As you invest, are you receiving the service and resources you deserve?
How much do you pay for wealth management? About $1,000 a month? More than that? If your account is $1 million or larger, that may be the case.
Typically, wealth management firms provide their services for an annual fee approximating 1% of the assets in an investor’s account. Through the years, this 1% yearly fee has become something of an industry standard.1
What are you getting for that 1% fee? You should be getting more than just basic investment advice.
A financial professional with a fee-based business should be able to provide you with insight into retirement planning, tax and estate planning, risk management, and college planning. He or she should provide more than just a second opinion on your investment choices.
If you feel you deserve more service and resources from a wealth manager than what you now receive, consider hiring a CERTIFIED FINANCIAL PLANNER™ professional. A CFP® professional possesses the education, experience, and perspective to offer a truly holistic overview of your financial situation and the possible paths toward your financial goals. The phrase “comprehensive financial planning” truly sums it up.
When a financial professional gives you truly comprehensive guidance, that 1% fee may be worth every penny. A 1% annual advisory fee is a tiny price to pay if the insight gained keeps you from making an error that could cost you much more. (It should be mentioned that some CFP® professionals are willing to negotiate their fees. Some determine their annual advisory fees based on a sliding scale.)
A CFP® professional who provides financial planning services must also abide by a fiduciary standard. What does that mean? It means that when that person offers financial advice, he or she must act solely in a client’s best interest.2
When it comes to wealth management, you should avoid buying on price. This could prove to be a major error.
Some investors think even a 1% annual fee is too much to pay, probably because they have been receiving so little in return for it. They decide to manage their wealth themselves, or they opt for a “robo-advisor” (an automated, algorithm-based online wealth management service, with little or no human touch included). Both of these alternatives have drawbacks.
Do-it-yourself wealth management can potentially undermine your wealth-building effort. Think about the responsibility and time and acumen it demands. Do you have the knowledge and education that a CFP® professional does? Do you think you can regularly outperform the benchmarks, or for that matter Wall Street money managers?
Many people think they can, and they may in the short term, but at considerable risk. Do-it-yourself wealth management tends to open the door to a day trading mentality, in which investors chronically buy high and sell low and underperform the markets. The do-it-yourselfers also tend to “chase the return” to their detriment. Tax and risk management may get short shrift. A great return may not look all that great after taxes.
In life, business, and wealth management, there really is no substitute for personal interaction. That lesson is being learned by investors who rely on robo-advisors.
A robo-advisor deploys computer algorithms to make investment and asset allocation decisions for you. It does not know you. It has no understanding of what you and your family want out of life, or what you want from retirement. It will not sit down with you to create a retirement plan or a risk management strategy. It does not have to uphold a fiduciary standard that places your best interest first.
Yes, it may charge you a lower annual fee than a real live wealth manager, but that discount may be offset, because it may direct your assets into investments that come with relatively high management fees and charges of their own. A robo-advisor is ultimately making decisions on behalf of your investor profile, not you; that decision-making comes with a degree of genericism.
In paying that 1% fee for wealth management, make sure you get what you deserve. You should receive comprehensive financial planning for that expense. A CERTIFIED FINANCIAL PLANNER™ professional can provide that to you.