As you began to build your wealth, you might have considered hiring a financial advisor. Also known as wealth advisors, these professionals are especially important when planning for your retirement years.
What’s a fiduciary and why is it important?
Capital-gains tax, estate tax, fees, and other factors can erode wealth, shrinking your current income as well as the estate you leave for heirs.
With an increasing number of advisors entering the job market every year — all having different certifications, minimum fees, asset requirements, and services — we believe it’s important to choose one who is obligated to serve the best interests of their clients.1
One of the most important distinctions to understand is whether or not your advisor is a fiduciary. The term “fiduciary” isn’t just industry jargon. Having an advisor who is a fiduciary, or one that isn’t, can have real implications for the type of advice you receive, the fees you pay, and the trust you place in your advisor.
| Questions to ask when choosing a financial advisor
When shopping for a financial advisor, you’ll want to get a clear understanding of what they bring to the table. From fees to fiduciaries and everything in between, we break down the key questions you need to ask. |
Different types of financial professionals
Although it may be tempting to choose an advisor based only on their fee, other important factors should be considered. Financial planners, securities brokers, insurance brokers, and investment managers are often grouped in the financial professional category. That’s why it’s essential to understand the services each provides.
We believe it’s crucial to consult with an advisor who puts your best interests first. Look for someone who is a fiduciary and affiliated with a registered investment advisory (RIA) firm.
Many people work with a financial professional at a bank, brokerage firm, or insurance company. These advisors usually are not fiduciaries and may have revenue-sharing or sales agreements that can create a conflict of interest when a solution or service is being recommended. For example, they may receive payment after selling you a certain type of insurance or investment product.
Making sense of fees
Once you’ve identified a prospective advisor, it’s essential to understand their fee structure. When exploring options, seek transparency regarding a firm’s asset management fee and the services that are included in an agreement. Additionally, ask the advisor if they receive a commission when they recommend certain products or services.
Some wealth management firms offer a broader range of services than others, and potentially provide better value for the costs you incur.
Here are the key costs you’re likely to weigh when evaluating advisors and their associated fees:
- Advisor fee or management fee: Many wealth managers charge a flat fee, typically about 1% of total assets under management (AUM), based on how much of your money they manage. Sometimes this flat fee is on a scale, so the more AUM you have, the lower the fee percentage. Under this fee-only arrangement, the advisor or firm only earns more money when you do. Some financial advisors, however, operate with a fee-based model, earning a fee regardless of your portfolio performance, and they may also earn a commission on product sales.
- Commission: Trade commissions or transaction charges are typically linked to a specific product and may vary depending on the broker. This fee may apply when you buy or sell stocks, bonds, or other investments. Mutual funds sometimes pay a brokerage to offer their funds without a transaction charge, but this cost may then show up in the form of a higher expense ratio.
- Expense ratio: Expense ratios represent the cost of managing a mutual fund or exchange-traded fund (ETF) and are charged back to shareholders. The higher the operating expense, the smaller the investor return. It’s essential to ask about the average expense ratio for any asset class that’s being recommended for your investment portfolio.
- Surrender charge: You might pay this fee when you sell, cash in, or cancel certain insurance policies, annuities, or types of investments.
- Custodial fee: This typically isn’t applicable when you’re working with an advisor, but a self-directed investor who has a brokerage account could owe a custodial fee if their balance falls below a minimum threshold or if the account includes a certain type of investment.
Once you’ve identified advisors and firms that can prioritize your best interests, and you’ve gained clarity on how they’re compensated for their services and specialties, you’ll be equipped with the knowledge to evaluate your options and select the right one with confidence.
If you choose a fiduciary, you’ll receive guidance to help you reach your financial goals across various life stages. This customized approach is a key advantage of working with Mercer Advisors. We connect the dots of your financial life by unifying planning, investment management, taxes, estate, insurance, trust, and more.
If you’re not a client and you’d like to learn more, let’s talk.
1 “Occupational Outlook Handbook: Personal Financial Advisors.” U.S. Bureau of Labor Statistics, Sept. 6, 2023.
Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. The services and third-party links are presented for information and educational purposes only. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
Mercer Advisors is not a law firm and does not provide legal advice to clients. All estate planning document preparation and other legal advice is provided through select third parties unaffiliated to Mercer Advisors. Tax preparation and tax filing are a separate fee from our investment management and planning services. Mercer Global Advisors has a related insurance agency. Mercer Advisors Insurance Services, LLC (MAIS) is a wholly owned subsidiary of Mercer Advisors Inc. MAIS provides individual life, disability, long term care coverage, and property and casualty coverage through various insurance companies. For Mercer Global Advisors clients who wish to purchase insurance products, MAIS has entered into a non-exclusive referral agreement with Strategic Partner(s), where the Strategic Partner will provide necessary services relative to the marketing, placement, and servicing of the insurance products, including without limitation preparing and presenting illustrations, supporting the underwriting process, assisting with the completion and execution of applications, delivering policies, and servicing in-force business. MAIS and the Strategic Partner will be listed as either “agents” or “co-agents” on the policies. While Mercer Global Advisors does not receive a referral fee, Strategic Partner receives a percentage of the commission revenue. MAIS and Strategic Partner do have a revenue sharing agreement. Trustee services are offered through select third parties with which a client would engage directly, as such additional fees may apply.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
