Morgan Stanley (MS) & Bank of America Corp (BAC): What “Free” Financial Advice Really Costs You

Asset-based fees
An arguably better way to pay for financial advice comes from asset-based fee-only arrangements. With these models, you pay a percentage of the total assets your advisor manages for you. As long as the arrangement is fee-only, rather than simply fee-based, you won’t see commissions come out of your account.

The benefit of fee-only financial advice is that you know up front what you’re going to pay. Yet again, there’s not necessarily any correlation between the amount of your fee and the service you receive. One customer might have a tenth the assets of another yet need more guidance with their finances, and in such a case, the less affluent customer would get much greater value for the fee they pay than the more affluent customer.

The old-fashioned way to pay
Paying an hourly rate or fixed dollar amount for financial advice isn’t all that common, but when you think about it, it makes the most sense. That way, what you pay is directly tied to the service you get. It also gives you an incentive to build your own expertise so that you don’t have to rely as much on the professionals you work with.

For many investors, professional financial advice is something worth paying for. But don’t cheat yourself by paying too much without even realizing it. When free advice seems too good to be true, rest assured that you’re paying for it somehow.

The article What “Free” Financial Advice Really Costs You originally appeared on Fool.com.

Fool contributor Dan Caplinger owns warrants on Bank of America Corp (NYSE:BAC). You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America Corp (NYSE:BAC).

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