What Are The Fees?
What Are The Fees?
That’s a question we often get. What is the fee to work with us? What are the fees that I’m currently paying on my account? Are there hidden fees? Is it better to pay a fee or commission?
I want to address this subject today by talking about a couple of major points.
We will discuss hidden fees, what’s an appropriate fee to pay, and if a fee-only advisor is a good move to make. To set the stage, I want you to know that it is important to understand that financial advisors, money managers, fund managers, and investing professionals deserve to get paid.
I often think of health and wealth professions to be the same. We have to pay people to manage our money and to give us advice just like we pay doctors, nurses, and hospitals to treat us and care for us. You could probably agree that sometimes we’re charged a little more than what we should be in the health industry and that holds true in the financial industry as well.
Some companies are charging fees that are higher than what they should be or charging for services or features that you just don’t need. However, we need their services, so it’s really important we walk through the fee structure so that you can understand what and why professionals in the wealth industry should be paid.
What are the hidden fees in my investments?
This takes me right into hidden fees. We’ve established that financial professionals should be paid, but when we look at someone’s portfolio for the first time very rarely do we see disclosed on the statement what they’re currently paying for the service.
At Bertram Financial we have had clients who say they’re currently only paying a $30 administration fee for the year. Let’s put this into perspective. You can go to the doctor sometimes for a $30 copay, but that’s because some of the cost of your visit is being offset by something else, most likely your insurance.
When it comes to wealth, the cost is usually being offset by the investments. Maybe your investor is getting paid from the fund itself or a fund family. They might get the fees (extra cost) paid by using those funds inside your portfolio.
Know this, your wealth advisors are getting paid and sometimes more hidden costs aren’t as clear in the statement.
At Bertram Financial we can use our tools and research what those hidden fees are so that we can give you a better idea of the true cost of your advisor. These fees are especially important to uncover in 401K. In this type of investment fund, there may be a lot of hidden fees because your advisor is paying for all of the administration and record-keeping. Although the fees are disclosed, they are often hidden and difficult to find.
We have a great team that can help you uncover those hidden fees and answer any questions that you might have about your investment accounts. One thing that is important to ask when you’re going to work with somebody new is, “Is this the total?” You need to know if every fee is listed or if there will be fund fees, trade costs, or other hidden fees in the future.
Have you ever looked online to purchase an airline ticket using multiple deal websites? You see the price of the ticket from the airline and then you see another site where that same flight is one-third of the cost from the airline’s website.
After you start reviewing the details a light comes on and you realize that the higher-priced ticket may have included all of the taxes, baggage fees, or add-ons. Now when you add up the “additional fees” (or hidden fees) associated with the less-expensive ticket, you’re at the same price (or higher) than the original ticket from the airline’s website.
What’s an appropriate fee to pay my advisor?
When we talk about what might be an appropriate fee to pay your advisor, it is all relative to what type of service you’re receiving for that fee. Keep this in mind as we walk through this section.
Younger investors or smaller accounts will sometimes pay an index fee. For example, Vanguard offers various index funds that don’t charge any fee, but you’re also not getting very much for that type of service. Your account will just right the index and will perform the same as all of the other accounts like it. There is a place for this type of fund, especially when a smaller amount is being invested.
This is much like we need a doctor less when we’re younger and more when we’re older. So, the more you’ve built your wealth over time and you’re looking at retirement, you will start to look to see if there are more efficient ways to manage your wealth.
You may want a bit more protection or someone to look at the taxes or a more efficient way to invest. This means that you might move out of a no-pay or small fee manager and into paying someone for their expertise and services.
Again, we want to know what we’re paying for. This summer my family took a vacation and rented a house up north. Now, there was a big group of us planning to go together, so looking for a house was fun in the beginning. There was one house that when we first started looking that my sisters liked most because of the greenspace. However, the lake and dock were small.
As I thought about it, I mentioned that we all have plenty of green space in our homes in our everyday lives. While this amenity might be more important to someone coming from a big city like Chicago, it isn’t that important to us since it is something we have every day.
As we searched on we found another house that kind of fit our needs. It cost a little bit more than the first house that we found, but it had a bigger dock area and a nice outdoor space and overall more availability. Since we are paying for something, we want to make sure that the house fits our needs best.
This is also true with fees. Make sure that what you’re paying for provides the services specific to your needs. Also, make sure that paying these fees is worth it to you. Do the services make sense? You should know exactly what you’re getting in service for your money.
If someone says that they are managing your account, they need to be able to tell you what they’re doing for you and be able to go into more detail if you want it.
Anybody, including yourself, can put you into funds and sign up for a “set and forget” style service. That’s what the Vanguard funds are there for. So if that’s all your manager is doing for you, then it isn’t worth paying for. You only want to pay a fee when there is value to it.
Should I Use A Fee-Only Advisor?
We have heard this question at Bertram Financial and here’s the problem with that type of fee service.
If you use a fee-only advisor you might find your money being put in whatever investments or products that the advisor could recommend. This is problematic because it might not always work best for your situation.
We have a seminar at Bertram Financial called “Colors of Money.” (Download the PDF here) In this seminar, we talk about not just what’s available with the different colors of money, but also how advisors get paid (via fees and commissions). There’s no one way that is better because one way may be more appropriate at a certain time based on your needs.
So, working with a fee-only advisor can do one of two things. It can either pigeonhole you into the type of Investments or products that the advisor will recommend based on what they’re going to be paid for or you end up just playing for a plan, but still have to do the work to find the people to help you execute the plan. This is like an architect giving you a plan and then you’re responsible for building the house. It is most likely more of a challenge than you’re up for.
When it comes to examining the fees and what you’re getting for those fees, it is important to look at the full picture. If you need more guidance, I would suggest watching our Four Steps to Dream Retirement. Here we talk about each of the steps that you need to take to make sure that your retirement strategy is set.
If you have any questions at all or would like for us to uncover the current fees that you’re paying, please schedule a call with us. We’d love to talk!
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