Financial Opportunities Uncovered: A Keeler & Nadler Family Wealth Podcast

Demystifying Advisor Fees: What You're Really Paying For

• Andy Keeler

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When was the last time you calculated exactly what you're paying for financial advice? More importantly, do you know what services you should be receiving for those fees? In this eye-opening exploration of advisor compensation, we pull back the curtain on an industry where costs are often obscured and services vary dramatically.

Most registered investment advisors charge between 1-1.25% of assets under management annually, translating to $10,000 per year on a $1 million portfolio or $50,000 on $5 million. But as Jake Martin, our newest Keeler & Nadler team member with 12 years of experience at a billion-dollar wealth management firm explains, this percentage should typically decrease as your assets grow. 

The value conversation extends far beyond fee percentages. True comprehensive financial planning encompasses three critical elements: aligning with your specific goals and priorities, implementing holistic strategies (from tax planning to estate preparation), and managing investments appropriately for your situation. Vanguard research suggests quality advisors can add approximately 3% in annual value to client portfolios, largely through preventing behavioral mistakes during market volatility. 

Perhaps most revealing is our discussion of the hidden costs embedded in investment vehicles. While advisor fees appear on statements, fund expense ratios silently reduce returns without transparency. These can range from 0.03% for simple index funds to 2% for actively managed options, sometimes with additional sales loads taking 5-6% off the top. The cumulative impact of these layered costs creates a dramatic difference in long-term performance, illustrated through Andy's compelling "weighted vest" analogy.

Whether you're currently working with an advisor or considering one, this episode provides the knowledge to evaluate what you're paying, what you should expect in return, and how to recognize if you're receiving true value for your investment in professional guidance. Your financial future depends on understanding these often-overlooked details.

The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations.

It is only intended to provide education about finance, tax, retirement and related planning topics. To determine which investments or strategies may be appropriate for you, consult your financial, tax or legal advisor prior to implementing. Any past performance discussed during this program is no guarantee of future results.

Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

Keeler & Nadler Family Wealth is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Keeler & Nadler Family Wealth and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Keeler & Nadler Family Wealth unless a client service agreement is in place.


Andy Keeler:

What is financial planning and how much should you pay for it? Today, on episode 27 of Financial Opportunities Uncovered, we unwrap the financial planning process, but, more importantly, we discuss fees, a very important factor, yet one that is often overlooked or even misunderstood. Helping me try to get into the weeds on a topic that everyone deserves a better understanding of is the newest member of our advisory team, Jake Martin. Jake comes from a billion-dollar wealth management firm right up the street, where he spent 12 years advising high net worth clients. Welcome aboard.

Jake Martin:

Thanks, Andy. I'm thrilled to be part of the team and really excited to talk about this important and overlooked topic.

Andy Keeler:

So we've covered financial planning before In episode 19. The team shared some of the unique situations we've helped our clients navigate. Well beyond investment management, true financial planning encompasses tax management, estate planning, college and education funding, risk management through insurance, charitable giving, debt management and a lot of other stuff. The question that every client should be able to answer is what am I paying for the advice that I'm receiving and is there value in the relationship? So, with this background, how are most advisors paid? Jake?

Jake Martin:

Let me start by focusing on firms like ours, and now I'll get into a few other ways that advisors get paid. But in this area of the industry we call RIAs or registered investment advisors. We all are paid, usually in a similar way. A typical advisor charges between one and one and a quarter percent, based on the assets that they manage for you. Now that can range anywhere from I've seen it as low as half a percent all the way up to 2%. So this is an important thing to ask your advisor if you're in the process of hiring one.

Jake Martin:

But just to do some easy math for you, if your advisor is charging you 1% and they're managing a million dollars, that means you're paying $10,000 a year. If you've got a $3 million portfolio, you're paying $30,000 a year. A $5 million portfolio would be about $50,000 a year. If you've got a $3 million portfolio, you're paying $30,000 a year. A $5 million portfolio would be about $50,000 a year. Now a lot of advisors will build in some sort of tier schedule where, as they manage more assets for you, that fee will decrease proportionally. So I would say it's unusual to be charged a full percentage point on assets, especially above a million. But there are some advisors that don't add that tiering in there. So that's an important question to ask.

Andy Keeler:

And it stands to reason that the amount of work that the advisor does isn't necessarily five times as much for a $5 million client as it is a $1 million client, and that's why those tiers exist. Certainly, on the other side of the argument, the more money someone has, the more complex issues they have. Charitable giving comes into play donor advised funds, qcds. We've talked about that in other episodes, I won't get into it here. But there might be more complex techniques that might be used for a higher net worth client.

Jake Martin:

Yeah, that's exactly right, and certainly the stakes go up as well as the dollars get larger, and so having a professional alongside you to kind of guide you with those dollars makes a ton of sense.

Andy Keeler:

Talk a little bit about the flat fee model. So you know you've talked about the AUM model assets under management, or the advisor charges a percentage and when they quote their fee they quote it as a percentage of the assets that they're managing for a client. But there are other models out there, one of which is a flat fee. How would that work?

Jake Martin:

Right, and I actually spent a little time at a firm that was a flat fee model, so I have a little bit of direct perspective on this. So a flat fee can mean a couple of different things. Usually in the industry, that means that they set the fee and then it doesn't change based on what markets are doing. However, it typically will continue to increase year by year, just with the cost of doing the business, so it's not actually flat forever. So there's a little bit of a misnomer. The other thing about flat fee models is that it does not necessarily mean that everyone pays the same fee. You might hear flat fee and think, okay, every single client pays the exact same amount. That's just not the case. What I actually found was that flat fee models often are still based on the assets that they're helping you with, and so it's really just an AUM fee in disguise and it's just based on those assets. So while it has a different name, oftentimes it ends up being roughly the same amount in total charge.

Andy Keeler:

I kind of find that sort of gimmicky where the folks that charge a quote flat fee, unquote. They market it as why would you pay your advisor a percentage of the assets that you that that they manage for you? That fee is going to go up over time. There's been no better example than really, from, say, 2020 through 2025, with the inflation that we've had. It costs more to do business and Find a good talent, good advisors. They cost more and so, as a result, the cost of doing business for those advisors will increase and therefore, over time, they will have to go back to those clients and say you know what you were paying us $15,000 last year, it's going to be $17,000 this year, right, right. So at the end of the day, you're really getting the same thing, but, as you pointed out, it's really just an AUM fee that's being disguised as something else.

Andy Keeler:

So there's a firm with a national presence that boasts clearly different money management. That's their slogan. They may be different than some investment management firms, but different in what way? And investment management firms is a very important distinction. Investment management is not financial planning, it's just one part of it. They are pretty expensive. This firm charges around $56,250 to manage a $5 million portfolio. But cost is relative right, like what are you getting for that fee? What are they doing for a 1.125% fee?

Jake Martin:

It's exactly right and this is a good example of a firm that isn't tiering their fee schedule. And when you hear the words investment management, oftentimes their value proposition is strictly just the investment management that they're doing. And so this is a key question to make sure you understand, as you're engaging with an advisor Are you simply managing my portfolio or are you doing more than that? And so if an advisor is only setting up an asset allocation for you, frankly you should not be paying a full percent. That's just more than you should be paying.

Andy Keeler:

I think Vanguard has done a number of studies on the value of true financial planning advice. In fact they've had a movement over the past five to 10 years of really offering financial planning services to their high net worth clients and in one study they found that the more or less investment management component of financial planning where an advisor helps set up that asset allocation and says you know, you should have 15% in high quality bonds and 10% in large cap value stocks that component they felt was worth about 35 basis points or 0.35 of a percent. So again, as Jake said, paying 1% is kind of like highway robbery. It is sort of the standard operating procedure in our industry, but again it's a question of what are you getting for that fee?

Jake Martin:

A similar Vanguard study talks about what value an advisor can create, and I think there are some really tangible value that advisors create for clients. On average, advisors added about 3% of a client's value assets as value every year to their portfolio, and part of that comes from the asset allocation, Andy, that you were just talking about. But one of the big components is just behaviorally helping clients to avoid making silly mistakes, of avoiding the temptation, when markets are falling, to jump out of the market, avoiding the temptation to pile in after the markets have run up. So those kinds of things advisors can really add a lot of value. And so that really gets at the question of what should you be getting from your advisor if they're talking about doing holistic financial planning? And so I like to think about it in three big intersecting circles, and I think advisors that do this really well really add a lot of value. The first circle I like to think about is really what are your goals, dreams and priorities, that everything should be oriented toward accomplishing those things. If we don't know where we're headed, it's hard to know if we're headed in the right direction. Right. It's not as easy as just saying I want my portfolio to keep growing as fast as possible. That may not line up with what you're actually trying to do. So that's kind of that. First bubble is what are we trying to accomplish?

Jake Martin:

The second one it really comes down to all the planning ideas that you mentioned at the beginning, Andy. It really comes down to all the planning ideas that you mentioned at the beginning, andy. It's cash flow, it's budgeting Am I on track for retirement? Is my insurance coverage appropriate? Do I have appropriate estate documents in place and are my accounts titled with beneficiaries and titles to match those designations? How do I get ready for college and my kids? Make sure that they're covered? All of those things really fall into that holistic financial planning that you don't necessarily get just from an investment management company. And then the third one is that investment management and that's critical to get that right making sure that you do it in a well-diversified way that has the appropriate amount of risk for what you're trying to accomplish. So all three of those things really need to come together to have a well-laid, holistic plan.

Andy Keeler:

You've outlined some of the other factors in financial planning and the process goal setting. You didn't mention taxes, but we've had Abby Rose, one of our advisors, and she's a CPA here in the office on this podcast in the past and two different investors could get a 10% gross return before fees and taxes and could have extremely different outcomes when you factor in the fees and taxes. Tax efficiency is very important. So we've talked a lot about expenses and we're probably going to talk more about it here in a second. So for listeners that don't have a good grasp on what they're paying their advisor, it might be helpful to understand what different fees clients pay. We've talked a lot about advisor fees. So from the investment side of things, just kind of isolating investments, for a second, what do clients pay?

Jake Martin:

This is a really great question. I think it's one that a lot of clients just are unaware of. So, separate from that fee that you pay directly to the advisor, the funds that you're using inside of your accounts those have their own costs associated with them. And let me just back up for a second.

Jake Martin:

There are groups of people or funds that are putting these allocations together, and all these require people and technology and all that it costs something. So you have to pay people to put these portfolios or funds together for you. And so, even if you go out and do this on your own, even if you don't use an advisor, if you're buying some sort of a fund, a mutual fund, an ETF, something like that they all have an underlying expense that we call an expense ratio. These can vary widely in terms of how much they cost. It comes down to how much active management does it require or how many people are required to actually execute the fund. So the cheapest ones are simple index funds that follow a set group of stocks that can be executed very easily just by a computer or algorithm, and so they're incredibly cheap. It doesn't require much human effort to put them together.

Andy Keeler:

Around, say 0.03.

Jake Martin:

Exactly right. And then, on the other end of the spectrum, you've got funds that are very actively managed. You've got people trying to choose winners and losers and screen out stocks that they think aren't going to win, and those can be really expensive. They can cost anywhere from 1.5% to 2%. So keeping an eye on that fund expense can really have a significant impact on the total expenses you're paying.

Andy Keeler:

There's an example that I like to use. Jake mentioned sort of the cheapest S&P 500 index ETF might be 0.03 of a percent, or in the industry we call those basis points. So three basis points. There's another S&P 500 index mutual fund. So it's not an ETF, it's a mutual fund ETF. It's a mutual fund. Its expense ratio is 0.5 or 50 basis points and so clearly there's no difference. They both have the same stocks in the portfolio, but one client is paying 50 basis points or 0.5, and the other client's paying 0.03. That's half a percent more or less. That's being given up simply to fees that are completely unnecessary. Exactly right.

Jake Martin:

One thing that I really like to watch out for are commissions that are paid to an advisor or broker that is purchasing those securities for you. Now, generally speaking, firms like ours and in the RIA industry that hold themselves out as fiduciaries most commonly they don't charge these kinds of commissions, but I do see them somewhat regularly. Sometimes they're referred to as a 12B1 fee or a front-end load, and they can be as high as 5% or 6%. Andy, this was my very first experience as an investor. I went into my local bank at 16 years old with $5,000. I was so excited to go start my Roth IRA and I put it in there, and as soon as it went in the next day, the value dropped down to about $4,500 because it had that front-end load, and I was just blown away. I didn't understand why did my $5,000 turn into $4,500.? And that can happen if you have these front-end loads on there.

Andy Keeler:

There's an analogy that I like to use and it kind of evokes eye rolls in the office when I do this. When other advisors are sitting in meetings with me and I go through this example, they're like there's Andy again, given the stupid analogy. But I remember Carl Lewis. Carl Lewis was a sprinter. I don't really remember Jesse Owens so much as knowing that there was a facility at the Ohio State University that was named after him, but he was also an Olympics sprinter, but generations ahead of me. So the analogy that I like to use is you take these two gentlemen and you put them on a track and you ask them to run sprints 10 sprints, pretty much tied. Carl wins five, Jesse wins five. Then you put a three pound weighted vest or three basis points for an ETF on Carl's back. But Jesse is in that expensive mutual fund. It's the same exact constituents, 500 companies in that mutual fund. But we have a 50 pound weighted vest on Jesse Owens. Who do you think is going to win? Clearly it's Carl, because Carl is paying 47 pounds less than Jesse.

Andy Keeler:

But we're also talking about financial planning. What are you paying your advisor at the end of the day to do so in the marathon? Carl has the three pounds plus an 85 pound advisory fee. So that's basically 85 basis points that you pay to a reasonable advisor to give you comprehensive advice. Jesse pays the 50 pounds to the mutual fund, plus he pays his advisor 1.25 or 125 basis points. So Jesse has 175 pounds on his back, basically more than double what the other gentleman had. So I come back to the question - do you know what you're paying your advisor? In the last month or two we've talked with a number of prospective clients that really didn't know exactly what they were paying and they were really just getting investment advice. They weren't getting advice on IRMA, which is Medicare premium surcharges. They're not getting advice on charitable donations. They're not getting estate planning advice. Their advisor hasn't asked for a tax return and yet they're paying maybe double what they would be paying a good comprehensive financial planning firm.

Jake Martin:

Yeah, those costs are just so important and especially as we were talking about the expense ratios, I just find that that's such an insidious cost that most people aren't aware of because expense ratios for those funds they don't show up on your statement. You're never gonna see a line item that says - I'm paying this much to this mutual fund because it's all just built right into the performance, but you're still paying it. It's just coming in the form of lower performance, right, and so understanding, what are you paying your advisor? What are you paying on the funds that are inside of your account? It can really, like you said in that marathon makes a big difference over time.

Andy Keeler:

So, Jake, I mentioned that you came from a billion dollar advisory shop right up the street. Tell our listeners a little bit about yourself.

Jake Martin:

Yeah, well, I spent 12 years at a former firm right here in town, so a lot of experience there in a very similar firm, and I was just excited to go join another place and see how they were doing things. But outside of work, I've got two small daughters that are eight and six that keep me real busy. I coach my older daughter's soccer soccer team every spring and fall. This has been a ton of fun as a, as a father, and learning how to um, how to raise two kids. Outside of that, I'm married to a wonderful wife. Um, she works for a local foundation here called the Columbus Foundation. So our worlds intersect just enough that we can talk about business at the dinner table without boring one another.

Andy Keeler:

Yeah, that's cool.

Jake Martin:

And then, outside of that, I grew up in Wisconsin. I don't know if you can hear my accent at all, but I grew up there, attended the University of Wisconsin.

Andy Keeler:

Cheesehead.

Jake Martin:

I'm a cheesehead, Packer fan, Badger fan, so I was in the marching band there. So I got to actually march on a bunch of the Big Ten fields. I actually marched right here in Columbus on the 'Shoe, which was cool. I marched up in Ann Arbor and the Packers invited us up for an NFC playoff game. So I've gotten to go to a lot of really cool things through that marching band experience.

Andy Keeler:

So was your slogan T-S-B-B-I-T-L. The second best band in the land? So I just learned this about you my son played the trombone at Dublin Coffman. No kidding, okay, and he's going to Cincinnati and I don't know that he'll play in the band there.

Jake Martin:

I actually started out on saxophone, but, as you probably know, there aren't many saxophones in a marching band. So I switched over to trumpet so that I could be part of it. Yeah, there's always a friendly rivalry amongst all, especially the Big Ten marching bands. We like to say that we were the best but honestly, I mean Ohio State's band is very top-notch, the things they can do.

Andy Keeler:

And we also know that you started investing at 16. So how did that whole Roth IRA mutual fund thing come about?

Jake Martin:

I was really growing up in the late 90s when you had that whole dot-com boom and my grandparents thought it would be fun to buy me a couple of stocks just to watch how things were going. And my dad got me turned on to Roth IRAs and they're like what is this cool thing that grows tax-free? So ever since a really young age I've just been very interested in how money works and how it grows and how you can use it to really do some amazing things. So, yeah, this has been a long, long time interest of mine, going way back.

Andy Keeler:

Thanks, Jake, for chipping in today and, as always, we thank our listeners. I'm Andy Keeler and this is Financial Opportunities Uncovered brought to you by Keeler and Nadler Family Wealth. If you have any questions on anything you heard in this episode or you have an idea for a future episode, connect with us on LinkedIn or email me at AndyKeeler at knwealthcom.

Speaker 3:

The opinions expressed in this program are for general information purposes only and are not intended to provide specific advice or recommendations. It is only intended to provide education about finance, tax, retirement and related planning topics. To determine which investment strategies are appropriate for you, consult your finance, tax or legal advisor prior to implementing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always, please remember, investing involves risk and possible loss of principle. Please seek advice from a licensed professional. Keeler Adler Family Wealth is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Keeler Adler Family Wealth and its representatives are property licensed or exempt from licensure. No advice may be rendered by Keillor and Adler Family Wealth unless a client service agreement is in place.