This latest article from Phil Cannella’s well-known consumer advocacy initiative addresses the various fees retirees are often paying to financial advisors. The concept is simple: if an advisor’s income varies depending on where and for how long he/she invests your money, then your interests are most likely not being served.
“Too often retirees lose large portions of their life savings to pay someone to put their money in investments that truly don’t benefit the client,” says Phil Cannella. “You have to make sure the person you are working with is working for you, not for your money.” It is important to know how your advisor gets paid, as this will help you determine if your advisor has a personal stake in what happens with your nest egg. The following are some ways financial advisors get paid:
Account Percentage: Advisors often take a percentage of your account as payment for their services. The percentages change based on the advisor and the amount of money in your account. It is important that you know what advisors charge and whether there are any other fees.
Commissions from insurance companies or product agencies: These payments do not come from your account. Advisors get paid by the company that received the investment. If advisors are being paid by this method alone, you don’t have to worry about paying any costs personally. Just be certain you understand your investment.
Hourly Rate: Some advisors charge an hourly rate for their advice. It is important that when using this type of financial advisor you consolidate the time you spend with them. Educate yourself as much as possible before consulting this type of advisor so that you know their advice makes sense. In the end, your advisor gets paid whether you make smart investments or not.
Flat Fees: Some advisors will offer a one-time flat fee for specific financial projects. Flat fees do not offer commissions to the advisor or have a direct connection to your account value; therefore, this method does imply some objectivity. When utilizing an advisor paid by flat fee, be sure to thoroughly review the agreement before paying. If your agreement does not include follow up meetings or questions, you will be subject to further fees that you didn’t see coming.
Retainer fees: Many advisors will charge a retainer fee that is usually charged quarterly or annually. This is an ongoing fee that ensures you that your financial interests are always being monitored by the advisor. Many retirees that are invested in the stock market accept this fee due to the risks threatening their savings.
In most cases, you will be charged several fees for financial services, some one-time fees and some ongoing. It is up to you to factor in these account deductions when looking at your nest egg’s final growth potential. It is also important to be cautious of hidden fees. These are expenses neither expected nor included in the initial proposal of services and they have earned their own very special place of dishonor in the mind of Phil Cannella.
FOR MORE INFORMATION FROM PHIL CANNELLA, TUNE IN TO THE CPR SHOW, EVERY SATURDAY 11AM-1PM. LISTEN LIVE