Every financial advisor — fiduciary or not — has to make money somehow, but the devil is in the details. If your advisor’s answer about his or her business model is vague or takes more than 30 seconds to explain, that’s a major red flag. You should never buy anything, especially financial advice, if you don’t fully understand the costs.
Most fiduciaries will charge an easy-to-understand management fee based on the total investment amount they are managing for you. Typically, this fee is between 1 percent and 1.5 percent of assets under management.
If you’re not paying this kind of management fee, you may be paying a commission every time you buy or sell a stock or mutual fund. Each trade can cost a different amount, and some advisors may be incentivized to sell different — and more expensive — share classes. You may also be paying additional hidden fees on everything from a broker’s administrative expenses to account service charges. These fees matter. Even a tenth of a percentage point in extra fees can add up to hundreds of thousands of dollars over the lifetime of an investment portfolio.