By Erik Carter
Is your financial advisor working for your bottom line or theirs? The DOL’s new fiduciary rule attempts to address this problem by requiring financial advisors of retirement accounts (including IRAs and even HSAs) to act in their clients’ best interest. This is expected to favor “fee-only” advisors who don’t accept commissions for selling financial products. Instead, they generally charge a fee that’s a percentage of your assets under management (AUM). While this presents fewer conflicts of interest, there are downsides to the asset management fee approach too.
Do You Have Enough Assets to Manage?
Many AUM-fee advisors require a minimum level of assets to manage of $250k, $500k, or even $1 million or more. Keep in mind that this typically doesn’t include your retirement plan at your current employer. (Some advisors are willing to review your workplace retirement accounts along with what you have with them, but the extra layer of fees can reduce the low-cost advantage of the plan.) If you’re just starting out or if the bulk of your investments are tied up at work, you could be out of luck.
How Much Will You Pay?
If they do want to work with you, the cost can be pretty hefty. According to AdvisoryHQ, the average AUM fee is about 1% on $1,000,000 with higher fees on lower asset levels and lower fees on higher asset levels. That 1% annual fee may not sound like much but itadds up over time.
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