Individual Finance Archives

A personal financial advisor is someone who will help you manage your personal finances. In general, the cost of hiring a financial advisor is either an hourly cost of $100-500 per hour or a yearly cost of 0.5-2.0% of the total money they manage for you. For example, if you have $100,000 in your brokerage account, a financial advisor might charge you $1,000 per year (1% of $100,000). However, there is a HUGE variation in exactly what a financial advisor will help you with (e.g. simple budgeting advice? investment recommendations? tax planning? estate planning?). There is also a HUGE variation in quality of advisors. That means there is also a HUGE variation in the cost of hiring a financial advisor. The Different Types of Financial Advisors On one end of the spectrum, you have "financial coaches" who may charge $100/hour to teach you about general personal finance topics such as what percentage of your income you should spend on rent, what percentage of your income you should save or invest, how much money you should have saved in a bank account before you start putting money into the stock market, how to create a budget, etc. These coaches are mostly not worth paying for. On the other end of the spectrum, you have "wealth managers" who typically work with a team of experts to serve wealthy clients with a complete package of services that includes: Advising you on what stocks, bonds, and other assets to invest in, and possibly making some of those decisions for you so that you don't even have to think about them Helping you plan which types of retirement accounts to use and how to best use them Helping you plan & implement business and investment strategies to minimize your tax bill Preparing & filing your taxes and estimated taxes Helping you identify and buy the types and amounts of insurance you need (e.g. medical insurance, car insurance, home insurance, real estate umbrella insurance, etc) Helping you find synergies between managing your money and using your money (e.g. if you want to give some money to charity and you also want to pay as little tax as possible, then you might time certain charitable donations to offset taxable income as much as possible) Helping you with estate planning (e.g. creating a will, creating trusts, strategicially starting to give some money to your kids each year before you die, etc) Helping you retain good lawyers and manage any lawsuits against you Helping you build credit and find low interest rate loans when needed In general, financial advisors offer one or more of the following core services: Investment advice (i.e. recommending what stocks, ETFs, bonds, etc to invest in, and possibly making those investments directly on your behalf) Tax preparation & filing Tax planning (e.g. helping you get a loan against your stock portfolio so that you can access money tax-free instead of selling a portion of your stock portfolio which would incur capital gains taxes) Retirement planning (e.g. helping you decide which retirement account types to use, how to use them to get the maximum tax benefit, how much of your income to invest each year to retire by the age you want, etc) Estate planning (e.g. helping you create wills and trusts, helping you plan how to minimize the taxes on your inheritors after you die, etc) Elder care planning (i.e. planning where and how you or a loved one will live once you or they reach an age where help is needed to perform daily living tasks) Budgeting assistance (e.g. helping you create and stick to a budget) Debt management (e.g. helping you get the best terms possible on any loans you take out, helping you develop a plan to pay off any undesired debts, helping you strategize about whether or not taking on new debt is a good idea, etc) Insurance management (e.g. helping you decide what types and amounts of insurance to buy for all aspects of your life and investment portfolio) School & college planning (e.g. helping you find, save for, and get your kids into good private schools and universities) The Hidden Fees of (Some) Financial Advisors The core service of most financial advisors is managing your investments. If you see a financial advisor quote that they charge 1% of assets each year, that most likely refers to their price for investment management. Sometimes there will be other services included in that price too. However, sometimes there are hidden yet fees that you will also incur. Some of the most common hidden fees include: Fund management fees for the ETFs, mutual funds, hedge funds, private equity funds, or individually managed accounts that the financial advisor chooses to buy on your behalf CPA fees for tax preparation & filing Broker-dealer transaction fees on some or all of the trades that the financial advisor executes on your behalf Commissions that are charged on insurance or mutual fund products that you buy on advice of the financial advisor or that the advisor simply buys on your behalf Miscellaneous administrative expenses incurred by the financial advisor in order to manage your investments It's a good idea to ask a financial advisor about any such hidden fees before you sign a contract to hire them. The Costs of Different Financial Advisors Below are several examples of the prices and services offered by real financial advisory companies. CompanyAdvice TypeServicesPricingEdward JonesSeparately Managed Allocation (SMA)Active investment management of whatever money is in the account [Minimum of $25,000](i.e. they invest your money for "growth" or "income" without requiring you to make decisions about particular trades)0.20% to 0.40% depending on the particular SMA investment strategy+ brokerage fees for any transactions executed by a non Edward Jones broker-dealer + ETF and Mutual Fund fees for any ETFs and Mutual Funds held by the accountEdward JonesUnified Managed Account (UMA)Portfolio level active investment management [Minimum portfolio value of $300k to $500k](i.e. they keep your investments balanced between different SMAs, mutual funds, and ETFs)"Sum of Program + Portfolio Strategy Fees "- 1.54% on first $250k of assets- 1.49% on next $250k- 1.43% on next $500k- 1.17% on next $1.5M- 0.92% on next $2.5M- 0.69% on next $5M- 0.59% on assets over $10M+ SMA, ETF, and Mutual Fund fees for any SMAs, ETFs, and Mutual Funds that are part of the UMA portfolio+ brokerage fees for any transactions executed by a non Edward Jones broker-dealerVanguardPersonal Advisor ServicesActive investment management of any accounts (e.g. normal brokerage accounts or IRAs) that you choose [Minimum of $50,000 total](i.e. they invest your money for "growth" or "income" without talking to you about particular trades)Advisory fee- 0.30% on first $5M of assets- 0.20% on next $5M- 0.10% on next $15M- 0.05% on assets over $25M+ Possible transaction, fund management & account-establishment feesFacet Wealthn/a- 4 meetings per year for you to ask an advisor questions about marriage, children, divorce, healthcare, inheritance, buying a home, elder care planning, employee stock option plans, career changes, the stock market, tax law changes, tax planning, charitable giving, social security, and/or retirement- Digital dashboard of financial planning tools- Active investment management of non-retirement brokerage accounts, Roth, traditional, SEP, rollover, and SIMPLE IRAs, solo 401(k)s, and trusts- Specific investment recommendations for investment accounts Facet does not manage directly (such as 401(k)s and other workplace retirement plans and stock option plans)Advertises a "flat fee", but the flat fee actually changes according to an opaque internal pricing system.Fees start at $2,000/year and go up from there

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Category: Individual Finance