Types Of Wealth Management Advisory Fees
The first step to managing your investment is to understand the amount to fork out for the service.
Published on 23 May 2018
Investors need to be informed not just about the assets they are investing in, but also how much fees are involved in the process. While engaging a professional financial advisor to manage your investment and customise an investment portfolio that suits your needs sounds like an excellent plan, it does not come free.
Therefore, it is pertinent to understand how much you need to pay when looking to engage the services of a financial advisor or investment management firm, as such fees will have a direct impact on your return. Every cent counts towards performance in the long run.
Here, we take a closer look at the different types of fees investors will encounter:
Many financial advisors and wealth management firms charge their clients based on a fee structure, and the most commonly used fee structure in the industry is charging a percentage of the total assets managed. The average fee paid to financial advisors and wealth management firms is usually between 1-2% of the total investment sum of the client’s account annually.
It is worth noting that the advisory fee percentage is often scaled, and often decreases as the amount of assets under management increases. For example, a financial advisor may charge a client 1.5% annually to manage an investment account of $100,000 or less, but charge less than 1% for an account of more than $1 million. In short, you have more negotiating power when you have a larger portfolio size.
Additionally, you will also incur a transaction fee each time you buy or sell a mutual fund or stock. Such fees range from product to product, with mutual funds generally gravitating towards higher transaction fees, compared to exchange-traded funds (ETF) and stocks. Trading fees vary depending on the volume transacted and which market. In Singapore, commissions for purchasing local equities and ETFs can be as low as 0.12% and 0.08% respectively. As such, ETFs and stocks are more attractive to investors who wish to keep their transaction costs low, as these products can be transacted for relatively low fees.
Depending on which brokerage or trading platform the advisor uses to purchase your investments, there are custody and monthly platform fees that are typically passed on to the client. Custody fees relate to charges for storing your security, collecting dividends and interest income as well as conducting other housekeeping tasks on your behalf. There is also usually charge an exit fee on investors who wish to withdraw their investment before a stipulated lock-in date. The exit fee quantum differs from firm to firm, and is usually expressed and charged as a percentage of the total assets owned by investors. Always check with your advisor the amount of exit fee you need to pay before signing on the dotted line.
While it might make sense to hire a wealth management advisor to manage and tailor your portfolio, there are ways to reduce the fees. For instance, you may want to consider investing in low-cost index funds to reduce your transaction fees.
Alternatively, if you are investing a considerable sum of money, negotiate with your advisor to determine a rate both of you are comfortable with. Be clear with your requirement and the services you want to receive, so they can work out a justified fee for the service you preferred. The size of your portfolio is a key element in determining your financial advisor fees. The bigger your account size, the lower investment management fees you should expect to pay.
Managing your wealth need not cost you an arm or a leg. Having said that, understand what kind of services you need, and find an advisor that will meet your criteria and provide you with the best value.