Question: I received a letter from my financial adviser that said I would have to pay a higher percentage in fees because my account size fell below $250,000. The reason my account fell below $250,000 is because the adviser lost money on the investments. To charge me more seems outrageous. Do you agree?
Answer: I find it distasteful, too, because of the sharp decline in the market over the last few years. You would think a conscientious adviser would be reluctant to charge higher fees after these circumstances.
Still, some of the large brokerage firms are rigid. They charge the highest fees to clients with $250,000 or less in accounts - sometimes the fees can be 2 percent of assets or more annually. When your account goes over $500,000, fees go down, and usually at $1 million they are at the lowest levels.
Fees of 2 percent might not sound like much, but the effect, even compared with 1 percent, is huge. Over a lifetime of investing, paying an extra percentage point can reduce your nest egg by hundreds of thousands of dollars.
I would not balk at an adviser who charged about 1 percent, paid close attention to you and your account, and selected sound investments. I also would not blame an adviser if together you agreed on a portfolio that had stock mutual funds that declined 40 percent last year. The leading market benchmark dropped roughly 40 percent, so it would have been typical for …
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