They always say, “The grass is greener on the other side of the fence.” Well, I’ll like to meet whoever “they” are and ask them a few questions.
Back in May, I decided to fire my financial planner and search for a new one. I was hoping the grass – and my money – would be greener with a new adviser. But my failure to read the fine print put all that in jeopardy, and proves that even personal finance bloggers who, to be honest, obsess over every penny can make huge money mistakes.
Vetting The Candidates
I started my search for a new financial adviser by asking friends for their recommendations. After eliminating suggestions rife with nepotism (“My brother-in-law does our investments. He’s great,” wrote one friend; when pressed for details, she couldn’t provide any), we narrowed our field down to three candidates: two independent advisers and one from a major national brokerage house. When my husband and I met in person with these individuals, our questions focused on three factors:
- How do you determine the right funds for the right investor?
- Does the size of the investment affect how you manage it? (our old planner incorrectly assumed that our small contributions meant we were risk averse)
- Are you comfortable making snap decisions on our accounts in the event that you can’t get in touch with us?
We liked what we heard from two of the candidates, but had hesitations about the guy who told us “me too” when we told him that we were very financially literate, but lacked the time to manage our own investments; I have doubts about someone who doesn’t trust his professional judgment enough to follow his own investing advice. We eliminated him from contention, and ultimately went with the guy who showed us that his clients in a similar “risk” bracket had an average 8.3% return on investment, or ROI, over the past several years, including the recession years (’07-’09).
Did I Forget Something?
If you’re wondering, “Didn’t she overlook something?”, the answer is yes . It wasn’t until the paperwork was signed and the accounts rolled over that I really sat down to read the fine print on our new accounts – and that’s where I discovered fees, fees, and more fees. There were annual account fees, monthly “service fees” on accounts that didn’t have automatic monthly contributions, and commission fees.
I wanted to know how these fees would impact my accounts, so I did the math:
- I pay $25/month into my Roth (we max out my husband’s work-sponsored Roth), but the 5% commission would bump that down to $23.75. Add to that a $20 annual service fee, and I’d be paying the broker/brokerage $45 a year to manage the account, while I’d only be investing $285 – a loss of nearly 14% on my contributions
- Because of the Roth, I don’t make monthly contributions to my traditional IRA, which I rolled over from my old job. Between the $50 annual fee and the $5/month service fee, it would knock down the 8.3% ROI to just 7.6%
I do make monthly contributions to my kids’ 529 accounts, which precludes them from monthly service fees and actually eliminates the annual fees as well. But with my retirement accounts, I felt like I was facing fees on top of fees that were really cutting into my returns.
I know I should have asked the questions about account fees before signing on the line and rolling over my accounts – but I just plum forgot. Now I’m wondering if I should switch to yet another financial planner. What do you think are “good” account fees? Which brokerages do you think do the best job of keeping these fees low?