How much you really pay for advice

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(Money Magazine) -- I've had many clients come to me saying they were paying their old adviser somewhere in the neighborhood of 1% a year. Arguably, that might be appropriate, especially if the adviser provided a valuable service. However, when I show them that they were paying 3% or more in total fees, they are usually stunned.

Think of it this way: If you're buying investments through an adviser, you're paying him or her a fee. But that's not all: Everything you buy may come with its own set of fees. You should know how much your adviser is collecting from you, but a more important question to ask is how much you're paying in total.

Fees are about as transparent as the alternative minimum tax and as easy to figure out as an episode of "Lost." So lob this ball back into your adviser's court and ask him or her to write down your total fees in these four categories:

Adviser fees. This could be commissions, a percentage of your assets or an hourly or fixed fee.

Mutual fund annual expenses. Those can include 12b-1 marketing fees.

Fund turnover. Funds incur costs when the manager buys and sells stocks, but you won't find these fees in a prospectus. Instead, you can estimate. For every 1% of annual turnover, you could be losing as much as 0.01% in return. If 75% of your stock fund's holdings turn over every year (a number you can look up at morningstar.com), that could add up to 0.75% in transaction costs.

Insurance fees. With an annuity or other insurance policy, you may pay extra fees to cover the death benefit, administrative costs or riders.

For one recent client, I had the sad task of estimating that he was paying 4.7% a year for an annuity, broken down as follows: 1.6% to his adviser, 1.6% on his funds and 1.5% in insurance costs that provided virtually no benefit.

Why is it so important to know your total costs? Because they eat into your return. If stocks beat inflation by five percentage points and bonds by one point, then an equally weighted portfolio will earn about 3% annually after inflation. If you give up 2% in costs, you've surrendered two-thirds of your real return. Taxes will grab the rest.

If your adviser responds to your request by offering to send you a thick stack of documents, it's a good bet he's merely trying to meet the legal requirements, not to answer your question. The flags don't get any redder than that.

The Mole is a certified financial planner and certified public accountant who - in the interest of fairness - thinks you should know what goes on behind the scenes in financial planning. Want to make contact? E-mail themole@moneymail.com.