Stop Paying 2% for the Privilege of InvestingIn the past week, I have seen two portfolio reviews for future clients where they were paying over 2% in fees. Before you stop and say, “That’s ridiculous. I would never pay that much,” make sure you know how much you are paying in fees. Both portfolios were with brokers calling themselves advisors. The broker was charging over 1% and the average fund fees were over 1%.
Now, I do agree that paying 2% is ridiculous. How does this continue? Mostly because people aren’t paying enough attention. They trust that their advisor is earning a fair fee and wouldn’t do anything to take advantage of them. And it’s easy for one layer of fees to get lost in statements that may not ever get read. I’m willing to bet that our future clients mentioned above thought they were only paying 1%.
Investing is one area where paying more does not get you higher quality results. Instead it eats into your returns. If you’re buying a car, you may pay more for a smoother ride or better reliability. In finance, once you hit a certain point you are paying more so that Wall Street can pay fat bonuses.
I’m going to stop there because you have some homework to do. Find out how much you are paying in fees. If you work with an advisor, ask for the number that includes the advisory fees and fund manager fees. Reasonableness does vary a little bit with the size of your portfolio, but talk to me if it’s over 1.25% including fund fees. Clients who come to us from brokerage firms and banks often save 25%-50% in total fees.