Am I Being a Cheapskate for Not Wanting to Pay $50K for a Financial Advisor After My Husband’s Passing?

Retirement marks a pivotal life transition, one that demands careful financial preparation to ensure stability and peace of mind. Consulting with a financial planner offers invaluable expertise in tailoring a personalized retirement plan so that any surprises are minimized along the way.

Yet these services are not free and can get quite expensive, especially for individuals with substantial assets. That is why it is often recommended to consult a fee-only fiduciary financial planner who can offer invaluable expertise in tailoring a personalized retirement plan, free from conflicts of interest inherent in commission-based models.

The situation

That’s where a Redditor finds herself on this  subreddit, a place where people discuss retiring early and being financially independent without living a lavish lifestyle.

The Redditor is a 54-year-old woman facing retirement and impending widowhood. She has $5 million in invested assets and her husband’s prior management of their finances leaves her seeking a trusted advisor to navigate this new chapter effectively.

She is seeking a fee-only advisor to provide unbiased, client-first counsel. Using referrals to find one, she is encountering advisors charging a 1% assets under management (AUM) fee, approximately $50,000 annually, with a reduction after the first $2 million. She finds this fairly steep and wonders about alternatives that might be available.

Paying the going rate

Despite the Redditor’s hesitancy, 1% AUM fees are fairly standard and align with industry norms for fee-only fiduciaries, particularly for portfolios around $5 million. Studies, such as Advisory HQ’s 2023 analysis, peg average fees at 1.02% for $1 million, sliding to 0.5% or lower for higher tiers. 

For $5 million portfolios, a tiered structure, say, 1% on the first $2 million ($20,000) and 0.75% on the next $3 million ($22,500), totals $42,500, not far from the Redditor’s $50,000 estimate. But this covers comprehensive services, including investment management, tax optimization, estate planning, and retirement income strategies. 

For a retiree transitioning from a spouse-managed portfolio, this expertise can prevent costly missteps, potentially offsetting the fee through enhanced returns or tax savings.

Alternatives to full AUM fees

However, paying $50,000 annually may not be the only path. Many fee-only advisors offer flexible models. A flat fee of $2,000 to $7,500 annually could suffice for ongoing advice without tying costs to portfolio size, though that would mot likely include full asset management. 

Hourly rates, ranging from $200 to $400, could suit specific tasks like reviewing a portfolio or crafting an initial plan that would perhaps $2,000 total for five to ten hours. A one-time financial plan, costing $1,000 to $3,000, could establish a roadmap for her to execute independently, such as leveraging low-cost index funds. 

The Redditor might want to negotiate partial management, say, 0.5% on $2 million ($10,000) and leave the rest self-managed, though advisors might resist splitting oversight due to fiduciary liability.

Make the initial investment, then seek independence

Her instincts, though, are not off the mark. A common strategy is to pay the 1% fee for the first year to build a robust plan and confidence. This initial investment ensures she receives a withdrawal strategy tailored to her specific needs, plus an action plan for portfolio rebalancing. 

After year one, though, she could shift to self-management. She could use tools like robo-advisors that might charge a 0.25% fee, or $12,500, on $5 million for maintenance, only consulting the advisor hourly during transitions, such as during the set up of her estate after her husband passes. 

This approach balances professional input with cost control.

Weigh value over cost

Now I’m not a financial planner or tax professional, so these are only my opinions, but the Redditor’s reluctance to pay $50,000 certainly reflects a prudent mindset surrounding her money. But it’s also true that value matters more than raw cost. 

A financial advisor’s guidance could save her tens of thousands in tax inefficiencies or market missteps, a value that would far exceed the fee paid. 

For a $5 million estate, a 1% fee is 25% of a $200,000 withdrawal, not trivial, but reasonable for holistic management. Negotiating a lower rate or a hybrid model, such as a partial AUM fee plus hourly updates, could ease the sting. But with the size of her portfolio, she’s well-positioned and a planner ensures it lasts. 

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