If someone was to tell you that you have to pay for goods and services, you would probably look at them in a manner that would say “Of course! Why do you feel like you even need to tell me what I already know?” What if someone told you the services provided by your financial advisor come at a cost? For some, this isn’t new information, but a February 2017 study performed by Cerulli Associates and reported by Bloomberg indicates that nearly half of American investors either aren’t sure what fees they pay or believe (incorrectly) that the investment advice is free.
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Advisor Fees
One fee that advisors should be disclosing and making sure clients know is how much they will be compensated each year for keeping an eye on (Managing) your money.
Depending on the financial advisor, this annual cost can include different services, but at the very least, you should be expecting for your advisor to invest the funds to fit your risk tolerance and investment intentions.
Mutual Funds Fees
An advisor might pick individual stocks, but that’s time consuming and can be risky. Instead, the advisors will use a lineup of mutual funds (A fund investing in numerous stocks so the investor or advisor doesn’t have to seek them out individually.). Maybe the advisor picks a handful of funds in an attempt at further diversification.
Sounds easy, right? Maybe not easy, but efficient for the investor or advisor, as the investments inside of these mutual funds are rarely managed directly by your financial advisor.
Performance Fees
These fees likely won’t be found outside of the hedge fund or private equity (private placement offering) world, but they’re worth mentioning because it’s another way certain investment managers will charge clients. While other investment firms just charge based on the dollar amount clients have invested, these other investment companies receive additional compensation because of specialized strategies and the expectation of excess returns versus more traditional strategies.
