The 1% Advisor Fee Trap Nobody Talks About

depending on the size of your portfolio, depending on your trajectory, 1% might be too much. And then are you paying more under the hood, under the surface?

Let's go through an exercise real quick. So, instead of explaining the report card, I want you to run the report card on me. I want you to pretend like I've just sat in front of you for a discovery meeting is what we call it. And you're going to just facilitate through opening dialogue and conversation. But I want you to do it in a way that you're trying to check boxes or write a score on certain sections of the report card.

I've never really thought about taking you through a process like this, but okay, here we go. All right. So, it's nice to spend some time with you and learn a little bit more about you. I need to know at the outset of this conversation, what's going to guide us through this is first and foremost, how often are you reviewing your financial situation and who's giving you the direction and the guidance?

Okay. Well, I've had a financial adviser for a long time, two decades. They're great. I love everything that they do for me. I don't think that there's anything that they're not doing for me. So, let me start with that. I'm here because something about your second opinion piqued my interest and you all offer a free discovery session and so I just said, "Well, if it doesn't cost me anything, it can't hurt." So, my advisor and I get together once a year and that's really all I want because I know that they're doing everything that they're supposed to for me.

Well, one, I'm glad that you work with someone. It gives me a good feeling inside to know that people work with someone and they're getting advice from somewhere. What I often hear though is people believe that everything is being done the right way and they feel like their advisor's got it.

Mh.

And particularly when the relationship is 20 years old.

Yeah.

So, great that you've got a relationship. Obviously, you like and trust that person and so there's good that there's a good relationship there.

Sure.

So, what are you using to measure what that advisor is doing for you? What's the measuring stick? And how do you know when they're giving you the best advice versus not? And how are you getting your information by which you measure or with which you measure your current advisor?

Well, my advisor provides the measuring stick. They use standardized benchmarks and they use general ratios for where I should be. And that's sort of what lays the foundation of at least what my advisor tells me, you're on track and here's why. There's not a, I haven't really gone through another advisor's model. So, I guess in that regard, I don't have anything to compare it to, but I feel pretty comfortable about the metrics that they're providing me.

You believe that everything this advisor is doing for you makes all the sense in the world? The problem is if they're using standardized systems, it means they've placed you in a standardized box. And if you're standard, then great. But depending on what you're trying to accomplish in life, where you are in your business, where you are in your finances today, where you want to be, what you're trying to accomplish overall, that might mean that you're not as standard as they're telling you. And so if you never step outside of what's comfortable with them to see if there's a different way to do it, you may never know until you can't fix it.

So I'm not saying that what they're doing is wrong. It might be perfect.

Sure.

You might not find any val. In fact, what would be great for you, Spell, is we run our second opinion for you.

Mhm.

And we can't find broken parts. We can't find things that need to be repaired. And if that's the case, then you get confirmation that what you're doing is just where it needs to be.

Okay.

And it gives your advisor confirmation that they're doing a great job.

Yeah, nothing better than getting ranked by your peers. That sounds reasonable.

And if they aren't doing a good job, if we find holes in what they're doing for you, then your decision is simple. You get to decide if they fix it or someone else fixes it. We have to go beyond what's considered standard in the industry. We have to measure it against what you are trying to achieve, what you're trying to accomplish. And when we do that, for example, Spell, are you paying too much for the services you're getting?

Well, I think I'm paying 1%.

What do you mean you think you're paying 1%? You think you are or you are? Because if you are, that might be okay. But depending on the size of your portfolio, depending on your trajectory, 1% might be too much. 1% might be just right. But are there other fees? So, are you paying that advisor 1% and then are you paying more under the hood, under the surface?

What do you mean?

Well, if your investments are primarily mutual funds, then you've got another layer of cost. So, the advisor is going to charge you to go pick those mutual funds and then the mutual funds are going to charge you a fee to use the fund. So, you're going to pay what's called an expense ratio. So, there's expense ratios, there's the advisor fee, there could be other fees, right? We don't know until we dig in. If there's annuities, if there's mutual funds, ETFs, etc., there are fees associated with those. Those generally come in addition to what the advisor charges.

Now, I'm not saying that's all bad because if they're giving you great value for whatever they're charging, then it might be justified.

Sure.

But I think you deserve to know. Every person deserves to know if what they're paying is the right amount.

Gotcha.

For the value received.

Okay. All right. Makes sense. So when you're finished with that analysis, you'll give me a score.

That's right.

Okay.

That's right. So we give you a score and you're going to be passing or failing.

Okay. And if I fail, then what?

Well, if you fail, two decisions. One, do you want to improve your score?

Okay.

The second decision is who helps you improve it. I submit to you that if someone is allowing you to fail, then whatever their price, it's too high.

Yeah.

Doesn't matter what their price is, even free, it's too much.

Okay.

If you're failing, you deserve to have your plan improved. Knowing if what you're doing is right, that's one of the best confirmations you can get.

Would you feel comfortable if someone ran a report card on you?

Sure. Yeah.

Has anyone ever run a report card on you?

Spell, years ago, I was the test case in the firm.

Okay.

Many of our advisers, when we were running test cases, I was the one and so they would run test cases on me. And part of that was because I was the only one that would volunteer and I felt like it needed to be real.

Yeah.

So I've done it.

So you'd be okay if I picked up the phone and called your CPA?

I would.

You'd be okay if I mandated it?

I would.

You'd be okay if I had picked up the phone and called your estate planning attorney?

I would.

And you'd be okay if I forced the issue?

I'd want you to force it. And I'm going to tell you why. I think we all run through life at a pretty rapid pace. We have distraction after distraction. Spell, nobody wants to talk about finality.

Yeah.

No one wants to hear the death word. And because of that, we don't have a lot of free time or we choose not to have a lot of free time. So whatever it is that keeps us busy takes us away from doing the things that we know are important. But it's either the speed at which we live life or it's the unwillingness to talk about finality.

Yeah.

People don't want to talk about morbidity. They want to live.

Yeah.

And people want to be invincible, right? They want to live.

Yeah.

So they don't want to talk about that stuff. I believe that anyone who says, "No, I'm not okay with you pressing the issue," they're scared of something.

Yeah.

But I think the minute that a person will open their mind and say, "I'm here for a finite period, I want to make the most of it. I want to do the best I can."

Mhm.

If that means running fast, then do it. But get somebody on your team who's willing to help you make the right moves while you're running fast.

Yeah.

So that you can make the most out of your life. Whether that is a life full of raising a family and guiding them.

Yeah.

Or if it's a life of philanthropy, or if it's a life of whatever.

Sure.

You need that person on your team who will ask the hard questions, say the things that might offend you, knowing full well they're doing it for one reason. It's for your own good. And when they will do that, that's who you better keep on your team.

No doubt. No doubt.

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