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140R | The Real Cost Of A Financial Advisor

Brad and Jonathan dive into the costs of a financial advisor and college hacking.

Financial Advisors

Jonathan recently recorded an episode with Pete Matthews from Meaningful Money. Pete mentioned that he had been at a financial planning conference where they told the audience that financial advisors need to be prepared to talk to people about reaching Financial Independence.

FI is a framework on life. That’s what people are looking for.

FI is a framework to build your life around. It’s not simply playing defense to protect your future self from financial despair. The exciting part about financial planners talking about FI is that it might create a new anchoring point. For example, instead of struggling with their clients to help them save 4% the new anchoring point could be 50%!

However, many financial planners feel that they are on the defensive, based on the information being put out by the FI community. This is because it will become increasingly more difficult to charge high fees when clients are more aware of what these fees are actually costing them. As people become more informed, it will be more difficult to justify high commission products that do not benefit your client.

How Financial Planners Get Paid

The most common is based on ‘assets under management.’ The advisor manages the money for you and in return, they get a percentage off the top. The percentage could range from 0.25% to 7%! Those fees matter!

The market has to outperform those fees in order to justify it. And your advisor, that’s working with you just says ‘Well, I don’t charge you anything upfront, I just make money when you make money and I just charge you a 2% assets under management fee.’ To understand what that means, well, it’s just 2%. That means I’m keeping 98%. But it’s 2% every single year. It’s 2% regardless of the market goes up or down. And that 2%, if all things being equal and you were to make an extra 2% on your money…that can take off probably close to 25% of your portfolio by the time you’ve reached the end of that investing timeline.

Whether the market goes up or down, your financial advisor will take their fee from your assets. over the course of your investment timeline, this could eat up 25% of your portfolio.

Two Examples

  • Investor A: Starts with $100,000 and invests an additional $10,000 each year, thereafter. This investor pays no fees. With an annual return of 8%, their portfolio would grow to $4.97 million at the end of the 40 years.
  • Investor B: Starts with $100,000 and invests an additional $10,000 each year, thereafter. This investor pays a 2% fee which lowers the annual return from 8% to 6%. With everything else the same over the 40 year period, their portfolio would be worth $2.67 million.

Many advisors claim that their worth is in their ability to beat the market. However, that might not be worth the expense. If you had $2 million in assets under management, then you can expect to pay your financial advisor $40,000 a year!

The other way your advisor could be paid is through a fee for service model or a blend of the two.

Of course, not all financial advisors are able to provide a substantial amount of value. However, you should be completely aware of exactly how your financial advisor is earning money.

Go in eyes wide open. You should not be wondering how your financial planner is making money off you. You should understand what those incentives are and how it works. And then with that in mind, then keep in mind the benefits that you are getting. And if that mirrors up, then I feel like we have successfully achieved what we wanted to achieve with this segment.

Listen: Let’s Talk About Fees

Nick True Returns

This week, we caught up with Nick True from Mapped Out Money. He and his wife have designed an amazing future for themselves before reaching FI.

I think it’s essential in life to look at what you do value, what you do prioritize, and how do you move forward based on that information.

If you are on this path with a partner, then make sure to get on the same page. Communicating about your goals is critical for building a life that you are both excited about.

Going To College For Profit

Although his parents did not pay for college, Nick was able to leave school with a positive net worth through hard work. That hard work started in high school with a high GPA. He searched for a low-cost in-state school that was able to offer him a full ride based on his outstanding GPA.

He did not stop at a full ride. Nick continued to apply for 20-30 scholarships each year. Eventually, he landed one for $15,000 in his last year of college. Over the years of writing college scholarship essays, he discovered how to tell a better story about himself.

Listen to the full episode with Nick here.

2020 Goal

ChooseFI is working to create a collection of college resources for the community. The goal is to help high schoolers get through college for free or for profit. The student loan debt and the lost decade after doesn’t have to be the story anymore.

Crowdsourcing information, right, everybody has this little bit of info that can be life-changing but its in the silo of their own life. And now we have a way to share it.

Please consider calling in to share your own college scholarship or hack.

You can leave a voicemail here. Or write your story here.


Zach, our former showrunner, is now helping us roll out a video podcast that will air on Monday’s and Friday’s. You can find us on YouTube at Please consider taking a second to subscribe. The goal of these videos is to make ChooseFI a more comprehensive experience.

MK will be joining our team as the showrunner and the lead of ChooseFI publishing. MK has experience self-publishing several books. She will help make more resources available to the community.

Listen: From Passion To Profit With MK Williams

Feedback From The Community

Let’s hear what the community has to say.

Voicemail From Liz

As the oldest of seven homeschooled kids, Liz’s family has optimized the college process. Here are some of her great tips:

  • Dual enrollment. Dual enrollment allows high school students to take classes at their local college. The classes count for both high school and college credit. It is possible even if you are not homeschooled. If you take these classes you’ll be ahead for college. Plus, many times the classes are offered at a discount to high schoolers.
  • Five years of high school. You can stay in high school for an extra year but exclusively take dual enrollment classes. If you complete a whole year of these classes, then you may only need around 2 years of traditional college.
  • CLEP testing. You can take CLEP tests that can count for college credit in certain subjects. The tests cost between $75 to $100 but you can avoid the tuition cost of the class.

ChooseFI: Your Blueprint To Financial Independence

The book is now available for pre-order here. If you pre-order and send in proof of your receipt then you’ll have access to an exclusive Q and A with the authors.

The official release date is October 1, 2019!

After the release, there will be a limited book tour. The first stop is in Salt Lake City on October 12, 2019, at the Sugarhouse Barnes and Noble at 2 PM.

Shout Outs

Allison paid off her mortgage!

Autumn’s son knew all the answers for finances in a 7th-grade math class. And to the parents for including him in the conversations!

FWOTW: Jason’s adjusted his W4 after some life changes and that helped him “find” $260 a month!

Related Episodes

New to FI? Be sure to check out Episode 100: Welcome To The FI Community!

Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. American Express is a ChooseFI advertiser. Disclosures.
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