Is it better to pay 5% sales commission up front or pay a 1% portfolio value management fee?

I want the expertise of a financial advisor -- I don't want to be a day trader -- but don't like paying 5% up front. My Ameriprise advisor offered another option. If I invest 100k or more with them, I can open a brokerage account which eliminate all fees, the 5% sales commission. Instead we pay just 1% of the portfolio's value annually. I like this because he has an ongoing earnings incentive instead of making all his money up front. However, I dislike this because we're paying 1% on the *whole* portfolio amount each year, not just the earnings on the funds/stocks he's sold us. And there's no incentive to grow the acct b/c he makes money on the total portfolio balance, not on the earnings. It could lose money every year and he'd still collect 1% of the balance. Please no "you can do your own investing" responses. I want to turn it over to someone who does this for a living.

What you are talking about is a wrap fee account. Yes, the annual fee (charged quarterly) is assessed on the full balance of the account, but Trade_Info had an important point, although it wasn't the one he was trying to make. Since the fee is on the entire account, your advisor has a vested interest in the performance of the account. His income will go down if your account value goes down. If he only made money on the growth of your account, he wouldn't lose anything if you had a down year.

Also, a competent and ethical financial planner would not put you in A shares with an upfront fee only to mve the assets to a different fund family down the road. Assets need to be rebalanced, but transfers within a fund family do not incur additional charges. Also, if you are investing $100k+ you shouldn't be paying the full front end load on A shares. Ask your advisor about breakpoints.

Personally, I would recommend the wrap fee account. I'm not sure about Ameriprise (big commanies are usually less responsive to clients) but the fee amount could be negotiable, especially if there is the likelihood that you will be investing additional assets into the account down the road.

P.S. There is no such thing as a wrap fee account that assesses the fee only on the growth of the account.

Look for a fee only advisor. Less conflicts of interest. 5% here, 1% there 12b-1 fees, mutual fund management fees will take a toll come retirement. Report It

1. The investment advisor makes 1% of the portfolio value, so if the portfolio goes up he makes more. If you invest 100K and they take 5%, then only $95,000 is available to earn money. And the performance of the funds that they use may not beat a pure index fund, which can be no load and carry an expense fee of .20%

You are also assuming that what they buy for you today with a 5% load will be held forever. I doubt that, they will be selling it and having you incur other sales charges, commissions and loads.

I would take the 1% deal if I was willing to trust my financial future to someone who could care less and was probably less educated then I was.

2. Ok, I know you said you want to turn it over to someone who does it for a living, however don't sell yourself short. Invest 1 hour of your time and read bobbrinker.com . Get a free copy of his newsletter, read it, look at the performance and think about $185 or so dollars per year. Investing in his style can be so passive that you spend 20 minutes a month reading his newsletter. He does not sell anything, no commitments. I can tell you my results, I have made the cost of the newsletter back so many times that you would not believe the numbers.

I used to be a stockbroker and the motivation for the industry is to make money at the expense of the customers. Pure and simple greed.

Look at the numbers, make your investment advisor prove his/her performance!

I would seek another investment advisor. It seems unreasonable to pay 1% on the entire portfolio, not just the growth/gains portion. If you cannot find a different advisor, then select the 1% option. Your investments could tank or drop significantly and your 5% upfront would be out the door.

I don't know whether someone else charges only the growth portion. My wife and I used difference financial advisors (at different firms). They both charge 1% of the total portfolio. No matter what, your financial advisor must make sure that he makes more than 1%. Otherwise, you will move your portfolio to somewhere else.

By the way, if your advisor sell and buy a lot stocks in a year for you. 1% can make up the transaction fees if you manage your portfolio in any on-line trading firms.