Being Smart with $$ -- Why Would You Pay So Much When You Don't Have To?

 

I am regularly amazed that people who choose store brand products to save $2 or skip a $2000 vacation due to the cost will not hesitate to pay $10,000 to $30,000 for financial advice every single year when flat-fee and hourly advisers offer the same service without gouging out your soul. The financial industry works hard to convince people that you need to pay these high fees in order to get high returns. In reality, many advisers offer similar advice even if their fee structure is designed to be fair to the client instead of extracting enough from your account to buy the adviser a Porsche each year.  And the ones that charge the highest fees often claim they have some magic formula for adding value when the opposite is often true.  Last year was a great example of why you shouldn’t pay someone to dart in and out of the market when buy-and-hold portfolios usually win in the long run. In exchange for the $10,000 in fees on a $1 million portfolio, many advisers earned their clients $50,000 to $70,000 less than they should have. If you have a managed portfolio and are paying 1%, ask your adviser what percentage return you earned in 2020 after fees.  If you are 50 and didn’t earn around 15%, ask your adviser why you are paying them $10,000 when you are eating store-brand tuna.  If you are 60, you may be looking to have earned around 14% in 2020. (Returns are based on Vanguard UNMANAGED target retirement funds.)  If every decision you make about spending considers whether you can afford something, why would someone pay tens of thousands of dollars for financial advice when an equal or possibly better service is available for a fraction of that and you get to keep the difference?  If $10,000 is taken from your account on an annual basis over 20 years, your portfolio doesn’t grow by that $400,000 that it should have including investment returns.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Hourly, Fee-Only Financial Planning and Advice.

No Commissions.  No automatic, annual fees.