Andrea Fuller, an investigative reporter for The Wall Street Journal, writes about her quest to find out how much she pays in investment fees to her finanical-advisory company — one of the largest in the US [podcast of her story is at the bottom of this blogpost]:
I thought my question was simple: How much was I paying my investment adviser in fees?
After a series of phone calls that elicited the kind of confusion and frustration I have rarely experienced outside of interactions with cable-company customer-service representatives, I think I have an idea. Barely.
Describing the fee disclosures of my adviser as opaque would be generous. The experience left me wondering whether someone even less savvy than me, a Wall Street Journal reporter, would be able to navigate this system, to ferret out the good information from the bad.
Of course this information should be easy to find, either on the company's website or in the quarterly investment statements to their clients. But all too often it is not. In fact, if the quarterly statements from perspective clients that I frequently review are anything to go by, I would say it is more the rule than the exception. This is particularly true for the websites and investment statements of the largest broker-dealers.
And when asked, any company, financial or not, should be able to quickly and accurately tell their client what fees they are paying. This one obviously could not.
The man I spoke with this time proceeded to tell me the opposite of what the previous adviser had told me. No, there was no annual $125 fee. That was only for people investing in individual stocks. My portfolio had an annual fee of 0.85% of assets, deducted quarterly.
So what about these internal fees? He said those ranged from 0.4% to 0.8% of assets annually.
Well, then, what was my actual number? He said that I was invested in the “moderate” risk basket, so the expense averaged to 0.55%. Fees would have been higher with more-aggressive investments, lower with conservative ones. [...] My combined fee was 1.4%
So why do financial-advisory companies make it so hard for their clients to figure out what they are paying them? Because the companies' fees are usually excessive and because the companies have an information advantage over their clients. The companies have successfully lobbied politicians to preserve this information advantage. And in the case of broker-dealers, they have successfully lobbied politicians to avoid being required to act in their clients' best interests.
At 1.4% of assets, Ms. Fuller's investment fees (advisory fee plus fund management fees) are fairly typical. Below is a chart summarizing what one asset aggregation service sees amongst its user base of 1.3 million people.
Ms. Fuller could obviously do better — from both a cost perspective, but also from a transparency/customer service perspective.
Average Total Fees of Advisors, by Custodian
Chart Notes: a) Total fees includes investment advisory fees and fund management fees, but excludes trading commissions which were not measured by the Personal Capital white paper. b) Personal Capital and AlphaGlider fees based on a client with $200,000 in managed assets; AlphaGlider fund management fee is for the highest cost AlphaGlider strategy, as of March 31, 2017, and is subject to change without notice.
WSJ Journal Report Podcast
How Much Do You Pay in Adviser Fees?