If you listen to money expert Clark Howard, you’ve heard that you need a fee-only fiduciary as your financial advisor. That’s if you need a financial advisor at all.
So you’d think hearing that your advisor is finally becoming a fiduciary would be great news. But what if they’re doubling their annual fee at the same time? Should you switch financial advisors?
That’s what a listener of the Clark Howard Podcast recently asked.
Should I Switch Financial Advisors Now That Mine Became a Fiduciary and Is Charging 1% Annual Fees?
My high-commission financial advisor just became a fiduciary. Now they’re doubling their annual fee to 1%. Should I switch financial advisors?
That’s what a listener asked on the June 28 podcast episode.
Asked Margaret in Colorado: “My friend and financial advisor met and informed me that she and all the other advisors [at the company] are being mandated to get a fiduciary license.
“Because of this changeover, they will be going from charging fees to a cost of 1% of my conservative funds. I have three accounts with them: an IRA (spouse benefit ~$100K), a Roth (~$100K) and a transfer on death ($126K).
“I read your article on clark.com titled “Should You Manage Your Own Investment Portfolio?” and it indicates that [a] 1% [annual fee] is not outrageous [for a fee-only fiduciary financial advisor]. So do I stay? Or should I switch to one of your three favorites? And is so, which one?
“I will be paying double what I was paying — approximately $1,500 in fees vs. $3,000 if charged 1%. Please help!”
Margaret almost certainly will end up with more money long-term with her brokerage firm switching to a fiduciary standard, as Clark explains. Even with the move from 0.5% to 1% in annual fees.
“So how is it that you’ll end up saving money by paying more fees?” Clark says. “Because when you’re with a full-commission stock brokerage, which this one historically has been, they’ve historically put you in high-cost funds and high-cost investments because that made them the most money.
“Now as a fiduciary relationship, their duty is to put you in things that have extremely low costs.
“The odds are what you’ll save in commissions and ongoing embedded expense ratios in funds will be so much cheaper that you should end up with much more money down the road even paying higher [annual] fees than you were paying. Because what you’re not seeing is all the embedded expenses in the [investments] you’re in.”
Should I Switch To Fidelity, Schwab or Vanguard?
Margaret referenced Clark’s three favorite investment companies. Which of course are Fidelity, Schwab and Vanguard.
Are these options better than the formerly high-commission broker that’s apparently “going straight” and becoming a fiduciary due to increased competition in the marketplace?
It depends.
The great thing about Clark’s “favorite children” is that they offer such a depth of services.
A lot of people are unclear on what a financial advisor is and if they need one.
If you’re only looking to handle your investment portfolio, you don’t need to pay a standard 1% annual fee to an advisor.
Garrett Planning Network: Hourly Advice Without a Long-Term Commitment
Even if you need very occasional advice on financial planning (or something similar), you can try the Garrett Planning Network. Enter your ZIP code and you’ll get a list of fee-only fiduciaries near you.
Garrett’s member advisors provide financial planning and investment advice on an hourly, as-needed basis.
Why Clark Recommends Vanguard’s Hybrid Service
If you don’t want to manage your own portfolio, and you need relatively minimal financial advice, Clark points at Vanguard’s Personal Advisor as a great option.
You pay an all-in cost (annual fee plus expense ratios for the investments) of 0.37%. Vanguard’s robo-advisor handles your investments. And you get ongoing unlimited access to human financial advisors. (You need to proactively schedule phone calls around specific topics and you may not talk to the same person every time.)
“You will pay lower fees significantly and you’ll be in a fiduciary relationship,” Clark says. “And you’d be getting advice and guidance and placement in funds. So it would potentially be a much cheaper choice for you.”
He also recommended Schwab as a similar option.
“Your accounts are larger than what I would recommend for Schwab’s Intelligent Portfolios. But you could look at the other advice offerings from Schwab,” Clark says. “I would say in your case, if you’re looking at the alternative, it would likely be Vanguard would be the best move for you.”
Final Thoughts
There’s nothing wrong with paying 1% in annual fees for a fee-only fiduciary financial advisor. Just make sure you actually need all the services that a true financial advisor provides. (In other words, make sure you need help that goes well beyond investing.)
However, you can save money by considering hybrid advisors like Vanguard’s Personal Advisor Services. You’ll be able to get investment help and some level of financial advice beyond that for less than 0.40%.
If that’s the case, consider switching financial advisors.
