Are you in the market for an investment adviser or money manager? Don’t expect their services to come free. As you narrow your search, you’ll encounter a range of different fee structures that, depending on your needs, will appear outrageous, attractive or somewhere in between. It’s critical to evaluate each fee structure with an impartial eye and an unwavering focus on what you actually get for your money.
You’re probably aware of the most basic types of money management fees, like sales commissions (though those aren’t as common as they used to be). What you might not know is that there is a whole universe of little-known management fees. The more you know, the better informed you’ll be as you evaluate advisory candidates.
- Account Management Fees
If you have a traditional bank account, you probably have some experience with account management fees. These are fees paid for the nuts and bolts of, well, account management—basically, your manager’s overhead. Many brokerage firms charge account management fees, but they’re not super common in the investment advisory world writ large. With the right manager or adviser, there’s a good change you can avoid them.
- Hourly Fees
Some managers and advisers charge hourly fees for advice and guidance. In many cases, these fees supplant some or all other fees charged by advisers—though, for clients who rely heavily on advisers’ services, hourly fees can quickly add up. On the other hand, if you’re a DIY investor who’s just looking for a few high-level pointers, hourly may be the way to go.
- Brokerage Revenue Sharing
Some old-fashioned brokerage firms have revenue sharing agreements with mutual funds and other entities. These agreements can be quite lucrative for brokers, who may offset other fees with shared revenue. However, clients bear the financial burden of such agreements, and if results don’t follow, it’s tough to justify the added cost.
- Sales Loads
Although no-load funds are increasingly common, sales loads still do impact investment portfolios. Loads are fees charged on the sale of a mutual fund or similar instrument. They can reach or exceed 8 percent, depending on the fund issuer, and can be charged upfront or deferred. Watch loads carefully, as they can really eat into your returns.
- Annuity Sales Fees
These are superficially similar to mutual fund loads, except they’re charged on sales of annuities. If your adviser or manager suggests an annuity, ask what (if any) fees you’ll be expected to pay upfront or over time.
Money Isn’t Everything
Or so they say. But don’t let anyone tell you that it’s not fair to try to maximize the amount of money you have to retire on.
And don’t let anyone tell you that you need to go with the absolute cheapest money manager you can find. As in other areas of business, investing is very much a “you get what you pay for” situation. A dirt-cheap investment adviser might not have your best interests at heart, or might not even know what he or she is doing. It’s all about results, not necessarily how you get there.