Are You Overpaying Your Financial Advisor—or Underestimating Their Value?

YOU GET WHAT YOU PAY FOR!

How to know if you are over-paying your financial advisor AND what to do about it.

Few things are more discouraging than getting “nickel-and-dimed” with random fees on your investment accounts for which you find no value and maybe don’t even understand.  Like any search, finding value in your investment management relationship begins with understanding what you are looking for.

Concierge or Con?

The best way to evaluate the fees paid to your financial advisory firm isn’t by price—it’s by value. 

Is $100 too much to pay for a ticket to a high-school basketball game? Yes. 

Is $100 too much to pay for a ticket to the NBA Playoffs?  No. 

The difference is value.  So, how investors should think about the fee they pay for investment management and financial advice should be viewed through the same “value” lens.  If you view the fee you pay a financial advisor as a cover charge to get into a show, then you probably feel like it is all a big Con. 

The advisory fee should be viewed as the cost of a valuable concierge service—one which pays for itself through smart financial planning, tax-efficient investment strategies, investment research, proactive portfolio management, and behavioral finance coaching. How are you best stewarding your financial future?  If you are genuinely providing all of those services yourself at an expert level, then maybe you really don’t need to pay a financial advisor.  Most investors can only answer that question one way!

A few years ago, while traveling with my family during a snowstorm, we decided to make an unplanned stop to spend the night.  Since we were just looking for a place to rest our heads for a night, we checked a few deal-shopping websites and found a Hampton Inn at a reasonable price.  The level of service at the Hampton was stripped down.  We waited 15 minutes to check in because there was only one front-desk attendant.  The rooms were clean, and the continental breakfast was free.  For the unplanned stop, the Hampton was perfectly fine and suited our needs.

But I have also had a contrasting hotel experience staying at a Disney Resort (The Boardwalk Inn) during a family trip to Disney World a few years ago.  At the Boardwalk Inn, the hotel had several front-desk staff who checked us in right away and carried our luggage to our room.  The rooms were not only clean when we arrived but were cleaned daily with evening turn-down service and mints on the pillows. There was also concierge desk on our floor with employees who helped us plan our time efficiently by offering suggestions for which entrances to use at which of the Disney parks, which modes of transportation were the most convenient, and even helped us navigate technical issues like getting our wrist-bands working so my kids could use them to open our hotel room door and serve as our entry ticket to the parks.  The concierge service was valuable because it helped me enjoy my time with my family, rather than spending extra time reading travel blogs or sifting through park websites.

Advisors Alpha

Vanguard is widely known for providing low-cost mutual funds for DIY investors who are price-sensitive.  For this reason, it might be fair to expect Vanguard to direct investors away from paying for financial advice and investment management. Nope. Instead, Vanguard has authored an ongoing research study titled "The Advisor’s Alpha," which points out that investors would be better off paying for financial advice and management.  The Advisor’s Alpha study shows that on average, investors with an advisor net enjoy returns 3% (or more) higher than those without an advisor.  Those are hard numbers to argue!

Compensation Models

Whitaker-Myers Wealth Managers operates as a fee-based fiduciary firm.  This means that we are legally obligated to act in our client’s best interest at all times and that our compensation for our investment management services comes from our clients, rather than from commissions or fees on investment products.  Certain advisors from other firms may put themselves out as fiduciaries, but part of their compensation comes from what is known in the industry as “revenue sharing.” Revenue sharing is when an advisor recommends an investment to a client and then receives a kickback from the investment company that issues the investment.  We believe this represents a huge conflict of interest and is inconsistent with the fiduciary model of always doing the best possible thing for the client.  How is this conflict of interest possible?  Well, the standard conflict-of-interest disclosures required by government regulators are often hard for clients to understand and unclear. If your advisor promises you a low management fee but is also being compensated (by you) through the mutual fund, that is a murky mess!  We believe a simple, transparent management fee builds more trust with our clients as it puts us on the same side of the table with them.  As a firm, we only do better when you do better!

Value The Right Team

As a fee-based fiduciary firm, one of Whitaker-Myers' distinguishing characteristics is our client concierge.  Each of our financial advisors is backed by a team that includes a Client Relationship Manager, an Investment Research Analyst, Portfolio Traders, Tax Advisors, Estate Planners, and Insurance Advisors.  If you are interested in learning more about how Whitaker-Myers Wealth Managers can help you steward your resources by utilizing more of our team, your financial advisor would be happy to assist you.