Make Sure Your Understand All Methods Of An Advisor's Compensation

Make Sure Your Understand All Methods Of An Advisor's Compensation

Sadly, most investors don't know how they pay their advisors, and many can even make it look like they work for free. Even when clients know they must be paying something, the human mind will discount what is not obvious, and let itself believe things are better or cheaper than they are. Make no mistake, however: financial advisors usually make a lot of money. Even when you see a "reasonable" fee of 1% or less, there can be much higher additional costs that are hard to spot and rarely talked about by advisors. Some common products may charge as much as 5% a year or more in fees that are nearly completely hidden, but perform no better than index funds costing less than 0.2% a year. This is important! The difference in wealth after 20 years with an average return of 7% starting with $500,000 is over one million dollars! (end value of $1,864,000 vs $743,000.)

Also sadly, disclosure  getting stacks and stacks of small print so intimidating that few people read it  often satisfies the legal requirements for a buyer beware marketplace, but leaves consumers almost completely uninformed.

I am regularly astonished by how little people seem to understand about the true costs they pay in brokerage accounts and insurance products. They don't read the fine print, and rely on some advisor's assurances that it is very inexpensive or even free  and in most cases, the advisor themselves probably does not know or understand the various ways the client is paying.

Getting the full picture can be very difficult, and most investors don't have the time or resources to do the research. To protect yourself, demand a statement in writing of the various fees, costs, commissions, markups/markdowns, charges, insurance assessments, and other items that may be dragging your wealth down. Don't accept a box full of disclosure documents  demand a simple one-page explanation of everything you pay, and be very suspicious of those who give you excuses instead of real information.

If you want to check up on this, request our free Portfolio Stress Test (call 800-262- 1082), and we will do the work for you. More on this free service at the end of the report.

Dr. Jeff Camarda is a financial advisor located in Fleming Island & Ponte Vedra, FL. Dr. Jeff has over 33 years' experience working with local businesses and investors. More information about Dr. Jeff can be found at www.camarda.com.

This article was written by and presents the views of our contributing advisor, not the WiserAdvisor editorial staff. WiserAdvisor has qualified Financial Advisors in Jacksonville, Florida area. WiserAdvisor offers financial advisor matching service who meets your screening criteria. Following financial industry's best practice, we recommend that you talk to at least 2 to 3 advisors before making any decision. To introduce yourself to one of our advisor subscribers, please click here.