When you open or transfer an account with an advisor, you expect your money to grow, not eaten away by advisory fees. Sadly, this happens to most investors without them even realizing it. The best way to prevent yourself from becoming a victim of excessive advisory fees is to educate yourself. We will go over two main types of advisors, what types of fees they charge, and how those fees can affect your investments.
Registered Investment Advisor vs. Broker
The term Register Investment Advisor, or RIA, covers several different types of advisors. It includes such credentials as Certified Financial Planner® (CFP), National Association of Personal Financial Advisors (NAPFA), and Certified Public Accountants with Personal Financial Specialist Designation (CPA-PFS). While all of these advisors may have slight variations in schooling and testing, they all have one thing in common, they are held to the Fiduciary Standard. This is the highest level of accountability to you, their Client. Since these types of Advisors are fiduciaries, they must make the best recommendations for your financial well-being. Even if that means they make less of a profit or no profit at all. RIAs also have to provide their clients with a full disclosure of their fees.
On the other hand, Brokers manage your investments based on the Suitability Rule. This simple requires them to have reasonable grounds for recommending a specific product to you. They must make a reasonable effort to learn about your financial and tax status, as well as your investment objectives. The Suitability Rule is not on the same ethical level as the Fiduciary Standard, since trades made under the Suitability Rule could be reasonable, but not in the best interest of the Client.
RIA Fees
RIAs make their money through advisory fees. These fees are a percentage of the Client’s assets under management, typically paid on a quarterly basis. Since an RIA does not receive commissions, they have no incentive to buy and sell excessively to generate more income for themselves. With an RIA you are also paying for advice, not just management, which makes RIA more accessible. No matter what type of fee schedule they use, you also want to find out if there are any other fees you may encounter. This would include any fees that you may incur from the brokerage company, such as fees for buying and selling stocks.
Brokerage Fees
Unlike RIAs, brokers are not required to disclose all of their fees. They often are convoluted and hidden deep in your statement. There are several different fees that Brokers can receive. These include:
- Trade Commissions-This is a charge from your broker when you buy or sell certain investments, typically stocks.
- Mutual Fund Transaction Fees-These are fees your Broker will charge you when they buy or sell Mutual Funds.
- Sales Loads-A sales load is a commission-based fee that your Broker will charge you for buying or selling a fund.
- Management Advisory Fees-This is a percentage of your assets under management that your broker will charge you for managing your accounts.
There are also other hidden fees that you should be aware of. These would include such things as annual fees, inactivity fees, research and date subscriptions, trading platform fees, paper statement fees, and account closing or transfer fees. Since there are so many different fees a Broker can charge you. It’s important that you ask a lot of questions so as to find out what your charges may be.
Conclusion
At Wealth Guardian Advisory, we recognize what an impact advisory fees have on your investments. High advisory fees could potentially cost you tens of thousands of dollars. Because of this, we take the RIA, Fiduciary Standard, approach to investments. We only charge a small percentage, 1% for most investors, but can vary based on your account size. This fee gives you unlimited access to our Certified Financial Planners®, as well as unlimited trades. We want your money to grow for you! Contact us today to schedule your free consultation and analysis.