What Does Your Advisor Charge?

How much do you charge? It is a common question for financial advisors. No one wants to overpay for advice, but underpaying can even be worse. Rather than asking, “how much do you charge” perhaps the question should be, “how much is your advice worth?”
I am often asked for referrals to other professionals such as CPA’s, Attorneys etc., and the question of how much they charge is usually included. Sometimes the cost prevents people from making a good decision. For example, I almost always encourage people to see an attorney about creating a family trust. The main purpose being to aid in the transfer of assets between generations. A full trust package generally runs close to two thousand dollars. It may seem like a lot to some but I remind them that the cost of creating a proper trust today can be far less than the cost of dying without one later.
I run into the same issue with referrals to CPAs. People sometimes like to choose a CPA by what they charge rather than what they do. Twenty years ago I referred a client to a CPA to handle some difficult tax challenges in her estate. The accountant called me two months later to report they had succeeded in saving my client an additional $120,000 in taxes that her prior accountant had missed. This was great news. A few days later my client called to complain that the CPA had billed her $3,000 saying, “My last accountant only charged me $450.” I was dumbfounded at her response and filed the experience under the “no good deed goes unpunished” category.
Financial advisors come in all types. There is no legal definition of the terms “financial advisor” or “financial planner” so just about anyone can use them, which is really kind of scary. Some advisors graduate college, get advanced degrees, obtain difficult designations such as CFA®, CPA® and CFP®, and spend considerable time attending continuing education classes. Others have little or no investment training. Some travel extensively interviewing corporate executives, doing onsite research, and building a network of trusted outside advisors. Others spend more time in sales training learning how to pitch investments than they do trying to understand them, handing over the actual investment decisions to someone else, or to a computer program.
With each type of advisor, the cost of doing business is going to be different and the value received can vary dramatically. When looking for a financial advisor I suggest asking probing questions about education, legitimate designations, licensing, personal investment experience, and other legitimate information that you would expect from any professional. I believe the biggest price most investors will pay is the price for bad advice. If you die without a proper estate plan, file taxes with a cheap but unqualified accountant, or watch your investments shrink under the control of an inexperienced advisor, you will quickly get a much clearer perspective of the cost you are really paying for advice.