September 1

Advisors, Investments


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...



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…


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...

And, we’ve already discussed in a previous post how much of an impact that can make.

Maybe there was an entire team of experts monitoring these models and they needed to be paid...

But if that ‘monitoring’ is not generating a superior performance… ever… not even for one of their models…

Then, WHY?!

If our investment solutions were outperforming by more than their fees over the long run, then the value proposition might make sense.

But, they weren’t.

They consistently underperformed, costing my clients money, and they were expensive… losing them even more money.

It wasn’t long after this initial period of self-discovery that I left that firm in search of something better (ideally, the best possible solutions for my clients).


And, that company I was working for, Northwestern Mutual, is not a small player in the investment industry.

Their investment services arm is, in fact, the fifth largest independent broker dealer by revenue raking in more than $1B in commissions and fees on those complex investment strategies pushed by their massive field force. (source)

This isn’t, however, some isolated case. The list of highly-regarded firms charging significant fees to manage investment dollars is upsetting.

The Broker-Dealers

Edward Jones, with its $1.1T (trillion, with a T) of assets under management, has its field force charging an ongoing 1.35% management fee for a client’s first quarter million (plus other smaller ‘hidden’ fees and the underlying fund fees—more on those in a future post). (source: the firms’ Form ADV filings)

  • JP Morgan charges a 1.45% advisory fee
  • Merrill Lynch, 2.00%
  • Wells Fargo, 2.00%;
  • Morgan Stanley, 2.50%
  • UBS, 2.50%

The Worst

One of the worst culprits of this ‘high-fee’ madness is Ameriprise Financial.

With half a trillion of assets under management, Ameriprise gets away with charging a 3.00% advisory fee on smaller accounts. And that’s just the advisory fee—add in the other smaller ‘hidden fees’ and the underlying funds’ fees and some clients could end up paying 3.50% or more each year in fees!

It’s no surprise to see Ameriprise consistently at the top of the list of independent broker dealers by revenue.

Cashing in almost $4B in fee and commission revenue in 2018 (almost twice as much as the next company on the list with a similar business model despite managing significantly less than some other firms).

And the Fiduciaries?

All the firms I’ve listed thus far are what’s called broker-dealers. But, what about the fees charged by registered investment advisors (RIAs)?

Those firms are actually held to a fiduciary standard. Meaning, they legally are supposed to be acting in your best interest.

So, in theory, you’d think their fees might be more agreeable. Wouldn’t you?

As it turns out, they're not much better in the fee department...

Work your way through Barron’s 2019 list of top RIAs and you’ll discover more high fees eating away at investors’ returns. 

By far the largest RIA in the world with its more than 1.2MM clients, Edelman Financial Engines charges its smallest (by account size) clients a 1.75% annual fee.

  • The Tony Robbins-promoted Creative Planning takes the second spot on that list with its 1.2% fee. (source)
  • Followed by Private Advisor Group’s 2.00% annual fee on accounts under $500,000. (source)
  • Next you’ll find Mariner Wealth Advisors with its 2.50% annual fee for ‘smaller’ accounts. (source)

You get the idea: there are a lot of people out there paying a lot of money in fees year in and year out.

The big question, then, is: are they worth it?

To best answer that question, you’ll need to understand what the ‘cost’ really is. Because, it’s not just 1.5% or 2.5% or any percentage—that’s meaningless when it comes to your financial aspirations.

Percentages are too disconnected from what your goal actually is when enlisting the help of a ‘professional.’

We need to evaluate this cost in terms of dollars.

And then, in a future post, we can evaluate the effectiveness and value of the various strategies these firms employ. This post, however, is the perfect place to evaluate and develop your understanding of that ‘true cost.’ 


The average annual advisory fee from 2017-2019 for an investment account with $1MM was 1.02% (larger accounts averaged less, smaller accounts averaged more). (source)

For this ‘true cost’ exercise and to understand the impact these fees have on what your reasonable expectation for average annual growth in the market should be, let’s round down to an even 1.00%.

After accounting for this average advisory fee (remember: this fee is usually much higher for ‘smaller’ account sizes—i.e. sub-$1MM), the actual realized return (that we discussed in our previous post) drops from the S&P 500’s geometric average of 10.2% down to 9.1%

Remember from that last post the $100 invested in 1926—that would have been projected to grow to $4.6MM with the 12.1% assumption but then, in reality, turned out to be less than $1MM?

Well, when you add in this 1% advisory fee, it’s more like $350,000. From $4.6MM to $350,000—that’s less than 8% of the expectation!

The practical implication for you?

Your actual portfolio value would now only be…

  • 76% of its projected value after 10 years 
  • 58% of its projected value after 20 years
  • 44% of its projected value after 30 years

So now, even if everything goes according to plan, your $10,000 investment after 30 years has only grown to $136,000 when you were projecting (and planning for) $308,000.

Edelman's Reality

In his 1996 New York Times bestseller, The Truth About Money, Ric Edelman uses multiple convincing hypotheticals to encourage readers to invest in the stock market. Here’s one:

“Although the average stock fund earned 14.5% over the past 10 years, we’ll say that yours performed below average, earning only 12% a year. At that rate, your $5,000 will grow to $99,000!”

(Actually, a $5,000 investment growing at 12% per year for 25 years (his assumption in the text) would be worth $85,000. It would require a consistent 12.7% each year to achieve $99,000… but, my objective here is not to argue Mr. Edelman’s math, just his dangerous logic.)

Let’s check in with my (made-up) 42-year-old friend, Brody.

Reading this advice in 1996, he was convinced by Mr. Edelman’s case for stock market investing and excited by his ‘conservative’ 12% expectation...

He eagerly handed his $80,000 nest egg over to Edelman’s firm expecting (read: needing) that sum to grow to $1MM by the end of 2019, when Brody would be 65 and ready to retire. (An $80,000 investment at 12% per year for 23 years (1997-2019) would grow to $1,084,000.)

The reality for my poor friend was far from that ’conservative’ $1MM projection...

From the beginning of 1997 through the end of 2019 (a remarkable year for the market, by the way), the market realized a simple average of 10.3%. A far cry from that 14% seed that Edelman planted in Brody’s (and millions of others’) mind.

His actual return (remember the difference explained in this post?) was only 8.6%—leaving him with less than half of his original projection!

That’s right, that real 8.6% would have left him with $538,000 instead of the more-than-$1MM that projected 12.0% should have gotten him.

But, we’re not done here...

Add in Edelman’s advisory fee of 1.75% for an account of that size (that’s his current rate, it used to be higher), and the effective annualized return drops to 6.7%, resulting in an account balance of $359,000—67% less than what Brody was expecting…

That $5,000 Edelman was talking about didn’t grow to $99,000...

When you apply the real, geometric average and account for the advisory fee, it only grew to $25,000 over those 25 years.

The Worst Revisited

Edelman Financial Engines is not even the worst offender here (at least from the fee perspective, it’s not; but from the ‘12% claim’ perspective, Ric Edelman is definitely on the list of worst offenders).

The title of ‘Most Outrageous Fees’ (that so many people are talked into paying) should probably go to the aforementioned Ameriprise Financial with its roughly $500B of assets under management (source) and 3% advisory fees. (source: the firm’s Form ADV)

That 3% fee takes your ‘since-1926’ number down to $52,000—1% of your original expectation!

  • Your 10-year return would be 62% of its projected value
  • Your 20-year return would be 39% of its projected value
  • Your 30-year return would be 24% of its projected value

That $10,000 is only $74,000 now after 30 years (instead of the $308,000 you were originally projecting and planning for)...

They’d have to be providing some major value over there for this to be worth it...

And, I can’t imagine some fancy computer software and friendly customer service would do the trick—I’m thinking (for it to be worth all that…) more like maid service, child care, a private car when you need it… you know, the works!

Is It Ever Worth It?

To be fair, with this post alone, we don’t have enough data here yet to determine if these fees are actually worth their impact or not—it is hard to imagine that being the case for some of them, but in our honest pursuit of truth, we’d have to consider both sides of the equation (including what you actually get for all this expense).

In this post, we’re just looking at the bottom line impact of these fees on your long-term plans.

In the future, we’ll explore the other side—what firms are actually offering and if some are worth their elevated fees...

Or if they’ve just realized that it’s easy for people to brush over all these ‘relatively-small looking’ percentages.

Regardless, this exploration of the impact any fee has on our real returns demonstrates that we need to manage our expectations even more. 

Now, once you’ve come to terms with everything we just went over in this post… hold on tight cause we still gotta knock down those expectations just a little bit more…

We’ll do that in our next post. One of the easiest ways to keep up with the value we're creating for you is to subscribe to our YouTube channel and hit that pesky notification bell.

Alternatively, if you want more access to some of the behind-the-scenes research we’re doing to help you better understand and overcome financial issues like this, you should go poke around our private community.

I can’t wait to see you there. Regardless, I wish you all the best!

Take care.

Stephen Spicer

Stephen Spicer, CFP®, AEP®, CLU® is the founder and managing director of Spicer Capital, LLC. He is married to his high school sweetheart, and they have three amazing boys.

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