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How Much Is Too Much

A good discussion, if not argument, can always be found when we raise the subject of adviser fees. There should be no question that an adviser who provides a useful service to clients should charge a fee for that service. After all, look at what some other folks charge – often for nothing useful at all – because they can.

Now, a true financial adviser is supposedly held to a fiduciary standard in regard to services provided to clients. That standard requires that advice, including recommendations of investment products, must be premised on the best interests of the client, not the adviser. In turn, that standard implies that the fees associated with the services and products should be, at the very least, reasonable. Of course, that is a gray area and subject to many varying opinions.

I am sure we can agree that advisers need to earn a living, just as their clients should pay for the services they receive. So here are some questions to consider:
·         Is a fee structure, simply based on the total amount of assets an adviser is advising upon the best approach? Does it allow for the varying degrees of complexity or effort a particular client or portfolio requires?
·         Is a high fee justifiable simply because it is disclosed and is “what this adviser charges”? Does that high fee imply somehow that there is better value or service? Or might it simply reflect the adviser’s cost of doing business, including quite possibly a very nice compensation package?
·         Does a low fee suggest that there is no significant value added by the adviser? Or that the adviser is inexperienced and is learning by practicing on your money?
·         Is there any connection at all between what the adviser charges and what you get? How does the adviser explain the fee? Might it be as simple as the All American approach of beating the competition simply by charging less? Or is it snob appeal – we charge more because we are worth it?

The point is, know what you are being charged and why. Let the adviser explain the fee structure and how it was derived. You do not need to know and the adviser does not need to share the details of the business and its profit margin. You do need to know first, whether the adviser has thought through the charges and why they are what they are. Second, what the adviser is and can offer you in terms of experience, services and the like. Ask your questions, make your decision, but above all be involved. 

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