by Jesse Anderson, CFA
Investment expenses have always been a hot button issue within our organization. We’ve spent years stressing the importance of understanding and controlling the fees and expenses within investment strategies. The inability to compare fees across different investment products is one of my major complaints about the entire industry.
This may come as a surprise to many, but no one performs these services for free. In a recent survey released by Cervulli Associates and Phoenix Marketing International, 40% of households with less than $100,000 in investable assets thought they did not pay for the service from their advisor or it was complimentary! Of all the households surveyed, over 30% were not sure how their advisors were paid.
Advisors are typically known for getting paid in some combination of two forms, commissions or fees. Yet this is only one layer of fees. Investors may also be oblivious to the investment expenses related to brokerage costs, custodian fees, statement fees, expense ratios, and others.
As a Register Investment Advisor, we are one of the few organizations required to send clients an invoice with their total fee as well as how it was calculated. I doubt anyone has seen this type of information from their mutual fund or annuity. However, this doesn’t mean they are “complimentary”.
The industry will never change unless consumers demand more transparency and disclosure. You can learn more about improvements in the 401(k) system from my recent article, Exposing the Cost of 401(k) Accounts. When evaluating investment choices, it is imperative to know and understand all the fees involved. Our recommendation of a Do-It-Yourself approach is one of the only ways to significantly reduce the investment fees and put your interest first. There is no conflict of interest and no one is recommending products because they offer the highest commission.