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Adviser Fees And Their Effect On Your Returns



6 min read

This story originally appeared on ValueWalk

Choosing the right financial adviser can be fraught with unknowns. From understanding the alphabet soup of credentials to making sense of complicated financial jargon, some of the smartest people I know struggle to choose the right adviser for their needs.

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Mandy is an engineer in her mid-fifties who worked at a small manufacturing company. She has an IRA left over from a corporate job she had in her twenties and thirties, and a portfolio of index funds that has seen positive returns over time. Mandy often thinks her returns could be better, but she isn’t sure where to turn to get the help she needs She’s heard horror stories about people getting ripped off by financial advisers and brokers and doesn’t want that to happen to her. As a result, Mandy has done nothing, which she knows isn’t a good move.

A smart, capable professional, Mandy is embarrassed about her lack of knowledge about the financial industry. Yet the truth is, the way the industry works is confusing for many people. There are different models and different levels of responsibility to the client, as well as different ways to pay for advice. Even with disclosures, adviser compensation may seem opaque, and what you don’t know may negatively impact your investment returns in the long run.

The Ways Advisers Charge Clients

Financial advisers have a variety of methods for charging clients. Some charge a percentage of assets under management, or AUM, which ties the adviser’s fees to the success of the client’s portfolio. Others charge a flat retainer or an hourly fee for financial advice, and some advisers get paid commissions by the financial companies whose products they sell instead of getting paid directly by their clients.

To make matters even more confusing, advisers refer to how they’re paid using terms like “fee-only,” or “fee-based.” No wonder Mandy, and many like her, don’t know where to start! Let’s look at three of the most common adviser compensation models and what they mean:

Fee-Only: Fee-only advisers receive payment directly from their clients for advice, implementation of that advice, and may include asset management. They don’t sell individual financial products, such as annuities or securities, and they don’t receive commissions on those recommendations, but they may recommend certain types of investments, such as low-cost or institutional mutual funds. A fee-only adviser may charge clients by retainer, by the hour, or by the assets they manage for the client. Fee-only advisers provide fiduciary advice on asset allocation and fiduciary advice on selecting investments. Because they don’t sell products, they don’t receive commissions from product providers.

Fee-Based: Fee-based advisers are like fee-only advisers, but with one major difference: Fee-based advisers sell financial products and receive a commission from the product provider when they sell a product to you. When providing fiduciary advice or performing duties related to plan implementation, these advisers charge you a fee, which is usually debited from your account. Then, when they recommend an investment product, they sell a product to you that is “suitable” and receive a commission, which is provided to them through the product provider, in essence increasing your overall investment cost.

Commission-Based: Some who call themselves financial advisers include securities brokers and insurance agents, who receive compensation by the commissions they earn from selling financial products, such as stocks, bonds, annuities, or other investments. Often the advice you receive is around which financial product is best for you (suitability standard), rather than the holistic allocation advice you might receive from a fee-only or fee-based adviser.

In addition to the fees you pay your adviser, you may also pay ongoing or transaction fees related to your investments. An example of ongoing fees could include annual fees to maintain your account, while transaction fees might occur every time you buy or sell an investment.

How Fees Impact Your Portfolio

Let’s face it: it costs money to invest, and savvy investors keep a close eye on the fees they pay because they know how quickly high fees can erode investment returns. Investopedia shares a simple example: Suppose you have $80,000 in an investment account and pay 0.50% in annual fees. You keep the investment for 25 years and earn 7% each year. At the end of the 25 years, your original $80,000 will have grown to around $380,000. But what if your annual fee equaled 2% instead of 0.50%? At the end of 25 years, you’d only have about $260,000 instead of the $380,000 you could have had with the lower fee. While 2% may sound like a small price to pay, it certainly adds up over time! If you use a fee-based or commission adviser, how much additional cost are you adding to the overall investment costs for products you purchase from them? This cost is not usually so transparent.

Ask Questions to Save Money

When it comes to investing your hard-earned money, don’t be shy about asking questions. Advisers expect it, and most would be happy to explain their fee structure as well as the costs related to the investments they recommend. Don’t assume, however, that every financial adviser is required to have your best interests at heart when they give advice and recommend products. While they may hold similar titles, such as “Wealth Manager,” “Financial Adviser,” or “Investment Advisor,” financial regulations may not require the same duty of care. Advisers who act as fiduciaries have a regulatory obligation and/or an ethical duty to make recommendations in their clients’ best interest. Others, such as insurance or securities brokers, must only ensure their recommendations are suitable for the client. If more than one financial product is suitable, but one pays the adviser a higher commission, he or she might recommend the higher priced product to you.

Finding the right financial adviser for your needs can be daunting, but it’s not impossible. Your investments deserve the same level of care and research you might dedicate to buying a new home or car, and understanding the adviser fees you pay could mean the difference between an average nest egg or an exceptional one. Doing nothing, as Mandy did, pretty much guarantees a lower return. Doesn’t your future self deserve better?


Infographic: 6 Reasons You Should Leave Early



Leaving work on time is much more than a whim or an act of rebellion: it is a premise for our physical and emotional well-being.

This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.

A new day begins. As soon as we got to the office, we decided, “today I WILL get out of work on time.” But as the day progresses, the earrings accumulate; the dreaded bombings arise and the purpose of going home early becomes increasingly unattainable. And well, this happens practically every day.

Leaving the office on time is much more than a whim or an act of rebellion: it is a premise for our physical and emotional well-being, and although it may not seem like it, also for the benefit of our own work.

We leave you six compelling reasons to leave the office on time.

(With information from Paulina Santibáñez and infographic from Andrés Gras)

Do you agree with this premise?

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Meet the New Jersey Woman Who Owns Over $200 Million in Real Estate and Several IHOP Franchises



New Jersey entrepreneur Adenah Bayou has built her American dream by acquiring a multi-million dollar real estate portfolio and restaurant ventures.

Bayou came to the United States at the age of 13. She escaped the civil war in Liberia and set out on a mission to create a better life for herself. She’s exceeded expectations, becoming one of the most successful entrepreneurs in New Jersey.

“For me, passion is a key ingredient for success in business,” Bayou shared in an interview with Black Enterprise. “I am also a very hard worker, and once I make up my mind to do something, I immerse myself in it and figure out how to succeed. Also, having gone through so much in my life, I understand the value of taking a risk, and I am not afraid to take risks.”

From Banking to Real Estate Entrepreneur in New Jersey

After graduating from college, Bayou started her career in banking and climbed the corporate ladder. However, she knew there would be limitations to her success as a Black woman. Therefore, she transitioned to entrepreneurship to pave her own path.

While working at the bank, she purchased her first home as an investment property. She leveraged the success of her first investment to expand her real state portfolio with more properties and larger sites.

After mastering the process of buying, selling, and renting properties, Bayou transitioned into real estate development. In 2012, she entered a partnership to transform the former Irvington General Hospital site into a residential and retail community.

“Real estate development was a natural progression, especially given my interest in economic development,” says Bayou. “I saw urban redevelopment as a vehicle to assist in the economic revitalization of my community on a larger scale.”

According to Shoppe Black, Bayou has now amassed a $220  million real estate development portfolio of commercial and residential properties in New Jersey.

Breaking into the Restaurant Industry

Bayou used the profits generated from her real estate ventures to fund her goals of opening an IHOP in New Jersey. At 27, she became one of the youngest IHOP franchisees in the United States. By 2010, her IHOP franchise was one of the most profitable in the Northeast.

Now, Bayou owns and operates multiple IHOP franchises all over New Jersey. Her success has led her to become one of the largest employers in her Township.

“One of the programs I want to do is invite women, particularly Black women, into the franchise process,” says Bayou. “The way you deliver change in a community is by giving people access to economic opportunity.”

In 2017, Bayou decided to expand her footprint in the restaurant industry. She teamed up with a friend and opened her own restaurant, Cornbread, in Maplewood, New Jersey. In 2019, she partnered with Walmart to expand her signature line of restaurants to Pittsburgh, Pennsylvania with locations in Walmart stores in West Mifflin, Greensburg, and Tarentum.

Success in Real Estate, Restaurants, and Life

Bayou’s extraordinary accomplishments have landed her many distinguished opportunities and awards. In 2015, she was appointed to the Advisory Council on Small Business and Agriculture for the Federal Reserve Bank of New Yor. She was also named to Ebony Magazine’s Power 100 list. In 2019, the National Restaurant Association presented Bayou with the Face of Diversity Award.

For those who have a business idea or want to turn their goals into reality, Bayou offers these words of wisdom: “There is no right time to start anything. Start now, don’t quit, and know your “why.” There’s always light at the end of the tunnel. But you have to keep walking. Rome wasn’t built in one day, but they were working every day.”

Join Black Enterprise for its inaugural Wealth Building & Real Estate Summit (A Virtual Experience) on April 22, 2021. Register here.

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Could Levar Burton Be The Next Host Of “Jeopardy?”



Levar Burton stepped up to shoot his shot to be the next host of the popular game show Jeopardy

Last week, Burton spoke to Entertainment Weekly about being the permanent replacement on the television show after beloved host Alex Trebek succumbed to pancreatic cancer in November last year at age 80. Trebek hosted the long-running game show for almost four decades.

“I’ve thought and thought and thought — I’ve asked friends and family to help me identify someone out there who’s more qualified for the job than I am,” the revered actor and host of widespread literacy show Reading Rainbow said. “I don’t believe there is anyone out there who is better suited for this job than me. And I will go to my grave believing that.”

“I think my whole career is an advertisement for being the host of Jeopardy,” he continued.

It’s no secret that Burton has had his eye on the prize since before Trebek’s passing.   

The Star Trek: The Next Generation actor took to Twitter in September last year to express his feelings about what hosting the show meant to him.

“Not gonna lie, I feel like I’ve been preparing my whole life to occupy the @Jeopardy host podium when Alex retires. #Jeopardy,” he wrote.

One fan, in particular, was clearly picking up what Burton put down because he started a petition via to bring the entertainer’s dream to fruition.

The petition has garnered almost a quarter of a million signatures.  

Twitter users added their support on the social media platform.

Show producers have not responded.

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