Are you leery of paying full-service brokerage commissions? Wary of having brokers recommend trade after trade in order to pad their compensation? One option is to trade through a discount broker. However, with a discounter you won’t get financial advice.
As an alternative, consider fee-based investment advice. Most brokerage and financial planning firms offer these arrangements. In these programs you’ll pay a fee based on the assets that are managed. Generally, expect to pay about 2 percent per year. Thus, with a $500,000 account, you might pay $10,000 per year in fees.
There are no additional transaction costs so you won’t have to worry about your broker “churning” your account in order to increase commissions. What’s more, your advisor has an incentive to see your account grow because asset-based fees will grow, too.
If you’re interested in this approach, it’s vital that you work with a knowledgeable financial consultant. He or she should take the time to truly understand your goals and your risk tolerance. In future years, the advisor should earn his or her fees by monitoring the performance of your mutual funds and money managers, suggesting changes if something goes off course. You should receive detailed quarterly reports and at least two personal meetings a year with your advisor.
