Q – How much should I be paying my financial advisor in fees? I invest primarily in mutual funds, and the costs are all embedded, so it is difficult to tell if I am overpaying. — Diane B., North York, Ontario
A – There are many ways financial advisors charge fees, and this varies depending on the service. You need to decide what services you are willing to pay for. Expect to pay a slightly higher fee if your advisor is providing full service financial planning along with investment management. Generally, advisors charge a fee for service, or their compensation is embedded inside an investment product like a mutual fund.
A fee-based advisor will charge a fee based on a percentage of your assets under management. If you make more money, your advisor makes more money, thus providing a built-in incentive to perform. Asset management fees can range from 2.5% per year on the high side to 0.50% per year on the low side. Typically, the more assets you have, the lower the fee. In a mutual fund portfolio, embedded fees can run from 0.50% to as high as 3.5%. Do your research on the fees and costs of any funds you own, and also talk to your advisor about fees. Advisors should freely discuss with you how they are compensated, detailing both your costs and your benefits. – R.T.