How to tell if the fees you pay your adviser are money well spent

An investor recently asked me the smartest possible question about paying fees to an adviser.

“How can I figure out if a financial adviser's fees are money well spent?” he wondered. “Is there a formula that can help me with this question?”

More and more investors are realizing the impact that fees have on returns. But too often, they adopt the view that the way forward is to hammer their fees as low as possible. They neglect to consider the value they’re getting for the fees they pay, and that makes them vulnerable to bad decision-making. Low fees without good advice can put you in a worse position than higher fees and helpful advice.

There’s no formula to help show if fees paid to an adviser are money well spent, but I have created a worksheet. Its purpose is to document the extent an adviser is contributing to your financial success with planning and advice.

Advisers who strictly handle investments and ignore planning won’t do well in this analysis. You could be paying 1.5 to 2.5 per cent or more for a portfolio managed by an adviser (includes advice plus fees associated with investment products). A robo-adviser could knock that down to between 0.5 and 0.75 per cent on an all-in basis (stock-trading commissions and ETF fees), and investing in ETFs via an online broker could get you below 0.5 per cent on an all-in basis .

An adviser could justify the extra fees above the DIY or robo portfolio by providing a financial plan that:

- Calculates how much money you’ll need to retire, and how much you need to invest on an going basis to get to that level.

- Helps you get out of debt.

- Offers a strategy for maximizing the equity you’ve built up in your home.

- Maps out a way to, if feasible, offer financial help to adult children and/or aged parents.

- Explores ways to minimize tax and addresses your estate planning wishes

Maybe the best way to tell if you have an adviser who is worth the fees is to ask yourself this question: “Do I feel confident I am making progress financially in my life?” if the answer is no, then the fees paid to your adviser are money well wasted.