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How to Compare Financial Advisor Fees

Article

A reader wants to know what investment adviser's typically charge for their services, and whether it is possible to compare the fees charged by one investment firm over another.

Q: How much does it usually cost to hire a financial advisor? Is there any way to compare one adviser’s fee versus another’s?A: Years ago, investors could expected to pay a financial advisor an average of 1.5% of his or her assets under management each year. But these days investment firms offer so many different types of fee schedules that it can be difficult to make an apples-to-apples comparison.

According to a recent report by PriceMetrix Inc., a Canadian wealth-management research firm, the top 25% of advisors charged an average fee of 2.01% for clients with between $250,000 and $500,000 of assets under management, while the bottom 25% charged an average of 0.81%. The report noted that actual fees charged are usually discounted, with most ranging from 72% to 79% of prices published on fee schedules.

Finding out what other investment advisers are charging for similar investment accounts got a little easier this year after the U.S. Securities and Exchange Commission (SEC) started requiring investment firms to disclose in plain-English their investment strategies and their price schedules. Unfortunately, you need to do a good bit of digging to find the data. Here’s how:

• Go to the SEC’s "Investment Adviser Search" web page.

• Choose "Investment Adviser Firm."

• Enter investment firm’s name.

• Click "Part 2 Brochures."

• Click on the link under "Brochures" for your account type.

How much you should pay for a financial adviser depends on your own personal needs. If your financial adviser recommends low-cost investments, such as market-index tracking exchange traded funds or mutual funds, and does little trading, there’s no reason to pay top-of-the-market fees. But if your adviser consistently beats the market, while hedging against losses, then paying a higher percentage may be worth it.

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Victor J. Dzau, MD, gives expert advice
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