Between the lines: what to know when choosing an advisor.

• Author: Bland, Jeff
• Position: Money Talk

Investing can be a tricky process, which is why many turn to professional advisors for help before venturing into the investment world. While seeking the advice of a professional will help keep your investments on track, understanding what you're being charged for can be a challenge. When you're working with a financial advisor, ask yourself "Do I really know how much I am paying in fees?"

If you buy a gallon of milk, there will be a clear and understandable cost. And as you walk away from the store with your milk, there are no additional costs--it's an easy and simple task. Unfortunately, this is not the same way investments work. What you see isn't always what you get. The cost associated with investments can be just one of at least three different costs charged to your account. Most financial advisors will provide a portfolio of funds, and with this service you will incur not one cost but three. By understanding these costs, you'll ensure that you're not paying for more than what you planned on.

Three Costs to Know

1. The Advisor Fee

   The advisor fee is generally expressed as a percent of the assets. While some financial advisors feel it is fair to use an average of 1.25 percent, some firms can be as high as 3 percent per year, according to a 2008 Rydex Advisor Benchmarking Research study. In addition to the advisor fee, you must pay for the funds your advisor recommends, and this is where you will find the two other costs: fixed and variable expenses.

2. Fixed Expenses

   The fact is that every mutual fund and exchange-traded fund charges this fee, including even no-load funds. This fee is also known as the expense ratio. This pays for the operating costs of the fund (manager's salary, research, etc). According to Morningstar, as of September 30, 2008, the average expense ratio for all mutual funds was 1.32 percent per year. However, it is not uncommon to find expense ratios as high as 6 percent.

3. Variable Cost or Trading Expenses

   The variable cost or trading...