How Much Is Your Advisor Costing You?

Are you burning money on financial advice when you don't need to?

Hiring a financial planner is a great idea, no matter what stage of life you are in, but did you know there are multiple ways financial planners can get paid?

“It just is not in your best interest”

In the olden days of yore, it wasn't unusual to see a financial planner that worked on an upfront commission basis. As far as I knew, it was the norm. Then slowly, the world began to change and fee-based advisors became all the rage. As the Chief Compliance Officer and Vice President of a broker/dealer, I struggled with the reality that financial planners were no longer interested in joining our team because we were not fee-based. I was becoming a dinosaur. For years I watched the trend shift and struggled with the ultimate question, "should I stay or should I go". It would have been easy to switch, at least technically, but how would I explain to our clients that we would now be charging them a fee for services that we had previously provided for no fee. I couldn't do it. I still can't. It just is not in your best interest for me to charge you a fee when I can provide the same service at a much lower cost to you.

So just how much does a fee-based financial planner cost you? Well it isn't as cut and dry as the fees themselves because you must factor in the reduced principal and compounded growth over the length of your investments. In the hypothetical example below, the client started with $500,000 (sometimes the minimum amount a fee-based planner will accept), they were charged a 1% fee over 20 years, and an 8% annual rate of return was assumed.

The same client, with the same beginning investment amount, charged an upfront sales charge of 2% instead of an annual fee, has a much different outlook...

The annual fee cost them $377,754 in value!

Of course, this is just a hypothetical calculation and it assumes that all assets within the two scenarios perform the same, net of internal operating expenses. It also assumes that the assets in the upfront sales charge scenario are held at a major mutual fund company and that the client meets the breakpoint level (discount level) of $500,000.

And now, the million-dollar question I get asked all the time: Why would I, as a financial planner, choose to make $10,000 instead of $200,000? Because it is in your best interests. Lather, rinse, and repeat: it is in YOUR best interests.

Maybe I am a dinosaur, a relic of the past, but I prefer to think of myself as a unicorn...just as rare but way more magical and awesome. :)

This is a not a recommendation to purchase mutual funds. Your individual needs may vary, and mutual funds may not be suitable to your investment objectives, time horizon, or risk tolerance. While mutual funds may not be a suitable investment for your individual needs, they are a common tool in investment strategy, so the upfront sales charge and breakpoint are being used for illustrative purposes. The 8% rate of return is for illustration purposes only and is not a guarantee of future results (my crystal ball isn't working at the moment).

Email me at tfisher@fireflyfi.com or reach out to me via my website at fireflyfi.com to learn more about the bright ideas I can implement for you.