I think my question mark in the topic answers the question, but my stash is currently invested with a "financial advisor" who charges 1.25% interest to manage the stash. Problem is, he doesn't really seem to be doing much but the fees keep coming out. I'm feeling like the fees are a huge waste of money. Does anyone go to a fee-only advisor? How much does a good one charge?
A good fee only advisor will charge either a %age of assets under management (commonly ranging from 0.2% to maybe 1.5%), a yearly retainer, or an hourly rate. The %age of assets under management is most common. In general, the more money you have with them, the lower your fee. If you have $100,000-$250,000, you will probably be looking at their most expensive management fee (1%+). If you have $250,000-$1,000,000, you will probably pay middle of the road fees (maybe 0.7%-1%). If you have 1mm or more, you will probably pay less than 0.7%, and if you have many millions (particularly if you have $5mm or more), you will pay rock bottom - whatever the lowest amount they can charge you is. It's also not unusual for high net worth clients to negotiate the fee, so their form ADV might say you should be paying 0.25%, but you negotiate 0.20%.
Fee only advisors are, in general, pretty darn awesome:
-Zero conflict of interest (caveat below)
-Likely to not be tied to specific products
-Will do their best to be very honest with you
-Will protect you from yourself
-Are willing to take the time to explain what the hell they're doing and why
-No high pressure to take specific action. Suggestions are normally well thought out.
-Rarely believe in market timing or chasing 'hot stocks/sectors'
-Don't suggest pointless rebalancing, or certain funds that pay them more
-Are open to considering your whole financial picture: Assets, liabilities, cashflow, expenses, life insurance, etc.
-Likely to be around for the long haul
-Usually way, way better trained than some of the brokers you find at wirehouses
The caveat: If they are charging you a lot to manage your investments on an ongoing basis (let's say, more than 1%), you are taking away many of the advantages of working with a fee-only advisor, especially if they are also using high-cost investments. You may be paying the advisor 1.25%, and then your various mutual fund managers another 1.5%. That is a pretty steep 2.75% right off the top of your accounts each year.
The solution: If you are going to use a fee only advisor, you should either:
-Use an advisor who charges a very low fee on your assets. Perhaps something like 0.5% or 0.7%. On top of this, he or she should be using very low-cost underlying investments. I don't think it's great to give up 0.7% of your returns each year, but if you are absolutely terrible at managing your asset allocation and rebalancing and prone to panics or getting greedy when the market is on a tear...it might be worth it. Particularly if your fee-only advisor is using low-cost underlying funds (i.e. ETFs or index funds that cost less than 0.3% per year).
-Use an advisor who bills hourly. Meet with them twice a year for 2-4 hours. It'll be steep (maybe $75-$300 per hour, depending on services and their experience/specialties) but completely worth it. Work on rebalancing your accounts first, using very low-cost investments. Use the remainder of your time to talk about your cashflow, expenses, insurance needs, progress towards your goals, taxes, etc. In between your meetings, leave your asset allocation the hell alone, unless you're adding to accounts.