How Much Are Advisory Fees Really Costing You?

Do you know how much your investment advisor is actually costing you—I mean, the actual dollar impact their fees are having on your long-term goals?

We’re going to explore the fee structures of some of the largest advisory firms in the world and actually quantify the impact those fees will have on your bottom line, so that you can be fully informed when it comes to your financial future...

ADVISORY FEES 101

I still remember the day when I finally decided that I was going to buckle down and really dive deep into the investment options I was recommending to my clients.

That’s right, I had been working for several years by this point for one of the largest financial planning firms in the nation and recommending solutions that...

If I'm being honest with myself...

I didn’t fully understand.

Yet, at the same time, I’m pretty sure I understood them better than like 95% (probably more) of the field force—I mean, I was one of the go-tos for our region, one of the ‘investment guys.’

After getting my CFP® (Certified Financial Planner™) designation as quickly as I possibly could so that I could finally have access to my firm’s investment options, I had eagerly burst onto the investment scene (earning the MDRT—Million Dollar Round Table—acknowledgement for investment performance that year—that’s awarded to the top 1% of the industry).

This was the reason I had gotten into the financial planning world: investments fascinate me. 

The Sales Job

I had mastered the language from our home office sales representative. You see, our Specialty Investment Vehicles were pretty complex.

• There were managers on the individual fund level who were constantly researching the best positions to hold.
• We had experts in our home office reviewing the overlap of the underlying funds’ holdings.
• We even boasted some additional oversight from the highest-level analysts at Morningstar.

It all sounded very sophisticated...

It, if nothing else, created a compelling enough excuse for rather high fees.

For smaller accounts, the total fees would sometimes be more than 2.5%.

I had become a pro at explaining them away. You’d probably be surprised by how few people even batted an eye. 

Please don’t get me wrong, it wasn’t that I was lying to them. I was just doing what I was told. I was listening to people...

• Who had decades more experience than I did (I was in my early-20’s at the time).
• Who I felt were smarter in this area than I was.
• Who I trusted to direct me to the best solutions for my clients. 

That’s what started to eat away at me though…

Reality

Something wasn’t right, and I think I had been putting off this deep dive into our solutions because I was afraid of what I might find.

But, I couldn’t shirk my fiduciary responsibility to my clients any longer, so I dug. I spent days seeking answers.

In short, I discovered that the primary solution our firm was pushing consistently underperformed the market.

It had been around for more than a decade (since before 2000), and the actual annualized return for each of our models was quite a bit lower than their respective benchmarks—to the tune of one or two percentage points...