Case in point, yesterday, CNBC published an article titled Hidden Fees Can Eat Away at Your Retirement Savings. The piece focuses on the cost of advice delivered by advisory firms like ours. Here's a snippet:
The good news: Never before has it been as cheap as it is now for good professional money management. The days of paying 2.5 percent to 5 percent for money management should be gone. The ability that investors have to find a terrific money manager for a small fee is better than ever.
The bad news: The bad news about fees is that people have no idea of the impact they can have on a portfolio. Non-savvy investors are still paying their financial advisors the 2.5 percent plus fee for doing something that can be done much cheaper. Let me visually show you what we mean by looking at three different portfolios.
- Portfolio 1: This portfolio is a commission-based advisor charging 5 percent. This fee includes the cost of managing money, sales, advertising and other expenses. This is an old-school example that unfortunately most broker-dealers still implement today.
- Portfolio 2: This portfolio is a fee-only advisor charging a flat fee of 3 percent.
- Portfolio 3: This portfolio is a fee-only advisor charging a flat fee of 1.5 percent.
As you've no doubt guessed, Portfolio 3 would be the one the author views most favorably, and illustrates most favorably on his visual. Ironically, that's our highest level (the percentage goes down as portfolio values go up) fee -- i.e., the majority of our clients pay us less than 1.5% annually.
Yesterday's blog post described how we view our bottom line, in terms of what our clients pay for.