Q Has the method of compensating financial planners changed? I started working with a planner about 12 years ago. They helped me consolidate my accounts from previous employers, as well as my past personal IRA investments. I am 70.

I now have one IRA spread out over several mutual funds. I'm not sure how they were compensated for doing this, but I was never asked to pay a fee. Last year, they wanted me to pay 3 percent per year, which on my balance of $600,000, amounts to $18,000.

This seems a little excessive. Would I be better off with a self-directed IRA and hire a fee-only planner to periodically review my portfolio?


A I don't know all the particulars, but a 3 percent fee to manage your portfolio of mutual funds is steep. The typical investment management fee is in the 1 percent to 2 percent a year range, with the higher fee usually associated with investment services and financial planning advice.

You're right to notice the major shift in how many planners and advisers are being compensated. Commission-based payments used to dominate the brokerage and financial planning industry. Commission-only advisers get paid when you buy the products they recommend, such as stocks, bonds, mutual funds, insurance products, and so forth.

The past decade has seen the rise of the registered investment adviser (RIA). These advisers charge a fixed annual percentage of the client's money -- typically 1 percent to 2 percent. They don't get paid a commission. Many Wall Street firms have come to embrace the fee-based compensation plan.

One reason is that fee-based income is somewhat steadier than commission-based income. Another factor is that most customers prefer it. It's a form of compensation that better aligns the interests of the adviser and the customer.

What should you do? I have several concerns. First, the fee is high. Second, although you've been a customer for a dozen years, it doesn't look like they're paying attention to you. Third, I would want to know if your portfolio is properly constructed for your age, your spending, and so on.

The good news is that the business is highly competitive and you have plenty of choices. If it were me at a critical financial juncture in my financial life -- as you are -- I would investigate hiring a fee-only certified financial planner to see how your finances stack up and how you could do better.

Chris Farrell is economics editor for "Marketplace Money." Send questions to cfarrell@mpr.org.