Many investors are known to charge excessive fees, which is something to look out for if you’re seeking financial advice. Although it may not seem like much, overcharging by just one or two percent can add up to huge sums over time and take a chunk out of your portfolio.
Do Financial Advisors Overcharge?
It’s difficult to know for sure if you’re being overcharged and how much you’re actually entitled to pay if you do not have expertise in financial matters. Financial advisors can seem trustworthy, but you never really know what additional and deceitful expenses they may be charging for their own benefit.
People can be very sneaky and steer you in a particular direction by recommending expensive products to maximize their own gain. However, it is comforting to know that financial advice is getting cheaper due to greater market competition.
Investment rates are dropping on some of the most expensive products, including hedge funds. The asset management industry has dropped revenue in recent years, which has been a significant turn of events since 2008.
How To Know If You’re Getting A Good Deal
In recent years, a survey was carried out to gain insight into the amount of money investors are paying and what they’re receiving in return. A newsletter called Inside Information was tasked to learn about the various costs associated with investment, trading, and financial planning to learn more about how clients are being charged.
This survey shed some light on independent advisers, making it clear that they charge more transparent fees from their clients than brokers and insurance agents who get paid a commission. You should know that a financial advisor rarely costs more than 1 percent per year, which is only true for clients having close to $1 million in assets.
Investment Rules to Remember
A general rule of thumb is that the more money you have, the less you are required to pay. Portfolios costing $5 to $10 million are only required to pay 0.5% to financial advisors per year.
While it is true that wealthy individuals are receiving a better deal, they are also getting hosed. Consider two individuals with an investment of $500,000 and $5 million with 1 percent of the former is $5,000 which the financial advisor is charging.
0.5 percent of $5 million is $25,000 which means that the financial advisor earns more from the same job despite a lower percentage. This means that costs can be deceiving, and some financial advisors are getting away with charging 2% in many cases.
Statistics indicate that lower investment portfolios are being charged 1.5% by 20% of financial advisors, while 13% of high investment portfolios are charged 1% or more.
It is crucial that you do your research, so you are aware of the costs associated with not just hiring financial advisors but also mutual funds and other investments. Many people prey on ignorance, so it’s in your best interest to find various rates from different financial advisors to save yourself money in the long run.