How to know what fees financial advisor is charging?

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OakPhilliesFan
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How to know what fees financial advisor is charging?

Post by OakPhilliesFan » Mon Apr 27, 2015 12:33 pm

My mother has had a financial advisor for over 10 years. It's only now with a bit of investigation that we're discovering what she's really been paying for. I have a list of her investments with the advisor and it was possible to create online accounts and make a list of all of her holdings, their expense ratios, etc.

However, one big question remains -- is her advisor charging an AUM fee? My mother says she doesn't get quarterly or annual statements from him, just statements for her individual accounts. How are AUM fees usually assessed? Is it possible she's paying one and doesn't know it? We are planning to fire the advisor soon anyway, and she could just ask, but she doesn't trust him very much (and I don't blame her after seeing what he sold her). I could just call the company and ask what their general practice is. But I'm curious what the paperwork trail would be.

MN Finance
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Re: How to know what fees financial advisor is charging?

Post by MN Finance » Mon Apr 27, 2015 12:42 pm

Posting the name of the company and funds she holds would make it pretty obvious, or you can just ask. Either is an option, but both seem pointless if you're leaving.

toto238
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Re: How to know what fees financial advisor is charging?

Post by toto238 » Mon Apr 27, 2015 12:48 pm

I wouldn't be afraid to write a polite email to the FA asking specifically and clearly for a list of all fees/expenses of any kind the account faces.

Say you want a list of every expense ratio, every transaction fee, every management fee, every load, every account maintenance fee, etc. for the past year.

If they're not willing to do that, they should expect the client to leave.

OakPhilliesFan
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Re: How to know what fees financial advisor is charging?

Post by OakPhilliesFan » Mon Apr 27, 2015 12:55 pm

The company is Hantz Financial Services. (I just discovered they were fined $675,000 by FINRA in 2005 for not revealing conflicts of interest to clients. :shock:) Their website is very basic and as far as I can tell doesn't explain the fee structure at all.

I guess the practical reason I am asking is I'm wondering if my mother will pay more by firing the advisor in a month rather than now. The advantage of waiting a couple weeks or a month is just to get any remaining questions about her accounts answered before we take them over (and move them). Also, I'd just like to know the truth of what fees she's been paying, although what's done is done.

likegarden
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Re: How to know what fees financial advisor is charging?

Post by likegarden » Mon Apr 27, 2015 1:25 pm

You could also get the overall effect of this financial advisor by first calculating the asset allocation of your mother's portfolio, then picking in percentage the equivalent equity index and bond index/ CDs, see what this equivalent portfolio would have generated in % income last year, and compare the income from your mother's portfolio against it.

toto238
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Re: How to know what fees financial advisor is charging?

Post by toto238 » Mon Apr 27, 2015 1:37 pm

Not sure if this up to date or whatever, but I found this on the Hantz website:

http://www.hantzgroup.com/text-document ... t%202a.pdf

It states that there is a yearly flat fee of $360 or $1200 depending on how complex your portfolio or tax considerations are.

Not sure if that helps.

OakPhilliesFan
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Re: How to know what fees financial advisor is charging?

Post by OakPhilliesFan » Mon Apr 27, 2015 1:48 pm

toto238 wrote:It states that there is a yearly flat fee of $360 or $1200 depending on how complex your portfolio or tax considerations are.

Not sure if that helps.


Thanks, that's helpful. I hadn't seen that. Either figure would be much less than 1% AUM, so that's good to know. Still money she doesn't need to be paying, though.

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Higman
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Re: How to know what fees financial advisor is charging?

Post by Higman » Mon Apr 27, 2015 1:55 pm

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Last edited by Higman on Mon Apr 27, 2015 2:01 pm, edited 1 time in total.

toto238
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Re: How to know what fees financial advisor is charging?

Post by toto238 » Mon Apr 27, 2015 1:59 pm

From that same source:

"You will incur additional fees and charges if you choose to implement our recommendations.
Additional fees and charges typically include brokerage commissions, custodial fees, insurance
commissions, and other transaction-related charges. We will provide you, in advance, with information
about those additional fees and charges.
Fees and expenses charged by mutual funds or by insurance companies to their funds are separate
and in addition to the fees we charge for our financial planning and consulting services. You
will incur additional fees and charges at the fund level, if you purchase mutual fund shares or a
variable insurance product. Each mutual fund’s or variable insurance product’s prospectus describes
these fees and expenses. The additional fund-level fees may include, but are not limited
to, a management fee, other fund expenses, mortality and expense risk charge or possible distribution
fee. If the product imposes a sales charge, you may pay an initial or deferred sales charge.
Before investing, you should consider the total cost of fund-level fees, our advisory fees, and any
transaction-related commissions or charges. You may choose to invest in mutual funds or variable
insurance products directly, without our services.
Our representatives may receive continuing 12b-1 fees, sometimes called trail commissions,
from mutual funds and insurance companies based on client funds held in those accounts. 12b-1
fees are described in each fund’s prospectus. In addition, our firm receives marketing allowances
and reimbursements from preferred suppliers, which may change from time to time. Recent marketing
allowances and reimbursements are disclosed in our Conflicts of Interest disclosure or in
the investment or insurance product’s prospectus or brochure."

So although the flat fee sounds nice, it sounds like they get you on the back end. They get commissions every time they sell you a load-fund or a variable annuity or whatnot. They get 12B-1 kickbacks from the mutual fund companies as well.

Is it the worst I've seen? No. But it's not the best either.

OakPhilliesFan
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Re: How to know what fees financial advisor is charging?

Post by OakPhilliesFan » Mon Apr 27, 2015 2:06 pm

Higman wrote:Better check out the ADV Part II form. See item 5. They could be charging as much as 2.5%:

http://www.adviserinfo.sec.gov/Iapd/Con ... _ID=201098


It's Hantz, not Hanzel. :happy But thanks for the link to that SEC website, which I didn't know about. I found Hantz's ADV and under Compensation Arrangements it says "Fixed fees (other than subscription fees)".

http://www.adviserinfo.sec.gov/IAPD/Con ... C0&Print=Y

OakPhilliesFan
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Re: How to know what fees financial advisor is charging?

Post by OakPhilliesFan » Mon Apr 27, 2015 2:12 pm

toto238 wrote:So although the flat fee sounds nice, it sounds like they get you on the back end. They get commissions every time they sell you a load-fund or a variable annuity or whatnot. They get 12B-1 kickbacks from the mutual fund companies as well.

Is it the worst I've seen? No. But it's not the best either.


Yes, it became clear to me almost immediately, just based on the funds and other products they've sold her into, that she has much better options. But it's good to get some clarity on how they are actually compensated. Fortunately (?!), her main taxable investment with them has only gained a total of 8% in 10 years, so capital gains taxes will be minimal when we sell it. They also sold her into two variable annuities (I did a different post about that one) and getting out of them will be more difficult.

toto238
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Re: How to know what fees financial advisor is charging?

Post by toto238 » Mon Apr 27, 2015 2:15 pm

OakPhilliesFan wrote:
Higman wrote:Better check out the ADV Part II form. See item 5. They could be charging as much as 2.5%:

http://www.adviserinfo.sec.gov/Iapd/Con ... _ID=201098


It's Hantz, not Hanzel. :happy But thanks for the link to that SEC website, which I didn't know about. I found Hantz's ADV and under Compensation Arrangements it says "Fixed fees (other than subscription fees)".

http://www.adviserinfo.sec.gov/IAPD/Con ... C0&Print=Y


Bear in mind the $360/$1200 fees I found were listed in 2011. There's a decent chance they have increased in the last 4 years with inflation.

OakPhilliesFan wrote:
toto238 wrote:So although the flat fee sounds nice, it sounds like they get you on the back end. They get commissions every time they sell you a load-fund or a variable annuity or whatnot. They get 12B-1 kickbacks from the mutual fund companies as well.

Is it the worst I've seen? No. But it's not the best either.


Yes, it became clear to me almost immediately, just based on the funds and other products they've sold her into, that she has much better options. But it's good to get some clarity on how they are actually compensated. Fortunately (?!), her main taxable investment with them has only gained a total of 8% in 10 years, so capital gains taxes will be minimal when we sell it. They also sold her into two variable annuities (I did a different post about that one) and getting out of them will be more difficult.


The FA will find a way to get their paycheck. They always find a way.

goingup
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Re: How to know what fees financial advisor is charging?

Post by goingup » Mon Apr 27, 2015 7:12 pm

OakPhilliesFan wrote: My mother says she doesn't get quarterly or annual statements from him, just statements for her individual accounts.

I guess I don't really understand this. She does receive statements, but his fees are not shown? I guess it's just "baked in" to the fund performance. Is this customary for advisors?

Perhaps the best thing would be to ask him directly: What fees did you charge my mother to manage her account in 2014? Can you provide a list?

The reason I'd ask about 2014 is there can be no equivocation or conjecture. He charged what he charged and got paid. Or you could ask about charges for the first quarter of 2015, but I would prefer to capture a whole year for clarity.

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