the fees and commissions charged by most traditional
brokers and investment advisers may seem like an
insignificant amount to pay for financial advice, those
tiny 2 percent charges can add up over time ó
swallowing a sizable chunk of what investors would have
ended up with at retirement.
an investor bulletin from the Securities and Exchange
Commission, the federal oversight agency illustrated how
$100,000 invested over 20 years with a 4 percent annual
return was systematically stripped down by ongoing fees
of 0.25 percent, 0.50 percent and 1 percent.
20 years, an annual fee of 1 percent reduced the
portfolio that should have ended up with $220,000 to
about $192,000. A portfolio subjected to 0.50 percent
annual fees was cut down by $20,000. And 0.25 percent
fees knocked about $10,000 off the total return.
fees used by the SEC for the illustration are somewhat
conservative, considering that many traditional wealth
managers charge about 2 percent, not including other
service fees often concealed in the fine print.
advisers typically charge a minimum of 1 percent to 2
percent of the assets being managed.
they often outsource the job of picking stocks to mutual
funds. Those funds typically add up to another 1.25
percent in annual charges, meaning the client is usually
in the hole for 2.25 percent each year.
inflation runs about 3 percent and the market returns 7
percent, the client is barely breaking even.
fees on an investment can end up consuming the majority
of your return on an investment," said Eric Tyson,
author of "Investing For Dummies." He cautions
investors to read all documents related to an investment
ó such as the prospectus ó to determine what fees
they will be charged.
especially suspicious or careful of investments sold
through aggressive sales tactics," he said.
"Those investments are probably burdened with high
commissions, which are used to pay the
charges from advisers and the mutual fund companies they
deal with include annual account fees, custodian fees,
back end or surrender charges, front loads, transaction
fees, management fees and even 12b-1 fees or other
Tuchman, managing director at Rebalance IRA based in
Palo Alto, Calif., said his company, which has $350
million in assets under management, offers investment
advice for 0.50 percent on all accounts.
said the fees can be low because the company uses a robo
investor model combined with human advisers who provide
advice over the telephone.
company also does not buy individual stocks or mutual
funds, which often carry higher commissions and charges,
but instead invests in low-cost index funds.
could literally add up to one-third of your nest egg at
the point you want to retire," Tuchman said.
"People donít pay attention to the fees because
they are hard to uncover."
SEC advises investors to find out what they are being
charged by reading the documents the financial
professional provides. For example, look at account
opening documents, account statements, confirmations and
any product-specific documents to see the types and
amount of fees.
questions to ask are: What are the fees relating to this
account? Do you have a fee schedule that lists all the
fees that will be charged for investments and
maintenance of this account? What fees will I pay to
purchase, hold and sell this investment? Will those fees
appear clearly on my account statement or my
questions include: How can I reduce or eliminate some of
the fees I pay? Can I pay lower fees if I open a
different type of account? How much does the investment
have to increase in value before I break even?
charges and other account fees have always been a fact
of life in the investment world, but some investors may
have been made even more aware of them in recent months
when it seemed the bull market was fading.
securities lawyer Andrew Stoltmann said he has been
involved in several lawsuits and arbitration claims
involving clients and financial advisers related to what
the client felt were unreasonable fees charged to an
said the legal actions were usually triggered by losses
or long-term investment under-performance.
causes investors to peel the onion and examine their
portfolio," Stoltmann said. "They are usually
shocked by the fees that have contributed to the
under-performance or losses. Thereís no question there
is an orgy of fees and expenses that investors are
exposed to and they have no idea about."
a link to the SECís investor bulletin on fees: www.investor.gov/?news-alerts/?investor-bulletins