How Much Is Your Advisor Charging You?

CWT Blog | How Much Is Your Advisor Charging You?

Are you familiar with the fees that your financial advisor is charging you for their services?

Here at California Wealth Transitions we charge a flat percentage rate to manage your investment assets, but not all financial firms operate this way. It’s important for you to know how a financial advisor’s fee schedule is set up when considering starting a new relationship or if you’re in the market for a new advisor, that way you know where your money is truly going.

There are key differences between flat rate fees and blended fees, and the difference between the two can mean more or less money in your pocket. Keep reading for more details on these exact differences.

Flat Rate Fees

If your financial advisor charges for their services based on a flat rate fee schedule, that means they charge you a flat, fixed rate based on your asset level. Every financial advisors’ fee schedule looks like a version of this:

Sample Fee Schedule
$0 – $1mil 1.25%
$1mil – $2.5mil 1.0%
$2.5mil – $5mil .90%
$5mil – $10mil .75%

Financial advisors with this schedule would charge clients with an asset level of up to $1mil an annual fee of 1.25%, clients between $1-2.5 million dollars in assets an annual fee of 1.0%, and so on.

The 1.25%, 1.0%, and .90% are flat rates that do not change. With flat rate fee schedules, clients know exactly what they will pay their financial advisor, no matter what.

In this example, if a client has 3.5 million dollars in assets, they will be charged .90% for the financial advisor’s services ($31,500 annually.) Of course, if a client’s assets increase to the next level of the fee schedule (above 5 million dollars); their annual fee will decrease to .75%. We use this type of fee schedule with our clients.

Blended Rate Fees

A blended rate fee schedule combines annual percentages together into a cumulative fee based on a client’s asset level. Instead of charging a client one asset level percentage, blended rate fees add up the previous percentages as well, hence the term blended rate. Let’s take the same client example from above; Say a client has 3.5 million dollars in assets. On a blended rate fee schedule, the client will be charged like this:

The first $1.0m* 1.25% = $12,500
The next $1.5m* 1.00% = $15,000
The next $1.0m* 0.90% = $9,000

Once you add those amounts together, on a portfolio worth $3.5 million, this investor would be charged $36,500 per year or 1.04% of their assets.

With a flat rate fee, a client with 3.5 million in assets will pay $31,500 annually (0.90%), but with a blended rate fee, that same client pays $36,500 annually (1.04%). The client’s financial advisor will often show the fee schedule to the client and say they are here (pointing at the 0.90% line). However, the client is actually paying over 1%. Rarely ever is this blended fee strategy properly explained to the client, often it is buried in the disclosures section of the initial account opening documents. These dollars can add up to a tremendous amount over the years, especially when you consider dividend reinvestment and compounding interest.

So, we ask again, do you know how your financial advisor is charging you?

We don’t want you to be in the dark when it comes to your finances. If you’d like to know more about the services that we provide here at California Wealth Transitions, contact us today!

The Five Biggest Mistakes Investors Make

CWT Blog | The Five Biggest Mistakes Investors Make

MISTAKE # 1 – Holding Cash

Anyone remember the Aesop’s fable about the ant and the grasshopper? Put briefly, the ant worked hard all summer storing up food. The grasshopper just sang happily at leisure and did no work. Guess who had enough to make it through? To paraphrase pop artist Donna Summer, you work hard for your money. In return, your money should work hard for you.

Although we probably use a plastic card or even an app on our phone to represent it, cash is what we use to pay our common expenses. Beyond the food, clothes, transportation, entertainment and the mortgage that we budget for monthly, it’s a good idea to have an emergency fund of cash on hand to pay for the unexpected car repair, new furnace or medical bill. Depending on your expectation of income stability, that emergency fund could be anywhere from 3-6 months’ income coverage. But once you’ve got that secure, stashing more in cash is actually a bad idea.

There is a common misperception that cash is safe in the sense of protecting your principal. If I have $50,000 in the bank today and I don’t spend it, I’ll have $50,000 next year and $50,000 twenty years from now. The problem is just that. While I will have the same amount of money in nominal terms, my twenty-years-from-now $50,000 will not buy the same thing that my $50,000 will buy today, due to the erosive power of inflation. In fact, at just 2%-per-year average inflation, my future $50,000 will only buy the equivalent of less than $34,000 of goods and services. If you leave a significant portion of your retirement funds in cash or cash equivalents like marginal-return bank CD’s, inflation is going to erode your purchasing power over time.

Some people hold on to too much cash because they fear the market. Some people have analysis paralysis and are always looking and waiting for the non-existent perfect investment. Either way, by holding cash, you are losing money.

MISTAKE #2 – Failing to Consider Fees

If some people overthink the kind of investment to make, many people underthink the question of fees. There is a whole debate about actively managed versus passively managed mutual funds out there. Active funds pay one or (usually) more fund managers to determine their fund’s mandate, conduct research, and buy and sell stocks according to which they expect to perform best within that mandate.

In addition to the cost of paying the managers, there are the transaction costs for buying and selling the stocks. Passive funds are designed to mirror an index and simply purchase the same stocks that comprise the index in the same proportions. No one is paid to do research or make decisions, and since index composition changes rarely, transaction costs are low.

The debate hinges on two questions:

  • Do active managers choose better stocks for their funds, causing the funds to generate higher returns?
  • Do the higher fees that result from paying the managers and making more transactions effectively obliterate the higher returns?

The answers are not consistent from year to year or across different fund comparisons. However, historical performance demonstrates that active management only generates excess returns-that is, returns beyond what a comparative index generates–in SOME years. Despite this, as an investor, you are still assessed the higher fees EVERY year. So, the probability of getting higher returns from your active investments varies from year to year, but the probability of paying higher fees on those investments is 100% every year. I’ll let you draw your own conclusions.

Admittedly, reading a mutual fund prospectus can be less easily enlightening than reading your auto manual, but happily, Morningstar and other reporting services put fees and other information on the Internet. Or, you can just ask your financial professional for a one-pager on each fund.

If your money is managed or advised by someone other than you, you also have to consider management fees. Money management is a service and you should pay something for it since it frees up your time to get paid to do something else. But make sure you are getting something in return for the fee. Compare rates and services. Do not confuse investment or money management with financial planning. Investment management is a process of selecting a portfolio of investments that are suitable for you and advising you when to buy or sell parts of that portfolio, based largely on external circumstances. Financial planning is a much more comprehensive process of defining multiple and often interdependent financial goals and developing, implementing and monitoring strategies to reach them, according to both your personal circumstances and external circumstances. Make sure you know which one you are paying for and which one you are getting.

For those who invest in individual stocks and bonds, the question there comes down to transaction costs. Go with a low-cost brokerage. Although these days, competing companies are bidding each other down, so this is less and less of an issue.

MISTAKE #3 – Timing the Market

Regardless of whether your advisor is a money manager or a financial planner, and regardless of the nature of that person’s compensation, one of your advisor’s tasks should be preventing you from trying to time the market.

I say “trying” because no one is actually able to do it.

Timing the market means buying just before the market rises and/or selling right before it declines.

There are a myriad of factors that cause market movement. Some are rational, some are not. Some can be analyzed to a certain extent, and some cannot. However, NONE can be predicted with frequent-enough accuracy for market timing to succeed more than it fails. In addition to the likelihood that you will “miss the window” to time the market, attempting to do it will generate unnecessary transaction costs. Particularly with the growing volume of robo-trading, engineered by super-computes, the market frequently moves too fast. Once you notice the direction, it’s often too late to benefit from following it.

Over the long run, the stock market will go up. In the short run, it will have varying degrees of up-and-down volatility. Buy-and-hold, as tired as it seems, really is the most efficient way to go. Periodic rebalancing will keep your portfolio mix in suitable proportion, but the rebalancing should take place according to pre-set considerations rather than the market’s bull or bear sentiment.

MISTAKE #4 – Ignoring Liquidity

Probably every financial professional has had the client that either comes with investments that are not commonly traded securities (stocks and bonds or mutual/index/exchange-traded funds comprising stocks and bonds) or expresses a strong interest in them. Such investments include everything from real estate to energy sources to livestock and commodities to crypto-currencies (such as Bitcoin) to antiques, collectibles and art.

Unless you or your advisor happens to have professional experience in the relevant industry, it can be very difficult to accurately assess these investments in terms of risk versus reward-in other words, are the possible returns you might get on this investment a good trade off for what you could lose from this investment? One criteria, though, is very easy to investigate and ought to play an enormous part in the decision to purchase any investment. That is: Liquidity.

Suppose you have two children. You don’t like or trust the stock market, but you have a fondness for real estate. So, you purchase two investment properties. Your plan is to sell the properties as each of your children approaches college age, and to use the properties to fund their higher education. The potential pitfall to this strategy is not just that the local real estate market might take a downturn. The same thing could happen with the stock market. But in the event of a downturn, real estate can be much more difficult to sell than securities. Even in a good market, it can take months to sell a highly desirable property after inspections and showings. And although you can liquidate a security portfolio gradually, giving the market at least some chance to recover, you generally cannot sell just part of a building.

Many of us have had the experience of purchasing collectibles-coins, figurines, stamps, baseball or Pokemon cards, porcelain dolls, vintage toys or Beanie Babies® to name a few-with the expectation that the price will rise and that there will always be a ready market, only to find the popularity of and interest in the item dropping off a cliff and prospective buyers vanishing into thin air. An investment is only valuable if someone is willing to buy it from you for the cash you need to pay for your children’s education or your own retirement or long-term care. Ebay and Amazon can greatly broaden your potential customer base, but even these sites cannot create a market, and liquidity, for something that no one wants anymore.

MISTAKE #5 – Failing to Understand the Product

Annuities are a lot like certain sports teams or politicians in that many people either love them or hate them with either emotion taken to the extreme, so I’m using this as my product example.

There probably are some really bad annuities out there. But for the most part, annuities are not intrinsically good or bad. What they ARE is misunderstood. Annuities are basically an investment wrapped in insurance. To the best of its corporate ability, an insurance company guarantees you, the annuity owner, some aspect of your investment; for example, how much it will earn, how long it will last, or the maximum that it can decline. Your homeowners, auto, health and life insurance are not free. So, neither is this insurance on your investment. Annuities do certain things that other investments don’t or can’t.

If you want to make sure your money lasts a long as you do, an annuity can do that. If you want to make sure that your principal will stay intact or that your heirs will get a certain amount of money, an annuity can do that. If you want to find a way to defer taxes after you’ve maxed out your retirement plans, an annuity can do that too. However, there is a charge for each of these features. And generally, there’s a charge for not holding the annuity for a certain minimum period. Annuities are not truly liquidity-challenged as discussed above. You can get your money out at any time, but you may pay a hefty charge to do so.

Annuities, permanent life insurance, financial derivatives (options, swaps, collateralized debt and the like) and Master Limited Partnerships (MLPs) are just some of the more complicated investments available. Each of them serves a kind of need and sometimes the need is the kind you have.

To avoid mistakes you need to be sure:

  • What the investment does.
  • Whether you need or can benefit from what the investment does.
  • How much it will cost you to meet that need or obtain that benefit.

Another of Aesop’s fables is “Belling the Cat”. Certainly, if you are a mouse, tying the bell on the cat represents an excellent investment. But what is the cost of approaching the cat to tie the bell…?


Copyright © 2018 PreciseFP. All rights reserved.
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel.

What To Do If You Have Highly Appreciated Stock

CWT Blog | What To Do If You Have Highly Appreciated Stock

Do you work for a publicly traded company?

Does your company compensate you with stock options?

Does your ownership in a single company represent over 15% of your net worth?

If they have appreciated in price, you are going to pay 20% or more in capital gains taxes when you sell them. There are intelligent ways of avoiding paying unnecessary tax. If you are in this position and would like to consult with one of our financial planners click here.

How Exchange Funds Work

If you own a large amount of stock in a single company, you can transfer those shares into an exchange fund. An exchange fund is also known as a swap fund and allows investors the ability to diversify their stock holdings while still deferring taxes. Exchange funds typically try to track a benchmark, such as the S&P-500.

Your ability to participate in an exchange fund depends on how closely the current fund holdings match the desired benchmark of the fund and how the shares you own fit with their overall portfolio.

  • Does the fund already have too much Apple stock? If so, they may not take yours because they are already over committed with Apple shares.
  • Is your stock in the S&P-500? They might not be interested if your shares are not part of the benchmark.

When an exchange fund accepts your shares, they are accepting any gain you have on the shares as well. You do not get a step-up in basis; the transfer of shares is not a ‘sale’ so you do not have to pay tax on the gain.

​Going forward you can leave your money in the fund to grow in a diversified portfolio. Depending on the fund, you may have the option to sell shares of the fund. This would trigger a long-term capital gain on the portion you decide to sell.

Best Practices When You Need Income

Ideally, you would be putting money into an exchange fund that you do not plan to spend any time soon. Down the road, the fund could offer you an opportunity to take ownership of certain predetermined shares by transferring them out of the fund.

​In other words, if you needed to take income from your investments down the road, you could transfer the highest dividend paying companies out of the fund and own them outright, in a personal account, using the income for living expenses. The best news about this strategy? You still do not have to pay capital gains tax on those shares, because there still has not been a sale.

We are here to help provide you with the right financial tools. If you have a concentrated position in one company, especially if it is your employer, schedule a free initial consultation with us today!

Top Skills to Look for in a Financial Advisor

CWT Blog | Top Skills to Look for in a Financial Advisor

Discuss the reputation and finer points of finding a financial advisor you can work with – even perhaps asking for referrals to talk to current clients, accessibility/responsiveness, consistency, obvious analytical skills, and perhaps even credentials.

Most people have a methodical process when it comes to making big decisions in life. You need information to figure out what will work best for you. Here are just a few examples:

  • When you need to find a realtor to buy or sell a house, you probably ask your neighbors who they used and why. It seems as though everyone has pretty strong opinions about their real estate agent!
  • When you’re buying a car, you might read reviews online, research different models, and look for pros and cons of different makes and models. That’s all before you start visiting dealerships to test drive.
  • Or maybe you’ve needed to find a physician. You may rely on research and reviews (how’s their bedside manner?) as well as personal recommendations from friends. There’s even an “ask for recommendations” feature on Facebook now just for these kinds of things! Depending on your need or the level of skill for a surgery, you might interview a few doctors to find the right one.

Finding a financial advisor is another one of those tasks that involves a great deal of responsibility. There must be an element of trust, an ease of communication, and definitely a degree of confidence in that person’s ability to understand your situation and give you quality advice that at best, will lead to your financial success. We’re talking about hundreds of thousands or millions of dollars, and your future in your retirement.

But it’s not always so easy. Finances are a complicated matter, and a personal recommendation isn’t always enough.

For instance, let’s say you heard from a neighbor couple down the street that they just started with Joe the financial advisor. He’s with a substantial, well-known firm and so far your neighbors have had a great experience. They both work for big companies and have been at their respective jobs for 10+ years. They own their home, and have one child.

You might think that Joe could be the right advisor for you. But let’s say you’ve changed jobs three times in the last ten years and you’ve got pensions and accounts all over the place. You’ve also recently started a very successful business and are struggling to manage both your personal and business finances. ​

Your situation could be drastically different from your neighbors. It might require different levels of skill. Finding a financial advisor is a tremendously personal decision. Use our guide to help find the right one for you.

What to Look for When Hiring a Financial Advisor


You wouldn’t trust a surgeon without a degree right? That would be crazy! Pay attention to the education (and credentials) of any advisor you’re considering. Nearly anyone can utilize the term “financial advisor” but terms like “Certified Financial Planner” (CFP)” or “Chartered Financial Analyst (CFA)” are a bit more rare. These certifications convey an additional level of coursework and exams, and often require the advisor to adhere to rigorous standards. These terms are industry-recognized and also signal a level of ethical and professional practices.


This might surprise you, but a lot of financial advisors only meet with clients once every year. That’s pretty standard across the board in our industry. But, what if you want more than that? What if you have questions or want more of an involved relationship? Is your advisor willing to give you accessibility that you need or desire? If your financial advisor’s office is serving hundreds or even thousands of families, they may not accept random meetings for various questions. Do you have your advisor’s direct line? What is their average response time? These are things you might want to ask. ​


Complicated situations require a track record of success. If you are a business owner, does your financial advisor have experience with other business owners? If you are looking for help within a certain area, do they have a history of demonstrated ability? Does this financial advisor specialize in one expertise with additional certifications or education? With investing, estate planning, tax planning – if you have a particular need, make sure their experience aligns with what you need. And don’t just look at years of experience – many advisors come from other industries that provided them with valuable perspective. ​


Just like you’d ask for referrals for a surgeon or a real estate agent, ask for referrals from any potential advisors you’re considering. Ask how long the client has been with the advisor, what they specifically like about working with them, if there is anything they don’t like, and ask about their relationship (how often they see their advisor, do they feel they get adequate answers to their questions, etc.) Getting first-hand experience from other clients is a great way to get a feel for how advisors conduct their business with clients. ​


There is something to be said for simply liking and getting along with an individual. Your advisor is somebody you’re going to talk with about some real life, serious issues. It’s pretty imperative that they don’t drive you crazy! Ask them questions; get a feel for who they are as a person. Do your values line up? You want to feel heard and understood. Everything else could be perfect, but this last element is really what makes or breaks the client and advisor relationship. Take the effort to find the best fit for you. This relationship is ideally one that you’ll have for life. If you get it right the first time, you’ll have a better experience and a foundation for trust. Here’s where you also want to feel out their transparency. When you ask about cost – is it something that you can easily understand? Ask how they get paid and expect an honest answer. Is it a flat fee? Is it a commission? This should be an easy conversation to have with your potential advisor. If they shy away from this conversation, it may be a red flag to search elsewhere. ​

What do YOU look for when you’re trying to find a financial advisor? Which one these do you think is the most important? Let us know! And if you’re looking for an advisor, we’d love to be considered. Set up a no-pressure meeting with us today.