Financial adviser fees: insane or typical?

[noodleoo]

We had a phone consultation with a financial adviser today. I found him through the NAPFA website. We liked him and he sounded good, until he got to the pricing. Here it is:

Comprehensive Financial Plan: $4500 – 6000 (he said we’d be on the low end)

Ongoing Financial Management Services (where the actively manage our accounts): pricing based on assets. $300 to $400K is $4500 a year. Fees go up based on the amount of assets they manage. Minimum they will take is $300K.

It is a flat fee and we could do the plan and then manage on our own. That involves answering a bunch of questionnaires and giving them all our info and they provide us with a detailed “life” plan. We get the full plan and it involves 2-3 meetings that are 3 hrs each plus all the work they do to generate the plan.

Does this sound normal? I know we are young and fewer assets then their normal customers. This is the first planner we’ve talked to. I guess I was figuring the financial plan would be more like $1200. I’m just a little surprised. I may have underestimated how much this kind of thing would cost.

[PinkSquirrel]

That seems pretty high.

[SJ]

Hmm, I am not sure because that is not the model I am used ot.

I am used to full discretionary management, where the adviser is making all buy/sell decisions and is actively managing your assets. In that case I would say 1-2% per year is "normal".

In this case, I would suggest you talk to other clients and get an idea for how the services work and if they have been satisfied. I don't really understand what the "comprehensive financial plan" entails so $4500-$6000 seems high if you are going to be doing the work yourself. How does he determine whether you pay $4500, $6000 or somewhere in between? What deliverables are included for this price?

If you pay the extra for the ongoing services, what kind of investments does he use? Are there additional fees for things like mutual funds, etc.?

[noodleoo]

See, that's the thing that confused me. I think the basic model is you pay for the plan up front. The cost is based on what he determines to be the "complexity" of your situation. He said he'd get us a firm quote for us today. Then, you can either take the plan and implement it yourself. He said the plan is a powerpoint presentation going over their recommendations based on your goals, etc. He said there are spreadsheets, etc that back it up that we'd get too. It would give multiple options on ways we could set up our investments (I think). After the presentation meeting to go over it, we can choose to either manage ourselves or with him. If we manage ourselves, he'd give us specific investment suggestions to implement ourselves. If we hire them, they set up our accounts with them and actively manage it for us.

The weird thing is though that he says he mainly uses index funds because they have lower fees than actively managed mutual funds. He does not do individual stocks. He says he basically tries to match the market (World Stock Market for mutual funds, the US Aggregate for bonds). I don' t really know what this means, but he said he doesn't try to guarantee above average performance because it is not sustainable I guess.

But if we were to do the plan and the active management, the first year would cost us $9K! That seems insanely high.

ETA: he said there are no additional fees past the fee for service. The ongoing management includes ongoing updates to our comprehensive plan. They'll redo it if our situation or goals change. The ongoing service doesn't seem too bad (as your assets increase, the percentage that fee is goes down), but the up front plan cost seems very high.

[SJ]

May 22, 2012 12:25:12 GMT -5 noodleoo said:

The weird thing is though that he says he mainly uses index funds because they have lower fees than actively managed mutual funds. He does not do individual stocks. He says he basically tries to match the market (World Stock Market for mutual funds, the US Aggregate for bonds). I don' t really know what this means, but he said he doesn't try to guarantee above average performance because it is not sustainable I guess.

In this case, I definitely wouldn't pay the extra for him to manage it. If he is going to tell you which index funds he'd use, you can just buy them yourself.

[phunluvin82]

I would keep looking. It may be a 'fair' price based on what he provides, but regardless it sounds like it may not be the right match for you.

We paid $150 for a one-hour general consult with an advisor that I found on NAPFA. She is not actively managing our assets for us, but rather just giving advice, consultation, etc for us to put to use. She seemed more geared toward what we wanted at the time, which was an overall 'financial checkup' type of thing...and she did deal with a lot of clients who do not have 6 figure portfolios, so she was more our speed. I mostly just wanted someone who could help DH and I get on the same page and she did work out very well for that.

[gt7301b]

When I was looking for an adviser they would include the financial plan if you let them also manage the $$. It almost seems like you are getting billed twice for their services.

[noodleoo]

Thanks for the feedback, guys. I think we will try to set up interviews with a few more people.