Do you know how your Financial Advisor is compensated? Do they charge fees? Commissions? Both? Read my quick cheat sheet to figure it out.
Mutual Fund Fees
If you own a mutual fund, you are probably paying fees that you have to research to uncover. For instance, 12b-1 fees are embedded into the “expense ratio” of the fund. Visit www.morningstar.com and enter the ticker symbol in the search bar and look for the expense ratio. Additionally, if these funds are in a non-fee based account, you likely paid an upfront sales charge to the advisor as well.
If you own an annuity, you are probably paying fees to the annuity company which then pays the advisor. Depending on the length of the annuity, your advisor could have made as much as 7-10% for selling you the annuity. Read your contract and look for “M&E” and “Rider” fees. If you have investments, you likely have “investment expenses” as well. Add all these up and you will get a good idea of the total you are paying.
If you have a fee based account with your advisor, you are likely paying them an advisory charge. This charge is usually shown on your statements and could be monthly or quarterly. Consequently, every firm uses different terminology but look for “advisory” or “program” fees.
There are a number of ways that Financial Advisors receive compensation. Its important for you to know how you are paying yours and to confirm that they have your best interests in mind when making recommendations. When in doubt, collect all your statements and get a 2nd opinion!
Ryan Oates, MBA, CPFA
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