Thursday, September 7, 2017

Being Smart with $$ -- Do You REALLY Know What You're Paying in Fees?

Do you REALLY know how much you are paying in fees to your investment advisor? There are so many different ways your advisor may be collecting cash related to your account. Ask him/her:
How much money did you collect in fees from my account last year either directly from me or indirectly from others as payments related to my account holdings or activities? Say you want to know in actual dollars, not in percentages, as the real dollar amount may shock you. Ask how much your advisor received in commissions or loads for investments sold to you in the past and then wonder if those investments were best for you or best for the advisor. The amounts may be staggering and may be completely out of line with the service received or the portfolio returns achieved. The magnitude of fees paid are often obscured within confusing descriptions or hidden in the fine print. If your advisor doesn't give you a direct answer it should be obvious what that means and it's not good. Did your portfolio outperform a simple index-fund portfolio? Good chance it didn't. So why are you willing to pay $5,000 or $10,000 (or more!) every year? Demand transparency! And perhaps it's time to consider if an hourly, fee-based advisor can give you advice that is unbiased by complicated compensation schemes and without all the hidden costs. 
Larry Pike, CFA

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