Your Fees Increased. Did The Services Increase Too?

Since we are now into February and you have had a chance to review your 2024 financial statements, I figured it was time for us to have a bit of an uncomfortable conversation. It comes down to fees you are paying, services you are receiving and how the recent run-up in the market has possibly distorted fees paid to services received.  Here is a video if that is easier for you. 

Oh, and those old school advisors who charge a percentage based on the assets managed hate when this topic comes up. You’ll understand as I go through this. 

Let’s start with some background. The S&P500 has increased roughly 53% the last two calendar years. Bonds have not fared as well, basically being flat during the same time period. 

For this exercise I am going to assume you were invested 80% into the S&P500 and the balance in the Aggregate US Bond index. So, you would have enjoyed an increased portfolio of 42%.

My next assumption is the size of your portfolio. I am using the average portfolio size for my clients, which is $3 million. Now, this may include IRAs, Roths, 401ks, Taxable, Joint, HSAs and more. 

The most recent data I have says the average AUM (advisors who charge a percentage of Assets Under Management) charges a fee of 0.85% on this $3 million portfolio. This comes to $25,500 of fees you are paying directly to your advisor year after year. 

With the 42% growth in your portfolio the last two years, are you wondering what has happened to the fees you are paying? That $25,500 number has just increased double digits to over $36,000 a year. 

The question you need to ask yourself is “Has the value of the services you are receiving from your financial advisory increased by $11,000 a year? Or nearly $1,000 a month?”

Actually, feel free to ask this of your advisor because it is a question they should be able to answer. 

Personally, because I am one of the few advisors who charges a flat fee this question is easy for me to answer. My fees are attached to my knowledge, experience and services I provide. Not something out of my control, such as how the market will perform. 

I’m not saying there is anything wrong with having an AUM-based advisor. I think it is just worthwhile to make sure you are getting what you pay for. Especially when your bill increases by over 40% the last couple of years. 

However, if you are ever thinking there may be a slightly different way to pay for financial services, know there are options out there. And even one that caters to physicians😊