Beyond Fees: What to Consider When Looking for an Advisor

Patrick Comer, CFP®

RVP, Wealth Advisor

Summary

Finding the right advisor isn’t always easy. Learn the importance of choosing a fiduciary who will prioritize your best interests.

What to Consider When Looking for an Advisor

Chances are you may have first considered a financial advisor (also known as wealth advisor or wealth manager) when you began building wealth and needed a strategy for your retirement years. As income and wealth grow over time, your financial situation can become more complex. 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

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 often are grouped together in the category of financial professional. That’s why it’s important to know the services that each provides.

We believe it’s crucial that you consult with an advisor who prioritizes your best interests. 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 are typically not a fiduciary 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 receive payment after selling you a certain type of insurance or investment product. If you choose a fiduciary such as Mercer Advisors, your advisor will have knowledge across multiple specialties that can help you achieve your goals throughout the different phases of your life. This customized approach is a benefit of using a firm that connects the dots of your financial life by unifying planning, investment management, taxes, estate, insurance, trust, and more.

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 whether they receive a commission — and how much — based on recommending 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.

A benefit of Mercer Advisors is that our professionals, besides being fiduciaries, can look at your full financial picture and help with an overall wealth plan, rather than focus on just one area such as taxation, insurance, or estate planning. Your advisor will be able to connect the dots and make sure everything is considered. Talk with a trusted professional at Mercer Advisors today and learn how we can help you.

 

1Occupational Outlook Handbook: Personal Financial Advisors.” U.S. Bureau of Labor Statistics, 6 September 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. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors.

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.

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