Quote:
Originally Posted by manaboutown
It appears many stock brokers/financial advisors want to be paid a fee based upon assets under management (AUM). Most want 1% + or - , depending on portfolio size and other matters. They argue it is only 1% but it is one percent of assets and is not a function of income or the lack thereof. If a portfolio returns an average of 7% per year that 1% of AUM works out to be 1/7, more than 14% of income. That is a huge bite out of income.
Moreover studies have shown that a low cost index fund of the S&P 500 or other broad market, low fee index fund over a period of 10-20 years outperforms 95% of professional money managers. If they are active managers the total cost is even higher due to the "friction" of trading cost and income taxes.
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This is correct.
Vanguard and/or Fidelity are hard to beat. Their representatives are fiduciaries and can manage your account for a very low AUM fee. Also, their funds charge some of the lowest expense ratios on the planet. Vanguard is at 0.3%. Personally, I am a DIY guy but understand that many people prefer some guidance.
Now for the math (you knew it was coming).
$1 million dollar account at 0.3% is $3,000/year with unlimited phone calls to speak to a CFP fiduciary.
$1 million dollar account at 1% is $10,000/year.
Assume 25 years in retirement and your account does not increase or decrease but is the same $1,000,000 each year (I realize that this is an overly simplified example but still makes my point).
Vanguard at 0.3% - $3,000/year X 25 years is $75,000
Advisor at 1% - $10,000/year X 25 years is $250,000
A difference of $175,000!
This is before we calculate the lost opportunity cost of what the additional 0.7% (1.0% minus 0.3%) could earn over 25 years.
Stay away from the micro advisory companies and free dinner salesmen in The Villages. IMO, their fees are exorbitant. Also, my example doesn’t include the high commissions they earn when they peddle an annuity or insurance on top of the 1% AUM fee. ALWAYS check on FINRA and click on “brokercheck”. You will be appalled at some of the disclosures.
Fidelity has an office in Lake Sumter Landing if you desire face to face meetings.