Do You Know How Much You Are Paying Your Advisor?

I mean , I hope so , but I don't know because I don't see it on my statement . I don't know what all the fees are and I don't know because I don't see it on my statement . I don't know what all the fees are and I don't know if , ultimately , I'm getting what I deserve right now . Now , if you feel , nope , I'm in an awesome spot , well , great .

This episode might not be for you , but this is for all of you wondering if I'm paying my advisor . I want to make sure I'm getting value . I just need to know what the fees are , because too often someone says I think I have a good advisor , but I don't even see what the fees are and where can I figure those out ?

I'm going to show you all of that today , so a lot of what I'm going to discuss will be via YouTube on my screen , if you're listening to this on the podcast app . As many of you have told me , it is easier to listen on the podcast . You can certainly keep doing this .

I'm going to explain it easily for you , so it doesn't matter where you are tuning in . Now I want to make sure that you understand if it makes sense to hire and continue paying your advisor , or if it makes sense to potentially stop or shift to a different advisor . Now , yes , I am a financial advisor , but my parents were burned by multiple advisors .

That's why I like doing this , so that people know what they are paying for and that they're getting value for it . I want you over the moon paying your advisor , and you should feel that way . That sounds odd , but that is a requirement I have . I want someone going . I'm paying you 20,000 bucks a year .

I love getting 40 , 60 , 80 , 100 X in value , and I'm sleeping at night . Well , this is awesome . That's how a relationship should work . So the first question I invite you to ask your advisor is actually very simple how much am I paying you ? And I want you to shut up and just hear what they have to say If they start rambling and going .

Well , there's a lot of fees , and actually this is what the investments . But don't worry , like we all pay that , even me . And don't worry , trust me , this fee is just it's not significant , don't ? You ? Don't got to worry about it . Well , now they're maybe talking a little bit too much and not giving you a direct answer .

They should be able to give you a percentage and a dollar amount , and it should be very transparent . So on my screen here you're going to see me walk you through an example , and this is how I like to do it with clients . So just a hypothetical for you , I'm going to explain it as well , in case you're just listening here .

Now , if you don't already know , my name is Ari Taublieb . I am the host of this podcast , the Early Retirement Podcast , and I'm the vice president at Root Financial Partners . So what you're going to see here is this is a fee calculator . It is very simple . You can see . This is our fee structure .

It is very transparent and it is like most investment managers . Now , some charge 1% , some charge north of 1% . I'm just giving you an example . So let's assume there's $2 million that you're working with that an advisor would manage Well . First of all , what does manage mean If someone has a million dollars in an IRA and a million dollars in a 401k .

Those should be managed very differently . Meaning a 401k is something that we will give you guidance on , but we're not going to bill on that because we're not actually managing it for you . So the first question , truly for your advisors do you manage on everything ? Because some advisors will bill on your net worth .

So if you have a $2 million home and $2 million in investments , they'll go yep , it's 1% of 4 million . That's $40,000 a year . Now , if they're giving tremendous value for it , be my guest and pay it . But oftentimes there's not a ton of clarity as to what managed mean .

Managed should mean what they're actually investing and helping you out with , but they should be giving you guidance on everything . So if someone comes to me with $3 million but 2 million of it is in an IRA and 1 million is with their current 401k where they're still working , we're only billing on 2 million .

That annual fee is $17,500 a year and oneelfth of that fee comes out of the account every month . The reason we do it this way is because when my parents were at Wells Fargo , they were told they had to be there for three years and after one year they wanted out because they didn't feel there was sufficient value and they couldn't leave .

They ended up leaving through different means and it was a hassle , but they were able to do it , and that is not how a relationship should work . You should be hiring an advisor , going , I'm going to pay you gladly , but you have to be justifying the fee through peace of mind , through value , through many , many different means .

And I had a previous episode , if you have not seen it , where I have a few episodes . I have one called am I crazy for paying 30,000 a year to an advisor , and I have another episode where I go should you manage your own money ? And I go into detail on all of this , in addition to hidden fees . I like talking about this .

I am the weird advisor that believes in this level of transparency . So you can see here , the annual fee percentage is 0.88% . So the question is can an advisor add value in excess of this ?

Now , one of the reasons I'm not loved in the advisor world and I'm going to explain it as well as showing it on my screen is , I will generally say on some of my videos sometimes at the end I'll say if you want a traditional advisor , someone who's going to help you rebalance , pick this stock , instead of that one .

And when to collect social security , I'll say don't hire me . And I don't think you should hire any advisor , because I don't believe they can justify the fee . Now , fidelity is like ari , you got to stop saying that . And schwab is like hey , when you say that you hurt my business and my clients watch your videos .

Now they're asking questions and they listen to the podcast and I go look , look , I'm really sorry , but that's not my problem . I need to add significant value in excess of the fee or no one should ever pay me , and it is that simple . So the point here is , what we do goes much deeper Tax purpose , insurance , estate , health care , withdrawal .

We do planning to a different degree , but I want you to ask your advisor hey , what am I paying all in ? So I want you to say that word what am I paying all in ? So the first thing you're going to do is say , hey , what am I paying ? Engage their answer . If they say you're paying $17,500 a year , you'll go great , that's very simple .

I would love to understand more as to the value for that Great Like you can keep it . You don't have to be mean . You can be very , you know , can't use , be straightforward . I was looking for the word candor there . I was thinking of canter , for some reason , I don't know why . So what I want you to do next is go . What is the all in cost ?

And they're going to go all in . And you're going to go , yeah , what's the all in cost ? Meaning of all the investments I own . And they might tell you they might go oh , that's included .

They might kind of beat around the bush a little bit , but I'm going to show you an example of someone that we work with today that went through this type of process when I had them ask these questions . So you're going to see it on my screen , but you're also going to hear me explain it .

So this couple came and they had $4.4 million and they were paying 1% per year . So 1% on 4.4 million is $44,000 a year . And I said , hey , guys , that's awesome . I have clients paying north of that and they're getting way more value . So totally get your pay in that . Do you feel you're getting that value ? And they go .

No , I feel like I'm getting the kind of first three of things you talk about with . Yeah , they rebalance and they're telling me what stocks to buy . They're actually giving me some good guidance on when I should collect social security , but I'm not getting tax help . They're not telling me if I need health insurance and long-term care .

They're not telling me if I should do charitable giving in a different way . They're not telling me which account to pull from . I said that's okay , let's talk further . They said okay , so I'm paying 1% a year . And they said do you do all of that ? And I said we do that , but you shouldn't hire us because we do that , but that is included .

And they're like okay , well , what do you do and what's the difference ? And so we had a conversation , transparently , about that and I'm going to pull this up on my screen so you can see exactly what I'm looking at , but I'm also going to explain it .

So this couple came to me and whenever you look at an advisor's value or want to analyze anything along these lines , you need to know what's called the all-in cost . Now , what does that even mean ? What that means is there are a few different fees .

There's what's called an advisory fee that goes directly to an advisor , so that is just what you're paying the advisor . So that person told me they have $4.4 million . You can see all of their different investments on my screen .

But if you're just listening , they have T Rowe Price and they have Vanguard and they have T Rowe Price and they have Vanguard and they have Guggenheim and they have all these different investment companies . Nothing wrong with that . But it comes out to $4.4 million , of which they're paying 1% a year , or $44,000 . I said totally cool , guys .

And I said go ask your advisor what the all in cost is . And they said Ari , you're wrong . I just talked to them and they told me it's 44,000 a year . I said they're lying to you . And they're like uh , what are you crazy ? Like you don't even know the advisor . I've worked with this guy for 15 years , so he's not going to lie to me .

I said he's lying to you and they're like hey , you sure you want to still say that ? Like I talked to him , I go , you're spending 44,000 a year to the advisor , but there's another investment cost of what your investments actually are . And they're like huh . I said all of your investments have fees as well .

Some of them are transparent , some are less so , but let's look at them . He said okay . So they sent me their investments and I said you have one fund here called the Artisan Small Cap Fund . It has an expense ratio of 1.2% .

What that means is if you have a 10% return , there's a fee of 1.2% , which means your actual return that , if you look at your statement , will show 8.8% , because the SEC , which governs investments , they require after fee returns . So if you look at your returns and you go great , 8.8% . Well , yeah , that's what you received , but you really got 10% .

And then there were these fees . Now let me be clear I'm not anti-fee . Okay , you are not anti-fee . I can promise you that because you've been paid in a career your whole life and you've been paid a fee . That's what a salary is . Sometimes this word fee gets a bad rep because people go I don't want to pay hidden fees .

I'm like I don't want you to either , but you've been paid a fee for your career your whole life . You deserve to be paid it . So everyone deserves to make money . I'm not against that . If money , I'm not against that .

If you could prove to me that this one fund that has a fee of 1.2% could outweigh the fee by the performance , I would say I want you to own that thing . If you could tell me that the fee was 1.2% and it would generate a return of 1.5% , I would say please own this . It's awesome .

But the problem is there are years it will outperform and there will be years that underperforms . And what happens is there are years it underperforms and you're assessed the fee . So not only are you hit with underperformance where the fund didn't do well , but you're now hit with the fee on top of that and that can eat into returns in a major way .

So this particular couple you can see it on my screen , but I'm explaining it they have hidden fees of $35,000 a year , meaning they are paying an advisor $44,000 and the investments they own cost $35,000 . Some of this they start freaking out . They're like oh my gosh , you're telling me I've been paying this amount every year . I go .

Don't beat up your advisor too much , because a large portion of what you have is in your 401k , where you have limited options . Have they given you guidance on that ? And they go . No , they only told me what to do with investments that they're actually managing for me .

I said , well , that's a little bit of a pink flag , because they should be giving you guidance at anything they're not even managing . But you can see here this is a real number . So they're like , hey , am I spending 35 plus 44,000 a year ? I said yes , and they said , well , that's 80,000 a year . I said that's correct .

And I have clients spending north of 100,000 a year and they cannot wait to pay more because they're making way more money because of it . I have other clients that perspective , clients that want to work with me , and they're like I can't wait . I'm excited and I'll say we can't add value in excess of this . And they're like , why not ?

I said , well , your plan doesn't allow for that , meaning everything's in a 401k . You already did some of these conversions . You told me what you wanted to spend . You're not losing sleep over your strategy . I'm not sure that you should pay us . I will do both of those . It depends on if someone can add value .

So this person's paying 1% a year to their advisor . That's 44,000 . We are 32,000 . So they said that's 12,000 less . I'm gonna start working with you . I said don't work with us because we're less . That's like going to the dollar store because it's less . You don't want to do that . You want to ask yourself is there value .

Now they were not getting guidance regarding tax and withdrawal and insurance in a state , so for them there was a level of complication . It made sense to shift advisors .

They're working with us now and , instead of their investments having a cost of $35,000 a year , I like companies like Vanguard and Dimensional that generally keep income and the cost , the fees , very low , but have a great performance and track record . So this should be closer to about $2,000 to $3,000 .

If I wanted it to be zero , I could do zero , but what we want to make sure we're doing is having an effective portfolio and keeping costs really low , without being too low . And I'll use my grocery store example and tell people hey , why don't you just go to Whole Foods and buy paper plates ? And they're like what are you crazy ?

You want me to throw money away ? I go no , I'm just joking , but don't do that . Okay , that's active management . The fees are high and there's not a lot of value . Don't , though . Why don't you just go to the dollar store for everything You're going to be able to eat ? And most people go , yeah , but the value is not the best , and I go .

That's what we want to start to determine . Could we possibly find a better alternative , and that's our job for our clients . So I've shown you now what is the advisory fee . I've explained what is the investment fee . Those are the two major fees , the only other fees that exist , and every advisor works differently . Some advisors will do what's called a flat fee .

Hey , ari , pay me 10,000 bucks a year and just give me guidance .

The issue I see with that model and there's nothing wrong , there's no perfect model , everyone's different is , if someone were to pay me 10,000 a year , my incentive even if I think I'm a good person and I think , believe so , hopefully you believe so too is to bring on , because this is human nature . I'm a reasonable skeptic . That's just who I am .

If I paid someone 10,000 a year , said watch my money , I know they're gonna try to take on as many clients as possible at 10,000 a year . That's how they're gonna build revenue . Try to take on as many clients as possible at 10,000 a year . That's how they're going to build revenue . They're not going to be proactive to me . They don't have an incentive .

I pay them 10,000 a year . Their incentive is to keep me happy . So they're going to talk to me when I reach out and they're not going to go . Hey , ari , let's have another two hour chat about social security , because it could have a $500,000 impact on your plan . They might talk to me about it upfront , but we didn't spend a ton of time on it .

They would rather go , try to find a new client and make another 10,000 a year . Now , I'm not against them feeding their family and going on vacation , but I wanna make sure that any of my advisors can be proactive with you and that there's no limit to how often they speak . So our philosophy is very simple . We believe we are paid very fairly .

We believe that you've done a good job saving , investing . We wanna add significant value . We generally can only do that by doing everything tax , estate , healthcare , withdrawal , insurance . We are optimizing your entire financial life , making sure you don't have to deal with it . So ultimately , I just want you to know the advisory fee and the investment fees .

If you know them and go , wow , it's very low . For example , vanguard , very low . The advisory fee to be able to speak to Vanguard is 0.3% , known as 30 basis points .

That's awesome , but if we're just getting investment guidance without tax and withdrawal and healthcare and all these other things , sometimes it makes sense to maybe go to Trader Joe's as opposed to the dollar store , but I don't necessarily need that person to go to Whole Foods and buy paper plates .

So there's a balance here and what you wanna make sure is that you're aware of the fees and , if you're paying for them , that you're getting value . That's what I care about . I will be very transparent .

The majority of people working with us are coming from an advisor where they're not receiving tax guidance , where , if they ask their advisor a question , they'll say regarding taxes , they'll say talk to a CPA . Your CPA says talk to your advisor .

Now you're playing middleman in retirement , you're having to coordinate between an estate attorney and an insurance agent and now there's just a lot more hassle and you're like I think that's just how this works . No , that's not how this works . You should have one advisor that is able to do all of those things and facilitate everything for you .

So my job is to do what's called often tax planning . That is forward looking . Those are things like Roth conversions and tax gain harvesting and when do you withdraw , and should you do health care subsidies or prioritize conversions instead ?

Or how do you compare charitable giving and pair that in a year when your income is low , so that you can offset that by doing a conversion . It's the next level of strategies . It's not for everyone and I'll tell people very transparently we might not be a good fit because we do holistic planning for an early retirement . If that is what you're looking for .

Other people are like , no , that's awesome . But like I just want my advisor to tell me to buy Apple or Microsoft , I go cool , we're probably not a good fit . So what we're doing generally is heavy tax and estate planning in addition to making sure you're invested well , and that's why most people reach out .

And then after a year they're like well , I don't know what . I didn't know . Like there's so much to this . Oh , my gosh , you're opening up my eyes . This is what real holistic planning is like . Oh , this is different and I am very transparent . But the point here is I require your spouse is on our meetings . Other advisors are nicer and they'll go .

Nope , you're the breadwinner and you've been managing the finances and you're a good team . I can tell your wife doesn't want to be on it or your husband doesn't want to . That's cool . I'm not cool with that because if something happens to you , I need to make sure your spouse or partner knows where to go .

Now I recognize that you're humans and not robots , and there will be certain meetings that your spouse just won't want to be on . I get that and I'll offer a meeting to be recorded and say there's going to be a 10 minute bit here . I need them to rewatch this after and they'll be like cool . So I'm a reasonable guy .

But oftentimes people are hiring us so that they go hey , if anything happens , like my spouse , like they don't even know where to go to find any of this and how to do this , and so I want someone who's gonna organize your life , save you on taxes and bring excessive value , and you're paying for quality of life so that you can live and spend time doing what

you wanna do most , which you can't exactly quantify . So I do believe in hiring an advisor if there's significant value . I don't if you truly are not getting the value . So ultimately , this is just a transparent episode on fees .

Hopefully this was helpful and if you're looking to work with us , you can go ahead and see in the description to apply to work with us . If you're looking for the Academy , which is just the software and different tools that I discuss , you can go ahead and check that out as well . I'll see you guys next time .

Thank you for listening to another episode of the Early Retirement Show . If you have a question that you want answered in a future episode , you can always go to my website , earlyretirementpodcastcom . That's earlyretirementpodcastcom , and you can go ahead and submit a question that I'll look to answer in a future episode . Thank you all for listening .

Please do rate it , review it and share it with someone who you think would benefit from this information . If there's anyone out there that you know , I certainly appreciate it and I will see you all each week . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice .

Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only .