Larry McDonald wrote up an interesting post about Nora Dunn, a woman travelling the world, but using financial planners at Investor’s Group.

Interestingly, she got hammered by readers suggesting that she was paying far too much in fees. … read more

But what kind of fee structure is fair? A friend of mine emailed me recently to tell me about her fee structure. She just signed up with an advisor charging 1.28% annually, and he’s buying her equities, as far as I can understand. Her advisor, apparently, isn’t a fan of mutual funds.

That made me a little uncomfortable, because I wasn’t sure if that was a fair fee structure or not.

Sure, you can pay a lot more than that for an account in the quarter of a million dollar range (which I believe her account size to be) but doing the math, her costs could also be considered pretty steep.

If the markets make 5% annually over the next five years, and if she loses 3% to inflation and 1.28% in fees, then she’s left with a gain of just 0.72% annually. More than 80% of her profits would be wiped out by fees and inflation.

I know that Robert, at RW Investment Strategies http://www.rwinvestmentstrategies.com/background.html charges 0.4% annually. To put the power of Eugene Fama’s indexing strategies behind you, you could use Assetbuilder http://assetbuilder.com/investing/assetbuilder_fees.aspx and pay 0.43% annually—without having to worry about a local stock picker making your investment decisions.

And I know of another advisor who charges 1% annually, buys indexes and equities, but only charges that fee when the account growth exceeds 4% in a given year. Otherwise, he charges nothing. He also carries any losses forward.

What’s fair? Is my friend paying too much?