March 24, 2015
Why I Dropped My Financial Adviser
My financial adviser is smart. She’s ethical. And her special IRS tax certification has come in handy at tax time.
So why did I drop her? Fees.
Every year, her firm extracted 1 percent of my modest retirement account balance. This is less than some advisers charge, but on top of that I pay between 0.8 percent and 1.2 percent in fees to various mutual fund firms for the mostly stock funds she selected for my investments. These aren’t exorbitant fees, either, for actively managed funds. But when you add this up, I was shelling out at least 2 percent of my account every year.
Thanks to fees and my penchant for some international stocks, which were sluggish or declined last year, my retirement portfolio did not grow at all in 2014, despite a booming U.S. stock market that gained nearly 14 percent, based on the Standard & Poor’s 500 index.
I used a simple fee calculator to estimate my savings in fees, and the resulting increase in my investment returns, from letting my adviser go. If I don’t tap my IRA funds until age 70, I would save nearly $40,000. This sum won’t radically improve my retirement. But it’s not chump change either. It would pay for a few really big trips my husband and I hope to take – or a large chunk of a year in a nursing home.
My overdue decision to let her go had been stifled by inertia and not wanting to break the news to my really nice adviser. My action was finally sparked by a realization that, yes, I will retire someday. I’m nearly 58, my husband is 61, and we need to preserve our retirement nest egg.
What am I giving up? Minimal advice. It’s too bad I don’t have another 20 years until retirement – the calculator estimates that my savings would be nearly $90,000, assuming the same starting balance.
Fees are serious business. They’re worth paying attention to.