Financial Advisors, and fees. which ones are appropriate, what is fair?
Question:
a high consulting fee is unfair (even if it apears to have value)
Trading money adds costs... many to a stock brokers pocket.
Assets under management fee... what is fair?
semi philosophical
Call me dismal, I don't trust any advisors because they hide fees-- they smile, then line their pockets. They preach methods that compensate them the most.
I'm still not actively trying to grow a financial planning practice because I can't determine how I want to charge, in fear of overcharging.
(It took almost 2 years to find a happy medium with mortgages in terms of fees and compensation, and finally, I found the fairest, most competitive amount, and it was low. Now I want to learn the same for what is fair to potential clients)
Any suggestions would be great and appriciated
Answer:
12b-2 fees are not necessaruily unfair, it is a method of paying for distribution. If you want to buy a T. Rowe fund from your broker, how is your brokerto be comepnsated? Either use loads/commisions or 12b-1 fees. It is not unfair as it is disclosed. If you want cheaper funds go for fidelity or T. Rowe funds.
FYI, the listed fees are not the only fees charged, brokegrage commissions, law suits, other extraordinary expenses, etc are not reflected in the fee table, they are instead reflect in the basis (performance).
An example of unfair pricing.
A fidleity S&P500 fund costs 10 BP; look up what Morgan Stanleys fees are ( plus any loads). Now that is expensive.
Also as an advisor, things are even more awkawrd. You are paying for a finacial advisor so you have professional management; you then buya mutual fund for its professional management; why pay two levels of fees for professional management?
The term "Financial Adviser" covers a broad range of services. I don't think there is a "best" fee structure across the board. The fee should be based on the service provided.
Advice only - this should be a flat or hourly fee. Clients are paying to get an honest, independent opinion or recommendation and it should not be clouded by any conflicts of interest.
Investments only - If you are simply managing money, I like the AUM structure. If you make me more money, I pay you more. You lose me money, you make less. I am not totally against performance-only (i.e., 20% of performance above a benchmark). If our goal is to beat the S&P, you would get 20% of whatever % we beat it by, including 20% of any losses avoided in down years.
Investments & Advice - Stick with the Investments Only fee structure because the advice is incidental to your money management.
In any event, in no way should commissions ever be paid to so-called advisers. There is no way to separate fully the best interests of the adviser vs. those of the client. The same case might be made for AUM fees (more aggressive portfolio to try and generate high returns for more fees), but I think the AUM fee is the lesser of two evils.
By the way, as far as hidden fees, 12b-1s, and back-room compensation, that is only available to commissioned or fee-based "advisers". Fee-only (AUM-only, hourly-only, etc) do not get paid by the mutual fund compaies, brokerages, etc and have to disclose ALL of their fee sources.
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