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C.A.R.E. about the costs you pay for investment advice

When you work with a financial advisor, you should be aware of how they charge, what you pay, and the services you are going to receive.  Here is a summary of the common costs you should know:

 

Cost to trade – What you pay to execute trades.  Discount brokerages charge for buying and selling investments (for example buying or selling a stock for 8$ per trade).  This could also include more traditional transaction-based relationships where advisors are paid commissions for selling stocks, bonds, mutual funds, or annuities.

 

Asset Management – What you pay for the management of your portfolio.  Most advisors charge an asset-based fee that is billed on a quarterly basis for portfolio management.  It is good to have a general understanding of how your account is managed and what process your portfolio manager uses to monitor and manage your investments.

 

Relationship – What you pay for the advice you receive.  An advisor should act as a guide for your financial well-being.  A good relationship involves knowing your individual situation, communicating proactively, and developing a customized strategy based on your goals.  In some cases it also includes a financial plan that you review at least annually with your advisor.  The cost for these services can be part of your asset-based management fee, or billed separately based on an hourly or flat dollar fee schedule.

 

Expense – The internal costs of the investments you own.  It is important to have a general idea of the expenses involved with what you own.  Generally individual stocks and bonds have no internal expenses.  Exchange-traded funds (ETFs) or indexed mutual funds normally have very low internal costs(0-.5% as an example).  Certain actively managed mutual funds can have higher expense ratios (1% or greater).  Some insurance products such as variable annuities can have very high expenses (3% or greater in some cases) and surrender penalties. 

 

The bottom line is you should have a general understanding of what you pay and the services you receive.  For a more detailed breakdown, please visit the resource on our website

 

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