When people start earning more, I usually see them ask others: “Should I hire a financial advisor? Who do you recommend?” And they often get recommended to a company like Edward Jones, Amerprise, or Raymond James. I’ve been investing for 20 years without a financial advisor, and I think if you’re an average person, you should, too.
The real cost of “just 1%”
The largest U.S. firms with human advisors typically charge 1% (or more) of your investments every year—regardless of whether your portfolio is up or down that year. For example, Schwab Managed Portfolios charge a fee starting at 0.90% (minimum $25,000). Edward Jones Guided Solutions start at 1.40% (minimum $5,000 to start).
That 1%+ sounds small. It isn’t.
The dirty truth
For most average investors, these advisors aren’t putting you in anything you can’t access yourself. The funds you end up in are often just copies of existing mutual funds or target-date funds but with higher-than-average fees. In private coaching, I’ve reviewed several Edward Jones portfolios where the underlying fund expense ratio was around 0.5%, compared to a low-cost index fund whose expense ratio is close to 0%.
So you’re often paying two layers of fees:
The advisor’s AUM fee (≈1%+), and the fund’s expense ratio (like 0.5%).
What happens after several years?
Let’s assume a low-cost index fund grows at 8% per year. And we compare that to you hiring an advisor at 1% per year with your money in funds that cost 0.5% in expenses, thus your net return drops to roughly 6.5% (8% − 1% − 0.5%). Invest $24,000 each year for 20 years, and here’s how that compounds:
That’s a difference of $166,480 over 20 years!
So, I think that overall, you can benefit from learning how to invest on your own without an expensive financial advisor. Or, you could try using roboadvising, which gives you the same investment advice for half the cost.
If you want a deeper dive into the mindset and mechanics behind this approach, get my beginner-friendly investing guide by going to this link.
