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Pay a 1% annual fee to a financial adviser Managing a $2 million investment portfolio is pretty typical, but that doesn't necessarily mean it's the right amount for every investor. Even seemingly small financial advisor fees can seriously erode long-term returns when compounded over years or decades. A 1% annual fee on a $2 million portfolio earning 7% could cost you more than $375,000 over 10 years. You may be able to get better performance by choosing a less expensive adviser or otherwise find a lower fee rate. The key is to identify specific services you receive in exchange for those fees and carefully evaluate whether the performance relationship with your portfolio advisor justifies the costs both mathematically and personally.
According to a 2021 study by Advisory Headquartersthe average financial advisor fee is 1.02% for $1 million in assets under management (AUM) as an annual fee. Advisers and firms all have their own fee schedules, though, so these can vary. This type of fee usually covers investment management, portfolio monitoring and performance reporting services, which is why they are usually based on asset tiers. For things like financial planning and other services, hourly and fixed fees are more common, although percentage-based fees may still apply.
Advisers with more years of experience, advanced expertise or special certifications such as Certified Financial Planner (CFP) Sometimes it may charge higher fees. The exact fee percentage can also typically be different depending on the overall size of the account and the specific mix of services provided.
For example, an adviser may offer a tiered fee schedule where the percentage rate decreases as asset amounts increase. That is, on the first $ 1 million in a portfolio, the annual fee can be 1.2%, while assets above $ 2 million are charged at a rate of only 0.8%. This structure allows firms to serve clients across the wealth spectrum, while still being incentivized to help those clients continue to accumulate assets.
Some advisers also adapt service offerings and associated fees to suit a client's needs. An adviser may charge a lower percentage fee, but exclude financial planning and instead focus narrowly Investment Management. Others may set up a comprehensive service bundle that includes financial planning, tax preparation, Estate Planning Insurance review, analysis and other, more specialized offerings. In those cases, the fee paid may be higher but is aimed at covering full scope financial guidance rather than just overseeing an investment portfolio.
While a 1% annual fee may seem like a small price to pay for professional investment guidance and financial planning, it can significantly erode portfolio returns over long time horizons. Even seemingly small differences in fees add up in a big way when compounded year after year for decades.
Below is an example of how various financial advisor fee tiers can affect the value of a $2 million portfolio with an average annual return of 7% over 10 years. This may indicate that even small changes in financial adviser fees can make a significant difference in returns over long time horizons. For context, without any fees taken from the $2 million portfolio above, it would grow to $3,934,303 at that rate and time horizon.
Annual advisory fee rate
Portfolio value in 10 years (7% return with fees charged)
Difference of portfolio value without fees
0.5%
$3,741,955
-$192,348
1%
$3,558,112
-$376,191
1.5%
$3,382,439
-$551,864
2%
$3,214,611
-$719,692
Paying higher financial advisor fees does not guarantee receiving better investment performance or service. On the flip side, paying lower financial advisor fees doesn't automatically mean you'll receive higher overall returns. If you manage your portfolio without professional help, you'll save on fees but you won't have access to the services that a financial adviser can provide.
If you want professional help from a financial adviserFocus first on paying a reasonable fee for the scope of services you think you need. This also means avoiding paying for services you are unlikely to use. For example, you may have a strong retirement plan and not need financial planning services in your retirement years. However, make sure you clearly understand what personal offerings are included in exchange for the fees paid and negotiate Respectfully if you feel that costs seem misaligned or outweigh the benefits.
On the flip side, you could look into lower cost options like Robo-advisors If your situation requires relatively simple automated portfolio management rather than holistic financial and investment planning. As with most major financial decisions, take the time to thoroughly weigh all the pros, cons and alternatives before committing to either option. And remember to review your fee arrangements from time to time to ensure they continue to meet your evolving needs over time.
A 1% annual fee on a multi-million dollar investment portfolio is typically typical of the fees charged by many financial advisors. But that is not inherently a good or bad thing, but rather should hold weight in your decision about whether to use the services of an adviser. Additionally, carefully determine what specific services you realistically need and receive in exchange for fees paid.
Find a Financial Adviser It doesn't have to be difficult. SmartAsset free tool Matches you with up to three vetted financial advisors serving your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, Get started now.
Use SmartAsset's Investment return and growth calculator To compare the impact that different levels of fees could have on your investment portfolio over time.
Keep an emergency fund handy in case you run into unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations such as the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But a high interest account allows you to earn compound interest. Compare savings accounts from these banks.
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