, but they sometimes charge on a sliding scale. Robo advisors also use the AUM fee structure. Most robo advisors charge between 0.25 and 0.5 percent per year, according to Yahoo Finance.
How Much Does a Financial Advisor or broker Cost?
Unfortunately, it is not always easy to tell what your financial advisor actually costs without asking the right questions. Even fiduciary advisors, who are required to disclose all fees and conflicts of interest, can do so in fine print.
The following questions may be good to ask a financial advisor or broker about compensation:
— How are you getting paid?
— Do you earn commissions?
— How much money are you and/or the company making to put me in this investment?
— What are my total costs for working with you?
(To learn more see: Financial Advisor Fees – Are you paying too much?)
Free Consultation with a Securities Attorney
This information is all publicly available and provided to you by The White Law Group. The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington. The firm handles FINRA arbitration cases across the nation. For a free consultation, please call our offices at 888-637-5510.
For more information on our firm, please visit https://www.whitesecuritieslaw.com.
Tags: Advisor Group, Ameriprise Financial Services, broker dealer commission, broker dealer fees, Cambridge Investment Research, Commonwealth Financial Network, Equitable Advisors, fees vs commission, financial advisor frees, how much are financial advisor fees?, how much should I pay in broker fees?, Kestra Financial, Lincoln Investment Planning, LPL Financial, MML Investors Services, Northwestern Mutual Investment Services Last modified: December 8, 2022