Meeting an Advisor? Understand Fees by Bringing This Checklist

Yesterday I posted a riveting story about advisor fees.

How do you know all the fees an advisor may charge?

The good news: this isn’t my first fee-rodeo, so I’ve meticulously prepared and will present to you, hot out of the oven, a fee checklist. Now when you meet an advisor you can ask intelligent questions about what fees you may pay.

Isn’t this exciting? Of course it is. Let’s begin:

___ Advisory fee. This fee is an umbrella fee for services rendered.

What services are included?

• Financial plan?          Yes  /  No  (how often is the plan updated?)
• Budget review?         Yes  /  No  (will you advise on line items?)
• Net worth review?     Yes  /  No  (do you make suggestions on assets for the fee?)

Often advisors say they will recommend new homes for assets, however, those new places are through them, garnering the advisor another fee. Will they make recommendations of funds/ETFs/other investments outside of their control?

• Insurance review?     Yes  /  No  (In many states advisors can’t review insurances for a fee. However, they can make recommendations on appropriate amounts of insurance.)
• 1040 review?             Yes  /  No (Again, advisors have to be careful here. Some aren’t allowed to give specific tax advice.)
• Tax strategy?             Yes  /  No (Will you recommend comprehensive tax plan?)
• Asset allocation?       Yes  /  No (Many advisors will calculate where your assets lie on an Ibbotson efficient frontier and recommend asset changes based on your goals.)
• Estate review?           Yes  /  No

___ Wrap fees on personally managed funds. Sometimes an advisor will charge fees based on the percentage of assets inside of an account. Often, these fees range from 0.5% to 2.0% Remember that funds inside these plans have fees also, so ask what the average fee is for funds inside the account and add it to the fee.

___ Wrap fees on outside managed funds. Often advisors will recommend outside advisors to manage all or a portion of your assets. Fees generally range from 0.5% to 3.0% of assets managed, per year.

Wrap accounts are easy to remember if you think of plastic wrap around your assets managed in the account. Instead of trading and holding fees, you’ll pay the “wrap” fee on the entire amount inside of the wrapper.

__ Trading costs. Are there commissions for trades? What would those be?

__ Commissions to buy funds. Does the advisor use mutual funds? Are there fees to buy, sell or hold the fund? What are those fees?

__ Insurance commissions. If the advisor completes an insurance analysis, are you expected to buy insurance through them or do you go outside? What types of insurance does the advisor make recommendations on?

When I was an advisor, I’d recommend an insurance amount needed. Then I’d prepare quotes through companies I represented and recommended my clients shop other firms, such as Zander insurance (Dave Ramsey’s company).

__  Annuities, Private REITs and Limited Partnerships. Does the advisor recommend these product types? Do they receive commissions when they recommend these products? Annuities may pay up to a 9 percent commission. Often REITs (real estate investment trusts) will pay nearly the same amount to the advisor.

__ Cash products. Do you recommend savings accounts, CDs and other similar cash accounts? Are these through you, banks or credit unions? How do they work?

__ Mortgages, auto loans and revolving credit. Do you recommend these products for a commission?

__ Other outside experts. Should I expect to pay other experts, such as attorneys (estate plan) or CPAs (tax review)? If so, it’s important to know that there may be even more fees after you write your first check.