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There was basically only one way we got paid commissions as Wall Street investment advisers in the 1980s.
The client paid about 1% of the value of the trade when I bought or sold stock.I received 4% when I sold an annuity.The commission on a mutual fund I sold ranged from 2 to 7%.
As a result, advisers used to make a living by taking a cut of whatever money you invested.That is still true for many people today.
However, that system isn’t ideal.For one thing, advisers are compensated differently for different investments, which can sway their recommendations.Another issue is that while sitting tight and doing nothing is often the best way to manage money, your adviser can’t pay their mortgage unless your money is moving.
These flaws, combined with the desire to provide a steady income for advisers, led to the development of a new model years ago. Instead of charging per transaction, a set percentage of the assets under management, typically around 1%, was charged.If you had a million dollars, you’d pay a thousand dollars a year.If you had a million dollars, you would pay $10,000.
However, that system isn’t perfect either.Is managing a million dollars really ten times the effort of managing a million dollars? And if the stock market doubles, does your adviser get a 100% raise?
Another popular method of paying for advice is to pay by the hour, as you would with an accountant or lawyer.The issue is that, like an accountant or a lawyer, hourly rates can be quite high.
So, what should an investor do?
That’s the topic of this week’s Money podcast.We’ll talk about whether or not you need advice, and if so, where to find it and how to pay for it.
Miranda Marquit, a financial journalist, will be my co-host as usual.Aaron Freeman, a producer and novice investor, is listening in and occasionally contributing.Pam Krueger of Wealthramp, a service that helps people find fee-only financial advisers who are legally obligated to always put their clients’ interests first, joins us this week.
Listen to this week’s Money podcast while you sit back and relax.
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Notes on the show
If you want to learn more, look into the following resources.
- Stacy wonders if she needs a financial advisor or if she can manage her money on her own.
- 6 Signs Your Financial Advisor Is Trying to Swindle You
- Before you hire a financial advisor, ask these five questions.
- What to Look for in a Financial Advisor
- USWhat to Know About Advisor Fees and Costs, according to U.S. News & World Report
- USHow to Find a Financial Advisor If You Aren’t Rich | U.S. News & World Report
- How Much Does a Financial Advisor Cost on SmartAsset?
- How to Cut Financial Advisor Expenses (Investopedia)
- Should You Use a Financial Advisor? Dave Ramsey How Does a Financial Advisor Get Paid?
- When Should You Hire A Financial Advisor If You’re Under 30?
- Forbes Should I Hire a Financial Advisor or Do It Myself?
- How to Calculate the Cost of Hiring a Financial Planner (The Balance)
- How Much Does a Financial Advisor Cost? NerdWallet
- Is Hiring a Financial Advisor Worth the Money in the End?
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- Miranda Marquits’ official site
- Pam Krueger’s website is Wealthramp.
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