Comments on: Ripped Off: Can You Trust Your Financial Advisor?

By: Gary

Gary — Tue, 06 Sep 2011 16:08:15 +0000

Thanks Paul for this note on fee based percentage advisors… its often true that a fee based advisor will help keep their clients from making foolish decision that is typically spawn out of panic/emotional whims. A small 1.2% can be well worth its weight in gold when the alternative is an investor going it alone and buying all small cap stocks thinking this is how they can get rich!!

By: Paul Williams

Paul Williams — Fri, 12 Aug 2011 12:53:09 +0000

Fees are based on whatever has been agreed to beforehand – hourly or flat fee. Commissions depend on the product sold and not how much profit they make.

If I recall correctly from my registration process, a Registered Investment Adviser is not allowed to collect a fee based on profits or a percentage of profits. The only place you will find such an arrangement is with hedge funds (and most of them still take a fee even if there’s a loss – and a hefty fee at that!). Just confirmed that is true for an RIA – it’s illegal for an RIA to have an investment contract that compensates the adviser on the basis of a share of capital gains or capital appreciation. I’m sure brokers are under a similar rule.

By: Paul Williams

Paul Williams — Fri, 12 Aug 2011 12:48:23 +0000

Right, Anthony – an AUM advisor is still going to make his $1,800/year regardless of the profit level (assuming the account averages $150,000 per quarter – most AUM advisors charge their fee quarterly based on the assets in the account at that time). If the account goes down, they’ll receive less of a fee because the % is based on a lower amount.

I would encourage you not to think of it as the advisor making you profit. Often, the best thing an advisor does in bad times is keep you from making stupid decisions that will cost you – not necessarily making you a profit, but still saving you money.

By: Anthony Miele

Anthony Miele — Fri, 12 Aug 2011 12:42:39 +0000

Fees and commissions means from the profits?

By: Anthony Miele

Anthony Miele — Fri, 12 Aug 2011 12:27:28 +0000

Does an aum advisor getting a 1.2% fee on 150,000 dollars get paid on the profits he makes for you or the total that is invested; for example if no profit is made does he still get 1800 dollars/ year if my math is correct?

By: Best of Money Carnival #24

Best of Money Carnival #24 — Tue, 02 Aug 2011 15:23:40 +0000

[...] Ripped Off: Can You Trust Your Financial Adviser? at Provident Planning – The world of financial advising fees can be very confusing. Paul, outlines typical advisers fees, most importantly, the ways in which people are normally ripped off. [...]

By: Paul Williams

Paul Williams — Wed, 22 Jun 2011 20:30:04 +0000

Hi, Yogesh! It really depends – some will and some won’t. In my experience, “fee-based” often means they take fees and commissions. But I would say you’ll need to read the fine print to know for sure. If it’s a US advisor, check their Form ADV filed with the state or SEC. It should explain their practices on fees and compensation. If that’s too convoluted, you’ll have to check your contract and any other documents you signed with them.

By: Yogesh Vyas

Yogesh Vyas — Wed, 22 Jun 2011 18:39:00 +0000

Does a fee based percentage of asset advisor make any commission when selling or buying any stocks or bonds in my investment portfolio managed by him?

By: Paul Williams

Paul Williams — Thu, 17 Feb 2011 19:39:18 +0000

Hi, Dale. I can’t really say much without seeing the documentation, but I would caution you to approach annuities carefully. There are often hidden fees that are difficult to find and compare to alternatives. If you want an objective opinion, try to find an hourly or flat fee financial planner who can review the documentation with you and give you an unbiased opinion.

By: Dale Nye

Dale Nye — Wed, 16 Feb 2011 08:00:12 +0000

Sir, What do you think of a fixed pension annuity that yields 7% per year and after 10 years your principal is still available. It also is offering a 10% bonus currently. Is this too good to be true? Should I put both my 401 k and pension in such an account?
Thanks for your thoughts.