Lets Talk About Fees
Fees in the Financial Services Industry are not all equal.
I' m sure you've come across this issue; whether it be when reviewing information for a client or as an investor yourself, fees that are charged to clients can be done so in many different ways. From trading commissions to wrap fees, management charges to product fees and sometimes a combination of both. It's confusing to me so I know it's confusing to you and your clients.
Whether the big firms in or industry like it or not, we are under fee compression, and we should be. When I first started in the industry and asset management fees first started, clients were charged 3%, plus the cost of any fund that was purchased. The higher charges were somewhat justified as trading costs were much higher and technology was no where near it is today with execution times now in fractions of a second. My first trade was a hand-written ticket, that had to go through 3 people before being faxed off to a trader.
What I find today and what I want you to be aware of as you advise clients is that there are still ways that investors are paying higher than average fees, and in some cases, they may not even know it.
There is a lot of advertisement and promotion highlighting “retirement planning” or “planning for life”. Don’t get me wrong, a plan is important, just like mapping out a trip you need to know which roads to take. My problem here is that at some stage you must get in the car and drive. The plan is great, but you need to invest to get a return, otherwise you might as well stick it under the mattress. The over focus on “Planning” in my opinion is a way for the larger firms to take the focus away from the returns and have clients/investors feel they are paying for advice not the investments. How would you like to be paid a percentage of their assets to prepare their tax returns or estate plans each and every year?? Good gig if you can get it. Well the gig is out there.
Paying for a financial plan should be a one-off event and not a percentage of assets. Now if the plan includes management of a portfolio then that’s one thing, however if the portfolio is full of mutual funds or ETFs then there is likely to be a management fee inside the fund, that ultimately comes out of your client’s pocket. That means the client’s funds are being managed by a third party, and the planner is being paid to manage the manager…
In today’s times, I believe there are better ways. We manage money internally for clients directly in stocks and bonds. We don’t have any third-party managers which keeps the fees down. The highest fee to be in our portfolios is 85 basis points. Less than 1%. We have a local presence and meet with our clients face to face. I’d welcome the opportunity to meet with you and provide some more insight to assist your clients.
Until then, I’ll see you around.
Mick Graham, CPM®
Branch Manager
Investing involves risk and investors may incur a profit or a loss. Past performance does not guarantee future results. Any opinions are those of Mick Graham and not necessarily those of Raymond James. Expressions of opinion are of this date and are subject to change without notice. In a fee-based account clients pay a quarterly fee, based on the level of assets in the account, for the services of a financial advisor as part of an advisory relationship. In deciding to pay a fee rather than commissions, clients should understand that the fee may be higher than a commission alternative during periods of lower trading. Advisory fees are in addition to the internal expenses charged by mutual funds and other investment company securities. To the extent that clients intend to hold these securities, the internal expenses should be included when evaluating the costs of a fee-based account. Clients should periodically re-evaluate whether the use of an asset-based fee continues to be appropriate in servicing their needs. A list of additional considerations, as well as the fee schedule, is available in the firm’s Form ADV Part 2A as well as the client agreement.
