Single Mum Pays £12K Yearly to Adviser Despite Losses on £812K Portfolio—What Are Her Options?

A single mom of three wishes to help her kids through college, finance their first cars, retire at 65, and outlive her money to leave behind some of that wealth for them. As the sole breadwinner, she decided to sort her finances early on with the help of an in-house financial adviser.

She decided to chalk out a detailed financial plan based on her life goals, personal loans, mortgage, and expenses before investing £812,000 ($1 million) with the financial advisor.

Although the mother expected decent returns, she witnessed her portfolio value tank in recent years regardless of how the market moved. The consistent losses led her to explore her options on MarketWatch. She thought her financial adviser wasn't doing enough to help her money grow because she made over £12,000 ($15,000) off her portfolio in fees last year.

She has quarterly meetings with the adviser but has no idea what questions to ask, how her money is managed, or how adviser fees offset any potential growth. She estimates paying 1.5% of assets under management (AUM) in fees but is confused about whether it's worth her time and money.

Is 1.5% In Adviser Fees Too High?

According to a 2023 Advisory HQ report, financial advisers charge an average of 1.02% of AUM, so a 1.5% fee is markedly on the higher side. Meanwhile, billion-dollar firm SmartAsset stated that adviser fees range between 0.59% and 1.18% annually.

Furthermore, the Advisory HQ report highlighted that fixed-fee advisers could charge between £6,100 ($7,500) and £44,736 ($55,000) annually, depending on many factors, including the services provided and portfolio size. However, fees are always negotiable.

If the woman's adviser is a fee-based adviser, she could earn from the portfolio as well as commissions for recommending investment products that don't align with the client's best interests.

Fee-only advisers offer a more straightforward structure as they earn money exclusively from client fees and not from selling particular investments that fetch hefty commissions. However, they might still have potential conflicts of interest but must disclose them to the clients.

Selecting Between A Flat-fee Structure And AUM-Based Charges

According to certified financial planner Kaleb Paddock, a flat fee can be too costly for portfolios under £812,000 ($1 million) since the final amount you pay to the adviser can become a big chunk of the account and is generally not a wise financial decision. He thinks AUM or percentage-based fees are better for smaller balances.

However, Paddock explained that flat fees work better for larger portfolios because a percentage-based fee would mean the amount you pay an adviser in fees will continue to grow with your portfolio size.

How To Find An Adviser Who Would Want The Best For You?

Financial advisers can make or break your financial future because client-adviser relationships generally last for years.

In the case of the single mother, teaming up with a fee-only financial adviser who follows fiduciary standards can help. Fiduciary financial advisers are legally mandated to work in the client's best interests. Furthermore, negotiating a flat fee structure could save her more money than a percentage-based fee agreement, given her portfolio size.

However, knowing where to start looking for the right adviser can be daunting. People begin by asking friends and family before searching online without assurance that their choice is the right fit.

If you are taking the online route, the National Association of Personal Financial Advisors and the XY Planning Network are legit databases that can help you connect with fee-only fiduciary financial advisers.

So does SmartAsset's concierge team. The company boasts of matching over 50,000 people monthly. When you take a brief online retirement quiz, SmartAsset will connect you with up to three fiduciary advisers near you.

Remember that when interviewing an adviser for a potential partnership, share your financial goals and concerts, ask them about their investment philosophy for your portfolio, seek information about their credentials, and negotiate a fee structure you can afford.