Average advisory fees charged by brokerages are now between 0.63% and 1.17%, depending on the size of client assets. These fees have been on a downward trend, driven largely by the competition from robo-advisors like Wealthfront. This is beneficial for clients seeking to cut down on brokerage advisor fees.
The wealth advisory sector is compelling due to its enduring nature, where earnings often increase as client balances grow. Some wealth management teams manage over $1 billion in client assets, translating into annual fees between $10 million to $20 million.
The actively managed mutual fund industry is also profitable, despite many managers not outperforming benchmarks like the S&P 500. Regardless, they earn substantial incomes, highlighting a lucrative career path in money management for those with qualifications like an MBA or CFA.
The real earnings potential comes when advisors charge annual fees and also manage actively run mutual funds that incur additional fees. Notably, figures like Charles Schwab and Abigail Johnson of Fidelity, who are worth billions, exemplify the success achievable in this field. However, investors should be cautious of potential double-dipping in fees.
Ever curious about the fees wealth management firms charge? A recent white paper analyzed the most and least expensive firms based on their advisory, mutual fund, and total fees. Below are some key insights from the analysis:
– Advisory fees are what you pay for wealth management services.
– Mutual fund and ETF fees are charged by the funds themselves, and are generally lower for ETFs than for actively managed mutual funds.
– The total fees combine advisory and fund fees, and anything above 1.5% is considered high by industry standards.
If you’re investing with a major brokerage, it’s crucial to understand the fees involved. For instance, with a $500,000 account, you could end up paying close to $1 million in fees over 30 years at firms like Merrill Lynch. These fees might seem justifiable if your portfolio consistently outperforms the market, but since many actively managed funds don’t, it’s vital to receive substantial financial planning advice in return for these fees.
The rise of financial technology is encouraging more affordable access to investment and wealth advisory services. Before committing to high fees, consider running your investment portfolio through systems like Personal Capital to understand better what you’re paying. Personal Capital, for example, uses a sliding fee scale based on the amount under management, starting at 89 basis points for the first $1 million.
It’s crucial to challenge your advisor if they’re placing you in high-fee funds while also charging advisory fees. If they can’t justify their strategy beyond earning themselves higher commissions, it may be time to consider moving your investments elsewhere.
In essence, while financial advisors can provide valuable services, especially for those not savvy in investing, it’s essential to weigh their fees against the potential benefits. For those comfortable with managing their own investments, creating a low-cost portfolio of ETFs might be a more cost-effective strategy.
