How Much Should You Pay for Investment Advice?

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When I worked as a Wall Street investment adviser back in the ’80s, there was basically only one way we got paid: commissions.

When I bought or sold shares of stock, the client paid about 1% of the value of the trade. When I sold an annuity, I got paid 4%. When I sold a mutual fund, the commission was anywhere from 2% to 7%.

So back then, advisers made a living by taking a slice out of whatever money you invest. And for many, that’s still true today.

That system, however, isn’t the best. For one thing, advisers get paid more for some investments than others, which can influence their advice. Another issue: While the best way to manage money is often to sit tight and do nothing, your adviser can’t pay their mortgage unless your money is moving.

It was flaws like these, along with the desire to create a steady income for advisers, that years ago led to a new model: Instead of charging per transaction, charging a set percentage of the assets under management, typically around 1%. Got a hundred grand? You would pay $1,000 a year. A million? You’d pay $10,000.

But that system isn’t ideal either. For example, does managing $1 million really require 10 times the effort of managing $100,000? And if the stock market doubles, does that warrant a 100% raise for your adviser?

A final way of paying for advice has also gained in popularity: paying by the hour, just as you do with an accountant or lawyer. The problem? As with an accountant or lawyer, hourly rates can be high.

So, what’s an investor to do?

That’s what this week’s “Money!” podcast is about. We’re going to talk about whether you need advice, and if you do, where to find it and the best way to pay for it.

As usual, my co-host will be financial journalist Miranda Marquit. Listening in and sometimes contributing is producer and novice investor Aaron Freeman. And this week, we have a special guest, Pam Krueger of Wealthramp, a service that helps folks find fee-only financial advisers who are legally obligated to always put their clients’ interests first.

Sit back, relax and listen to this week’s “Money!” podcast:

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