5 Hidden Costs of Fee-Only Advisors

Fee-only financial advisors are fiduciaries. They must make recommendations that are in your best interest. Yet those fee-only advisors who charge a percentage of the assets they manage for you are not conflict-free. In fact, the fee arrangement creates 5 hidden costs that you should be aware of before hiring an advisor.

We'll also talk about a better alternative to a percentage of AUM arrangements.

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ABOUT ME

While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.

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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.

AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning at no cost to you I earn a commission if you click through and make a purchase and/or subscribe. However, I only recommend products or services that (1) I believe in and (2) would recommend to my own mom.

[opnwideplease]

Heck, I feel like I owe Rob 1% for all his great content/education.

[jimtorode]

I'm a retired stockbroker who currently coaches friends and family pro bono. I preach some of the ideas in this video with everyone. A flat-fee advisor is the ONLY way to go for anyone with more than $100, 000 to invest...period. Rob is SPOT ON with this video.

[MikeSellersGA]

I’m skeptical of anyone who has their hand in my pocket, even someone who calls themself a “fiduciary”. Tacking that word onto a business card doesn’t magically erase greed.

[mlhundt]

My biggest issue with the fees was they take one percent of the portfolio. Instead they should take one percent of the annual gains they made for you. That would be a better judge of what they have done for you rather than taking a percentage of the principal you invested initially, that they did nothing to "create".

[johnveca]

I discontinued my relationship with my financial advisor last year for all of the reasons Rob has mentioned in this video. I started to notice a pattern over the years. Every time I suggested any kind of investment that would not have included AUM, my advisor steered me away from it. Case and point. About a year ago I told him that I found a CD offering a 6% APY, and that I was going to pull about $200, 000 and make the investment. It was an obvious no brainer that this was a great opportunity, but he tried to steer me away. I stayed my course and closed my accounts with him altogether. I self-manage now and follow smart guys like Rob. Things are going very well and I'm not paying an advisor over the top fees.

[AGrandJourney]

You are absolutely right about the financial PLANNING part of having a finacial advisor. My advisor for many years seemed fairly good with his investment advising. But when it came to retire, I realized their planning was deficient. I had received zero advice about what I should be contributing to my retirement every year, and bad advice about how much I could afford to withdraw once it was time to retire.

Investing and long term financial planning use different skills, and require different knowledge bases.

[dalenelson]

I was paying my guy 1.5% and a $1200 annual fee, he has me in expensive mutual funds and multiple funds. I believe this was to make it look like it was a very confusing account that most would not want to do themselves.
The straw that broke the camel was when I had to lower my distributions below 4% to pay him every year. I didn’t walk away I ran.

[RobertLupo]

Rob, 2 things, first your video's are a true gift. Second the reason people don't use flat fee advisors is they are impossible to find. I searched all the sites last year trying to find one and could never come up with one who would work with me. I spoke to several who said they can't do business in Minnesota or they are not taking clients etc. Sometimes the "flat fee" advisor ending up wanting to charge 1% AUM Very frusterating.

[Peter-cyn]

Excellent content! I don’t forward many financial videos to my wife. However this one is a must. She’s not “interested” in the details of our retirement investments but I continue to try to pull her in. I asked her to read your book which she did. And at 60 years old she’s learning the basics. Truly appreciate what you do Rob for all of us. Thank you.

[briandb]

Your insight about conflict of interest hits home. My wife financial advisor told her to take social security at 62. On top of that he bought her a variable annuity with a 7% sales commission, held it for 7 years and bought a new one for the same commission. I finally convinced my wife to change to fee only. Thanks for your content!

[chriserickson]

Modeling the 1% AUM impact to your annual withdrawal amounts (over 10% in the example) is a VERY effective eye opener. It's an example I've not seen used before. I've cautioned friends & family against AUM and will be pointing some of them to this video.

[TonyCox]

My dad pays 2% fee to his financial advisor on a 2MM+ portfolio. I’ve forwarded him some of your videos Rob. I probably won’t send him this one, at the end of the day it’s his money to spend how he sees fit. But I appreciate you fighting the good fight and when i retire in 30 years I’ll be better for it!

[rickdunn]

@Rob Berger. Spot on. Ive been saying this for years (over 4 decades). Once I read Bogles first book and learned about the importance of investing costs, saw the graphs...I said :why pay any amount that I don't need to pay. Go will low costs. I have not used a Flat Fee FP, but I would recommend that for most. My rules: "Money Doesn't Grow on Fees", "Money in Motion Costs Money", "Trust But Verify". Folks, fees really really matter, remember, the fees have to be taken into account for your safe withdrawal rate (they reduce it).

[Swimallsummer]

Watching your channel gave me the confidence to ditch my big firm AUM adviser at the beginning of this year. The portfolio was not only overly complicated but was not tailored to my financial needs. It was just the cookie cutter portfolio used for everyone in my level of service. But the worst thing was the advisor seemed like he was meeting me for the first time every time we met. There was no long term plan at all, they just plug everyones information (compiled and provided by the Client) into the same monte carlo simulation and that is their “plan”. I remember wondering why every advisor at the firm has a VP title. It’s just a ploy to impress the Clients and has no bearing on the service you receive.
Thank you Rob

[dalemellor]

THANK YOU!!
I have often looked at using a Vanguard financial advisor or listened to radio ads while traveling and thought about a fiduciary. Now, I believe that doing it on my own for the past 10 years was the right decision. Thanks again! I just hadn’t thought about it in this context, but now it makes sense.

[chrisphilips]

Great points. It took a lot of digging around and research to find out exactly what I was paying my advisor. He always make sure that I have a significant amount of cash on the sidelines so he can pull his fees out. he does good work, but I’m really starting to reconsider all of this. Thanks for all the information.

[MickeytheTorch]

We went with an AUM advisor in 2008. At the time, I don't even think flat-fee advisors existed (all the financial media was screaming about fee-only AUM). 10 years later, when he raised his rate to 1.8%, we realized we were paying this guy thousands of dollars an hour to do very little. It still burns me all the money we lost, and then it took another 5 years to get out of all the expensive funds we were in (We only finished last year). But you hit the nail on the head, it is hard to write a check for 5 grand.

[robjennings]

Well done Rob. As consumers we need much more content like this-if the AUM model is the elephant, eating it one bite at a time is the way to go. As a client of a flat fee only advisor of seven years and counting, who is a retirement planner first and investment manager second (and optionally), I would suggest that some of the best money we ever spent was getting a comprehensive financial plan (and if someone wants to stop there that's fine). Following that, we hired our FA for ongoing planning advice and eventually investment management in low cost index funds/ETFs and TIPs. The ongoing advice in pre and early retirement has been very helpful and gets my wife and I on the same page-and, it's my belief the planning advice saves money in tax efficiencies (and in other ways) and helps manage risks.

[garyhanfling]

Thanks for this video. Makes a lot of sense to me. I'm about 3 years away from retiring, and I'm looking around for help. So, ...for me very timely. Enjoy the wisdom, and the common sense.

[Riversauklabs]

Thank you Rob. Have been learning a ton this year after inheriting some money.. I was very afraid to Fail and mess that up for my family . There was a strong urge to outsource that possible failure to someone else !! Came very close to AUM model but it just didn't make sense to this new investor. You just clarified for me and my family what I kind of sensed about AUM charges just not being customer friendly. Thanks for helping us, and for being evidence based / practical in your teaching. BTW the inherited portfolio has 25 plus mutual funds ... A Boglehad called it a "mutual fund of mutual funds" ! high turnover in the taxable accont etc... nightmare... Loved your reaction to the messages you receive regarding spectacularly overcomplicated portfolios. I STRONGLY believe that complication adds to the average person thinking they need professional help.