Get financial advice without paying the high fees

The retirement checklist

I've got most of my retirement savings in a managed account run by an investment firm for an overall cost of just under 1% of assets a year. Is there a way I can pay less? -- Paul H., Houston.

Sure, there are several ways you should be able to cut your investment expenses by a half a percentage point -- or more -- a year.

That may not sound like much, but lowering annual fees by half a percentage point over the course of a career and a long retirement can boost the size of your nest egg by 25% and increase the sustainable income it generates by upwards of 40%.

So, how can you reap these savings while still maintaining a portfolio that jibes with your risk tolerance and goals?

One way is to open an account with one of the new breed of online investment firms known as "robo-advisors."

These web-based advisors, including firms such as Wealthfront, Betterment and FutureAdvisor, rely on software programs or algorithms to generate diversified portfolios of low-cost index funds or ETFs for a range of risk appetites and financial goals.

The fees vary, but expenses for a $50,000 account might average, say, 0.20% to 0.50% a year, plus the underlying annual expenses for the ETFs or index funds, perhaps another 0.15% or so. (At FutureAdvisor, you may also incur some trading fees.)

In addition to creating your portfolio, such firms can automatically rebalance your holdings and, in the case of taxable accounts, do "tax loss harvesting," a technique that, theoretically at least, may be able to boost your after-tax return.

If you go with one of these online firms, however, you'll have to feel comfortable dealing with a relatively new company (most online advisors started up in the last five years or so) that you will almost exclusively interact with over the Internet. The Paladin Registry, a service that provides advice on how to select advisors, recently rated 21 online investment advisors on the accuracy and thoroughness of the information they provide.

There are other options, however, that combine the efficiency and low costs of technology with a human touch. For example, Vanguard is currently rolling out Personal Advisor Services, a program that uses financial information and answers to risk tolerance questions that you submit online to create portfolios of Vanguard index funds.

What differentiates this service from the robo-advisors is that it also includes access to a Vanguard certified financial planner, who may be able to suggest refinements to the recommended portfolio based on an investor's particular circumstances. The cost: 0.30% of assets a year, plus another 0.15% to 0.20% annually for the funds. The program requires a minimum investment of $100,000, although that might drop to $50,000 later on.

Soon you may have an even lower-cost option. Charles Schwab recently announced that in the first quarter of next year its Schwab Intelligent Portfolios service will begin delivering algorithm-generated portfolios of ETFs to investors with as little as $5,000 to invest. Schwab says it won't be charging an investment advisory fee or, for that matter, any other account fees. Investors will pay only the annual expenses of the ETFs. (Schwab declined to provide a list of the ETFs the program will use, but Schwab's site currently lists several dozen ETFs with expense ratios of 0.20% or less.)

Although the program is designed for investors who enter information about their goals and risk preferences online, they will be able to get assistance by contacting a Schwab rep online, by phone or at a Schwab branch office.

Of course, you can also get a ready-made diversified portfolio by simply investing in a target-date retirement fund. Just pick a target fund with a date that roughly corresponds with the year you expect to retire, and you'll get a target-fund that consists of a blend of stock and bond funds designed for someone your age.

What's more, that mix will gradually tilt more toward bonds as you age. If you stick to a target-fund that uses index funds to create its portfolio mix, you can keep annual fees below 0.20% a year.

And there's always the option of putting together an ETF portfolio on your own. You'll have to decide how much of your holdings to devote to stocks and how much to bonds, and then you'll need to choose the ETFs to reflect that mix. But that's certainly doable. (Indeed, if you wanted to game the system, you could simply put a portion of your assets into one of the programs mentioned above, and then create a similar portfolio with ETFs you pick on your own.)

Your costs will depend on the specific ETFs you choose. But you should easily be able to create a portfolio with annual expenses well below 0.20%.

One final note: If you check out robo-advisors' sites, you're likely to find a lot of information suggesting that the combination of digital technology and modern portfolio theory allows these advisors to create highly efficient portfolios that deliver superior results.

Well, maybe, maybe not. In the 30 years I've been writing about investing, I've learned to take grandiose claims with a good-sized shaker of salt.

So as you consider the options I've outlined above, don't be too swayed by talk of fancy-schmancy algorithms and such. Instead, focus on making sure you end up with a diversified portfolio that has low overall costs, and that you'll be comfortable sticking with in good markets and bad.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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CNNMoney (New York) First published November 4, 2014: 5:17 PM ET