Fees aren’t all bad (or avoidable). Investing is a tricky business, and often you get what you pay for (like with anything else). Good financial advisors can be worth the money they cost. The only way to know if you’re getting your money’s worth is to understand what you’re paying. Account statements and websites are not always helpful when it comes to uncovering all you’re paying in fees. Sometimes it seems like they are purposely confusing (making fees difficult to understand or even see).
How fees can impact your investment returns
Expense fees, management fees, transaction fees, commissions, surrender charges, and custodian fees are all fees that may be eroding your investment returns. It’s hard to imagine, but a ¾ of 1% change in your fees in year one of a $100K investment with a 5% return will cost you $12K over ten years. You would never realize you lost the money because the losses are unrealized gains. However, if we took $12K out of your check at the end of the ten years, you sure would notice! What could you do with another $12K?
What do you pay a financial advisor?
The industry average for financial advisor fees is around 1%, but it varies based on two factors:
- First is the amount you have invested with the advisor—the greater the amount of assets, the lower the fees. Smaller accounts tend to be within the 1.25%-1.5% range, and fees decrease as asset size increases. This is a good reason to consolidate your accounts.
- Secondly is the level of service you desire. The higher level of service you require, the more you should expect to pay.
Following are the types of service levels you may experience and expected interaction with your financial professional:
Level 1: Investments Management
Research • Asset allocation • Manager selection • Portfolio reporting • Cash flow analysis • No Formal Plan • Typical Robo-advisor
- Less than one meeting per year
- 0 Educational activities or Communications per year
- 0 Client appreciation activities per year
Level 2: Investment Planning
Research • Asset allocation • Manager selection • Portfolio reporting • Cash flow analysis • Low-Level Formal Plan in Place • Automated Solution
- One client meeting per year
- One educational activity or communications per year
- No client appreciation activities
Level 3: Financial Planning
Retirement planning • Estate planning • Education planning • Financial position analysis Plus Investment Planning • Research • Asset allocation • Manager selection • Portfolio reporting • Cash flow analysis
- Up to four client meetings per year
- One educational activity or communication per year
- One client appreciation activity per year
Level 4: Wealth Management
Business planning • Executive compensation • Family office services • Philanthropic giving • Banking/debt management • Tax planning Plus Financial Planning • Retirement planning • Estate planning • Education planning • Financial position analysis • Research • Manager selection • Asset allocation • Portfolio reporting • Cash flow analysis
- Up to six client meetings Per year
- One educational activity or communication per year
- Two client appreciation activities per year
Underlying Investment Fees
In addition to fees paid to your advisor, underlying investments charge fees as well. These typically come in the form of mutual fund fees. When you purchase part of a mutual fund, you become a shareholder. These fees tend to be between .20% and .75%, with a median of .50%. If you are paying more, you should expect greater performance.
Mutual Funds typically pay operating expenses out of fund assets, rather than by separate fees charged directly to the investor. However, just because these expenses are paid from fund assets doesn’t mean investors aren’t still paying them (indirectly). Fees and expenses vary from fund to fund. A high-cost fund must necessarily perform better than a low-cost fund to generate the same returns. Small differences in fees can translate into large differences in returns over time.
Not all funds charge all fees, so it’s essential to have an excellent financial professional and fund manager on your side. When the markets have large drops, you won’t panic because you have the right professionals. You will also have InvestorKeep to ensure you are paying the appropriate level of fees for your investments.
How InvestorKeep protects you against high fees
InvestorKeep tracks all fees and fee changes to alert you when they may be negatively impacting investment performance. Our fintech platform will alert you to changes in fees across all your accounts, giving you the information you need to take action, avoid high, unreasonable, or unwarranted fees, and keep your nest egg growing at a faster rate.
In addition to the alerts InvestorKeep sends, the InvestorKeep Dashboard highlights how much you’re paying in overall fees and how they relate to market averages.
Between InvestorKeep’s alerts and dashboard, you’ll be well informed of fees you are paying, whether they are appropriate, and what to do about them if they’re not. Finally, if fees do become overly burdensome, InvestorKeep alerts make it easy to share the situation with your financial professional, enabling them to showcase their value and ensure you are getting the value you deserve.