I guess we need to get a clear definition of what a fee really is. According to Dictionary.com, a fee is:
- A charge or payment for professional services. e., a doctor’s fee.
- A sum paid or charged for a privilege: e., an admission fee.
Okay, so far so good. Those are transparent charges and I know what product or service I’m getting in return. But, if that’s the definition of a fee, then what keeps people from really understanding what they’re paying in fees for financial services?
Normally, without fail, when a client asks me, “what are the fees”, in a strategy that I have presented them, I can easily point to it on the page and say, “x%.” It’s right there in black and white. And that is if there even is a fee. The majority of my products have no fees associated with them. The only product I represent with an expense would be an annuity with an income rider. But at least you know what you are getting in return for that expense – a guaranteed income that you and your spouse cannot outlive, and has no risk to the stock market. Plain and simple. Amazingly easy to understand. Again, I have no issue with paying a fee if I know exactly what I’m getting for it, and that it’s going to improve my life somehow.
When I ask in return, “what are you paying in fees now?”, I get the standard answer of, “1%.”
“Are you sure?”
“Well, that’s what my ‘guy’ told me I was paying.”
This is so common it’s laughable. Most people have no clue what they are paying in fees, and I can assure you, it’s not because they are foolish. The whole system is set up to be confusing and to mask these fees as much as possible. The average fee for managed money is going to be around 2%. That may not seem like a huge difference, but that extra 1% can be monumental. We will address the compounding effects of fees in a future letter. For today, let’s take a look at some of the names of these different fees so you can be better prepared to get an accurate picture of what you are really paying.
Here is a list of 16 different fees that have been found in managed money accounts:
- Plan Administration Fees
- Investment Advisory Fees
- Expense Ratios of Mutual Funds
- Load Fees
- Bid-Ask Fees
- Variable Annuity Fees (Average of 3.75%)
- Commission Fees
- Retail Fund Fees
- 12 b-1 Marketing Fees (this one pisses me off the most. This is basically an advertisement fee that you are paying so they can attract more clients to pay them more fees.)
- Wrap Fees
- Transaction Expense or Cost
- Revenue Sharing Fees
- Account Charges
- Redemption Fees (these people need redemption alright)
- Deferred Sales Charges
That’s a lot of fees! Did you really think these guys on Wall St. were living in $20 million apartments and taking private helicopters to their $30 million beach homes based on a 1% management fee?
In fact, I have one client of mine that was paying 4.1% on just one of their investments. What is the worst part of this whole system? You still pay the fee when they lose your money! It is ridiculous!
I’m challenging you today to find out what you are really paying in fees. Some of you will be pleasantly surprised if you have an honest financial planner that has put you in low-expense funds. Some of you will be completely pissed off. And you should be. This is your money. You worked your whole life for it. Do everything you have to do to protect and preserve it!
How do you find out what you are paying? The first thing you need to do is to ask for the “Statement of Additional Information.” This will only be provided if you ask for it.
The other way is to look up the funds that you currently hold with your financial planner by googling the name of the fund’s prospectus. Once you have it on your screen you can press, CTRL-F. This will bring up a word search in the document (which will be between 100-400 pages) and start typing in the different fees I have listed above.
Or, if you have ever had that feeling in your gut that something is just not right – that you should be further ahead than you are, but you cannot figure out why you are not – and you’re ready for a change, then call me at 636.926.6500. Or simply hit the Schedule a Meeting button. At Atlas Financial Strategies, we will be completely transparent on any fees that may be in a product or strategy that was recommended to you. And that is IF there is a fee associated with your strategy. A lot of times there is not.
Plus, your money will be completely protected from market losses, and I am never compensated out of your pocket. I am paid directly by the carriers from their general funds that you and I will choose to do business with based on a side-by-side comparison of who will give us the best deal. That alone can save you tens of thousands of dollars per year, or even hundreds of thousands over a lifetime.
All the best,
Marty