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‘I don’t trust my financial guy.’ I’m 67 and trying to live on $2.2K-a-month Social Security. I have $500K with an adviser, who charges 2%, but last year the return was 26%. What’s my move?

Updated: 26-10-2024, 03.18 PM

Question: “I’m 67 years old living – or trying to – live on $2,200 Social Security a month. I don’t trust my financial guy. I rolled over a roughly $500,000 IRA to him without really digesting how much his 2% AUM fee would add up to. He invested in about six different funds, Class A, which cost me a lot up front. He charges 2% to add additional money. My return was 26%, but I know year to year that will vary.

He keeps bugging me for additional funds for an individual account (which I currently have in a 5% CD coming due in March). I need to get out of this situation but am woefully not very knowledgeable about investing. Even though I likely wouldn’t make a 26% return, can I roll those funds into an online Vanguard or Fidelity account? Should I let a robo investor do its thing? What if they don’t accept my funds? Do I need to hire a new financial adviser to help me and if so, what kind?”

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Answer: At the highest level, if you don’t trust your adviser, get out – and that may be especially true in this case, as his fee is very high. “Right off the bat, a 2% AUM fee is quite high, regardless of whether the adviser is just managing your portfolio or providing comprehensive financial planning services. To put you in loaded mutual funds, from which he or she benefits directly on top of that, is outrageous in my opinion,” says certified financial planner Bruce Primeau at Avantax. Typically an AUM fee is roughly 1%, and can sometimes be negotiated down from there.

What’s more, the load you paid for the funds is a sunk cost, says Primeau. “In other words, you won’t get that back should you decide to leave your adviser and sell those funds. My recommendation is to find an adviser that is a fiduciary for you – and not the company they work for – who will look to minimize your fees and invest your portfolio more tax effectively,” says Primeau. Basically, if you’re working with someone who tacks on a sales charge or commission, they’re not a fiduciary because there’s an obvious conflict of interest that could interfere with what’s actually best for you.

The additional 2% he is charging you besides the 2% AUM may be a sales charge, says certified financial planner Matt Bacon at Carmichael Hill & Associates. “It’s worth asking your current adviser more about their business model to really understand how they charge. Also, you can always move your money,” says Bacon. “That 26% return sounds like your account is probably invested aggressively so it may be worth consulting with someone else to make sure you have the right allocation as you enter retirement.”

In other words, your situation raises big red flags in that charging a 2% fee while also collecting commissions sounds like double dipping. “That’s not acceptable. Commissions can complicate investment decisions as they may create incentives that don’t align with your financial goals,” says Ryan Haiss at Flynn Zito Capital Management.

It’s understandable that you want to continue earning a good return, but it’s crucial to understand whether 26% was actually a good return because at this point, the S&P 500 has yielded more than 30% in a year, so perhaps you would have done better if you didn’t have to pay such high commissions, says Alonso Rodriguez Segarra, certified financial planner at Advise Financial. “A financial adviser and client relationship should be based on fiduciary criteria which means looking for the best for you and not for the adviser. When trust is broken, it’s always good to look for another option. Fortunately, any other good advisers should not be charging you more than 1% or as you say, a robo-adviser will charge you substantially less,” says Segarra.

Yes, another option is to roll the funds into a Vanguard or Fidelity account that you would manage yourself (note that in a rollover, most funds are accepted) but it doesn’t sound like you’re leaning towards a DIY route.

It depends on a few factors, including whether you want to talk to a human or not. “A robo-adviser could be good if you don’t want to do it yourself but don’t really need or want a person to talk to when things go wrong,” says Bacon. It can also save you money, as going the robo route is typically cheaper than going the human route, and tends to have no or low account minimums. This guide can help you decide between robo-adviser or human.

That said, if you want to talk through your investments with someone, a human adviser can be a great option. Even if you don’t want to go the AUM route, “you can hire a CFP who works on an hourly or project basis and is a fee-only adviser who doesn’t want to manage your portfolio and gives you a second opinion without conflicts of interest,” says Segarra. In addition to completing rigorous education requirements and thousands of hours of work-related experience, CFPs must uphold a fiduciary duty and put the best interests of their clients ahead of their own.

Also keep in mind that investing your money is only one of the many dimensions that financial planning covers. “You must add tax planning, estate planning, long-term care costs and many others as well,” says Segarra. To find a CFP who can give you a second opinion, Andrew J. Evans at Rossby Financial recommends getting a referral from a friend who is like-minded. “Or you can use some online tools to find another adviser. Willow is one of the adviser ranking and research tools that individual investors can use to find someone like-minded,” says Evans.

Ultimately, the choice is yours whether to work with a human or computer program. “In my experience, working person-to-person has advantages over working with a computer. Mainly, you will get answers to questions you have. The answers won’t be broad based, they will be answers to your specific circumstances,” says certified financial planner Mark Humphries at Sentinel Financial Planning.

Have an issue with your financial adviser or looking for a new one? Email picks@marketwatch.com.

Questions edited for brevity and clarity. By emailing your questions to The Advicer, you agree to have them published anonymously on MarketWatch; they may appear anonymously in other media and platforms.