Date: September 19, 2022

Is Your Financial Advisor Overcharging You?

As you get older, it’s important to have a financial plan in place. This can help to make sure your golden years are secure and comfortable—and for most people, that means hiring a wealth manager. However, with so many options on the market, it can be difficult to know whether your financial advisor is really making the best decisions for your money over the long term. 

If you’re concerned that you might be getting overcharged, there are some signs to look for. Let’s take a look.

Join us for a discussion of the following:

  • What designates an underwhelming advisor?
  • Could your wealth management be lacking?
  • Why are ridiculous promises troubling?
  • When should you consider switching advisors?


Fees, Fees, and More Fees

Fees may be the biggest problem in the financial services industry since they can be charged in many different ways. The foremost to consider is the management fee. This is actually paid to your advisor because it goes to cover their expenses, pays their staff members, etc. . The management fee is charged on an ongoing basis which is the standard in the industry. However, a minority of advisors charge flat fees as well as hourly fees like you find in the legal profession.

In addition to these ongoing charges, there are usually other smaller charges, such as annual administration fees or custody fees (for having your investments held at your financial institution). Some advisors will charge both an ongoing management fee and a commission on every transaction they make on your behalf. Since they are charging twice for providing services that many argue should only be charged once, this is known as “double dipping.” While legal with the proper disclosures, it’s often frowned upon. 

Other fees include commissions (which can be hidden), load charges, redemption fees, and annual maintenance charges.


Non-optimal Investment Options

Investing can be a complex business. If you are not sure what investments are right for you, you could wind up losing money on what seemed like solid assets. This can make it important to get a second opinion from another advisor or firm (so ask them if they have a fee-only model). If that isn’t possible due to time constraints or other factors, ask yourself whether the recommended investments match up with your goals and objectives. 

If the answer isn’t clear cut—or if there’s even an inkling of doubt—then it’s probably best that you seek out additional advice. However, if you don’t have confidence in the allocation you’re considering, hold off before committing to it. It might even be time to consider switching financial advisors.


No Written Plan

A written plan is a good idea for both you and your advisor. It helps you stay on track, it helps your advisor see where you are going (and if they can help), and it provides a record of any decisions made together. This can prevent confusion or arguments about what was decided and when or why something was done, as it will be in writing and dated.

If your current advisor hasn’t provided you with a written plan, that’s another cause for concern. In a day when anyone could claim to be a “financial planner” (despite having no certification, education, or experience), transparency and documentation are essential. Having everything in writing also helps ensure that everyone involved is clear about their responsibilities in the process—not just yours but also those of your team (including accountants and lawyers).


Wondering What’s Involved in Switching Advisors? We’ve Got Answers for You Here


Unanswered Questions

If your wealth manager doesn’t clarify or explain things when asked, it is probably time to look into finding a new financial advisor. At the very least, they should be ready to clearly and concisely explain the different options available to you. If they can’t (or won’t), they may not have the expertise necessary to help you achieve your goals.

They may also lack a solid enough understanding of how much money you need or how much risk you’re willing to take on. Both of these are integral to providing dependable advice about investments and their suitability for your situation.


Feeling Abandoned?

Start looking at your financial advisor as objectively as possible: If they aren’t looking out for your best interests, risk tolerance, or even helping you make sure that you have enough money to live the life you want, this is cause for concern, as well. Unless they are fiduciaries, an advisor isn’t required to act in your best interests as they manage your investments. 

In fact, when this post was written, the law was ambiguous about what constitutes a conflict of interest: It’s left up to the individual advisor to decide whether or not they’ll tell you if they benefit from selling a particular product or service. As a result, many won’t disclose any possible conflict of interest until it’s too late (if they ever do).


Impossible Promises

Any worthwhile financial advisor will be able to explain what they can deliver and what they cannot. If they promise to double your money overnight, raise an eyebrow. It shouldn’t be tough to understand the strategy they are using (or ask questions to learn more about it), either. Failing in any one of these areas is a bad sign. 

If they strike out in all three, it may be time for you to find someone who can explain their plan clearly and help you navigate the risks involved in various investment options. A reputable advisor will be ready to explain how they are compensated for their work with you, as well. Similarly, if there are any potential conflicts of interest between what’s best for them (or their firm) versus what’s best for you, they should be upfront about that possibility. 


Find a Fiduciary

compass with words trusted advisor

I mentioned earlier how a fiduciary is required to divulge any potential conflicts of interest beforehand. That’s because a fiduciary financial advisor is obligated to put your best monetary interests first, ahead of their owneven if it costs us a wealth of our own. They also must be registered with either the Securities and Exchange Commission (SEC) or Financial Industry Regulatory Authority (FINRA). 

These organizations serve as regulators of securities firms and brokerage houses. If a financial professional uses words like “adviser” or “consultant,” he or she may be avoiding registration as a fiduciary. Meanwhile, genuine fiduciaries have a financial planning process that includes developing recommendations based on their client’s needs.

Their fees should be transparent, as well: This means no hidden charges or surprises when it comes time to their compensation. They should also clearly communicate their investment philosophy.

What benchmarks do they use? Are they achieving results each year or quarter? What performance targets do those benchmarks represent? You want someone who will help keep your portfolio aligned with your stated goals. 

Finally, look into any track record. If there aren’t any clear results from their past clients, then this could indicate poor performance.


Invest for Tomorrow With a Plan Today

Whether you want to know if your investment advisor is charging you too much—or if you need someone with fresh ideas and solid advice, Heritage Capital, LLC is a full-service financial advisory firm in New Haven, CT. We specialize in helping people get back on their feet after divorce and other family financial matters. Contact us to learn more.


Paul Schatz, President, Heritage Capital