Low Cost, Flat Fee Advisors – Why You Need One
To all investors who have ever asked us what they can do to meet their financial planning goals, at Clarity Capital Advisors, our answer has invariably been to diversify, control costs, and maintain discipline regardless of market conditions. Fortunately, many investors are now using low-cost and highly diversified funds, either with or without the help of an advisor.
Granted, a good financial advisor provides services well beyond asset allocation, fund selection, and rebalancing. However, the clients would do well to ask themselves if those services are worth a given percentage of their assets such as 1%. In our opinion, advisory fees should be measured against either expected annual returns or annual withdrawals. For example, an investor with a blended stock and bond portfolio with an expected return of 5% is giving up 20% of his return to pay a 1% fee. A retiree who is annually withdrawing 3 to 4% of his portfolio is paying his advisor 25 to 33% of his annual income generated by the portfolio.
The reduction in wealth from high advisory fees is substantial. For example, a $1 million investment with a 5% annual return would pay an advisor almost $300,000 in fees over a 20-year period, assuming the advisor charges 1% of assets. If the $300,000 in fees were invested at the same 5%, their accumulated value at the end of the same 20-year period would be over $460,000 compared to $2.2 million for the original portfolio. In other words, our hypothetical investor will have foregone over 17% of his wealth. Of course, the financial advisor may have helped him reach goals that would otherwise have been unattainable, but at what cost?
At Clarity Capital Advisors, we provide an alternative for investors who require the services of a competent and credentialed fiduciary advisor. Specifically, we are flat fee advisors who have obtained designations such as Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). Switching to us need not entail foregoing valuable services such as financial planning nor require enrollment in an automated robo-investment program. In some cases, investors may keep their current investments while significantly lowering their advisory fee. Investors who are burdened with high advisory fees owe it to themselves to call us at 800-345-4635 or email us at email@example.com.