There is no doubt that fees will have a significant impact on your investment return over the long term. Before opening an investment account with or without a fiduciary financial advisor, make sure you are aware of the potential cost of every investment decision you make. Confirm you have acknowledged the fees make sense and you understand the value of a fiduciary advisor or maybe the salesperson by stating the list of fees associated with the ‘advisory’ firm.

A good fiduciary financial advisor will make sure you have not only seen in writing all the fees associated with your investment proposal but understand them too. Make sure you cross-check this with the fee page on their website. Conflict-free financial advisors will have their associated fees listed on their website. Our previous article on the cost of investing complements this read.

How much does a financial advisor cost?

Financial advisors typically charge fees based on a percentage of the assets they manage for you. This fee, known as the advisory fee, can range from 0.5% to 2%+ of your total assets under management. For example, if you have $100,000 invested with an advisor who charges a 1% fee, you would pay $1,000 per year for their services.

In addition to the advisory fee, there may be other costs involved, such as transaction fees, account maintenance fees, and expense ratios on investment products. It’s important to understand the total cost structure before committing to a financial advisor.

Fee vs commission-based advisors

Financial advisors can also be compensated through commissions, which means they earn money by selling specific investment products. This payment method can create a conflict of interest, as advisors may be incentivised to push certain products that may not be the best fit for your financial situation. Fee-based advisors, on the other hand, are paid directly by their clients and do not receive commissions from product sales, thus reducing potential conflicts of interest. The most attractive commission fee to pay is on a simple term assurance product, more on this later on our protection blog.

The typical ‘hidden costs’

It’s crucial to be aware of the “hidden costs” that can come with investing. These include account maintenance fees, transaction fees, and expense ratios within mutual funds and ETFs. These costs may not be readily apparent and are often hidden and undisclosed but they will eat into your investment returns over time.

When consulting with your financial advisor, your returns are often a topic of conversation. Make sure you understand what return is being shown. Is it gross of fees (returns without taking into account fees) or is it net of fees (your return after fees)?

Before choosing a financial advisor or investment platform, thoroughly review the fee structure and ask about any potential hidden costs associated with managing your investments. Transparency is key to understanding the true cost of investing.

Is it better to hire an advisor or invest on your own?

Deciding between hiring a financial advisor or managing your investments independently is a personal choice that depends on your financial knowledge, time availability, and investment goals. While investing on your own may help you avoid advisor fees, it requires a good understanding of investment products and behavioural willpower. An example of this is choosing the right ETF, as this could impact the amount of tax you pay and the behavioural guidance you may wish you had taken when markets are volatile and panic ensues.

On the other hand, a financial advisor could well provide expertise, guidance, and peace of mind, but at an additional cost. Vanguard’s study on the added value of an advisor could bring to the table up to 3% in net returns annually.

Before making a decision, carefully consider your comfort level with investing, your financial goals, and your willingness to manage your investments independently.

In conclusion, when evaluating the cost of investing, it’s crucial to consider the impact of fees on your overall investment returns. A transparent fee structure and a clear understanding of the value provided by a financial advisor are essentials for making informed decisions about your financial future. Whether you choose to work with an advisor or manage your investments independently, staying informed about fees and their impact on your investment strategy is key to achieving your financial goals.