The wealth management industry is run on a single simple principle; when your portfolio grows so do the pockets of the firm managing your assets. For example, if your financial advisory firm managed $1 billion in total assets the firm’s average collective earnings could be as much as $10 million a year. And who pays them those earnings? You or rather, your portfolio does.
And let’s not forget about the fund managers who are responsible for the mutual funds and other investments within your portfolio, they’re doing pretty well for themselves too. In fact, many of them don’t even beat the S&P 500, yet they still get paid. And who pays them? Right again, you and your portfolio.
The point here is that fees matter because they can erode the value and earning potential of your portfolio.
By now you are probably starting to wonder what you’re being charged by your advisor. The chart below takes a look at some of the top wealth managers and the fees they charge from most to least expensive and firms are ranked by advisory, mutual fund, and total fees.
Chart 1: Average Advisory Fee Percentages By Brokerage
The total fee is the fee you pay your brokerage firm to manage your money and advise you on the entirety of your assets.
**Source: Personal Capital Blog
*Advisory and mutual fund fees change frequently and may often be presented as a tier structure. Please refer to your brokerage company for your exact cost structure.*
Chart 2: Average Mutual Fund And ETF Expense Ratio By Brokerage
This is the fee you pay as a shareholder of the mutual fund or ETF by firm. The fee is paid in hopes the mutual fund or ETF outperforms its benchmark but is charged regardless of performance.
*Advisory and mutual fund fees change frequently and may often be presented as a tier structure. Please refer to your brokerage company for your exact cost structure.*
Chart 3: Average Total Fee By Brokerage
The below chart shows the combined total of the adviser fee plus mutual fund / ETF fee by the firm.
*Advisory and mutual fund fees change frequently and may often be presented as a tier structure. Please refer to your brokerage company for your exact cost structure.*
If you use a brokerage or wealth management company, it’s imperative to ask them to disclose their fees and to know what services you are being provided for the fees you are paying.
You could easily end up paying more than the value of your original investment in fees. Total fees, on average, are 1.5 to 2% which doesn’t seem like much if you are outperforming the market on an annual basis. But the truth is that most actively managed mutual funds underperform their benchmark and you could still be paying around $10,000 a year regardless. That doesn’t feel too good, does it?
Wondering how this may affect your 401(k)?
TD Ameritrade did a recent survey to find out just what savers know about the cost of their 401(k) investment and found that 37% of investors surveyed didn’t think they paid fees at all. The remainder didn’t know about fees or didn’t understand how they were calculated. If you are in that number you clearly aren’t alone, however, it is important to take the time to learn about the fees you are paying and how they affect your retirement savings.
Investment fees affect both traditional portfolios and 401(k) accounts, but there are additional fees that defined contribution plans incur as well. In addition to fees on the underlying investments in your 401(k), you will also pay plan administration fees, similar to advisory fees, to the company that manages your account. Individual service fees, which are administrative charges for specific opt-in features that can include taking out a 401(k) loan, rolling 401(k) investments over to an IRA, or seeking financial advisory services. On average, 401(k) fees are around 1%, it doesn’t sound like much but over time they can divest your portfolio of tens of thousands in investable assets.
Don’t Be Afraid To Make a Change
If you look at the holdings in your portfolio and discover that you are invested in actively managed mutual funds that include management fees and your advisor is also charging you an annual advisory fee, it’s probably time to ask why. Once they’ve attempted to explain why you need a fund manager and an advisory stop and really ask yourself whether what you are getting is worth the fees you are paying each year.
Cost-efficient investment opportunities are not a rare breed. The bottom line is that fees erode investable assets and the earning potential of your portfolio no matter what type of account you use to invest. Our primary purpose is to help you take the power of your portfolio back by providing active, cost-effective, and tax-efficient wealth management with a transparent, simple, and low fee structure. If you feel it’s time for an investment check-up we are here to help. We’d like to review your investments and your cost of investing with you and help you put more of your hard-earned money to work for your future.
Source Material
- https://www.financialsamurai.com/average-adviser-fees-charged-by-brokerage/
- https://smartasset.com/retirement/what-are-401k-fees
*Advisory and mutual fund fees change frequently and may often be presented as a tier structure. Please refer to your brokerage company for your exact cost structure.*