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What Fees Are You Really Paying For Your Investments

June 01, 2017
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According to a survey conducted by the Rebalance IRA investment management firm, 46% of people between ages of 50 and 68 believe they are not paying any fees in their retirement accounts.  19% believed they are paying less than .5%.  This is far from the truth.

When I ask people what they are paying in fees they think they are only paying 1 to 1.5% for the advisor fee.  There are other fees in addition to this.

There are unwrapped and wrapped accounts.  Let’s talk about unwrapped accounts first. It’s like buying a car.  You go into the dealer to buy a car, sign all the paperwork and then find out if you want an engine that costs extra.  If you want brakes that’s also extra.  You thought you were paying the one price for everything.  In an unwrapped account, you are paying for the custodian fee, the money manager fee, the mutual fund fees and the advisor fee.

For example, if someone is invested in a mutual fund portfolio there are internal management fees.  Some funds are very expensive.  The Good Harbor Tactical Core US Fund Class A is 1.79% this is in addition to the upfront sales load that you may be charged as well, that’s is on top of the 1 to 1.5% advisor fee.  So you are paying 2.79% to 3.29% for that account managed by your advisor or broker. ETFs internal expenses are much lower than mutual funds.  Some are .09% . 

In a wrapped account, you go to the car dealer buy the car and that price includes everything.  There are no hidden fees.  In most cases, it’s less expensive than buying the car plus the engine separately and everything else.  You get my point with the analogy.

If you are working with a broker or wire house you may be charged a commission for each trade you make along with additional advisory fees.  For mutual funds, the most common classes of shares are A, B, and C class shares.  “A” class shares have an upfront charge typically up to 5.75%.  The more you invest the lower this front-end load charge may be.  They have lower 12b-1 fees (included in the internal management fees).  “B” class shares have no upfront sales charges but, have the higher 12b-1 internal fees and expenses which is a reason brokers tend to sell them. They also have a back-sales end load if you sell before a 5 to 7-year period.   “C” class shares also don’t have an upfront sales charge, but also have higher 12b-1 and internal expense charges usually over 1%. To add just one more commonly sold product we see a lot of the Variable Annuity, these tend to be the most expensive of all investment vehicle ranging from 2% to over 5% in total internal sub-account fees, expenses and rider charges. If you own one read the prospectus!  They don’t want you to.  That’s why they make it so large.

While this may help shed some light around some of the hidden fees and cost you may be paying and not know it, I strongly suggest you do some homework to better determine your particular situation as it pertains to your investment portfolio.

The RIA Firm (Registered Investment Advisor) I’m affiliated with uses a Wrapped platform that consists primarily of individual stocks and some ETFs.  Based on the account size there is a sliding fee scale that includes the Advisory fee, transactions and custodial costs, and the money manager cost.  This wrapped fee program includes dynamic and disciplined money management process and seeks to provide downside risk mitigation when the market takes a downturn.  This fee structure is transparent and while total cost maybe the same, slightly higher or lower than the unwrapped fee structure. We believe “Price is only relevant in the absence of Value”! We spend a lot of time educating our clients and use a defined process to help accomplish this. Our Portfolio Blueprinting tool will help you to better understand the important details and true cost of your current portfolio. We also help our clients better understand their REAL investment risk appetite, using a Noble Prize-winning software, you’ll better understand the amount of risk your taking with your current portfolio and determine whether or not you have to much or too little risk exposure.

I would like to close with this…

Its best to work with a pure fiduciary firm as they are required by law to have full disclosure and place your best interest above their own.  Brokers are only held to a suitability standard.

Do your homework before investing and we like to say, “You don’t need a second opinion, you need a Fiduciary opinion”!

  • Ask you advisor what your all-in cost are for investing.
  • Your advisor should be able to tell you the discipline the use in managing your portfolio
  • You should know what you own in your portfolio and why you own it.
  • You should have a quantifiable risk management system in place to protect your portfolio from market volatility.




Securities and Advisory Services offered through Caitlin John Private Wealth Management, LLC. 1024 E. Grand River Ave., Brighton, MI 48116. DS Financial Strategies and Caitlin John Private Wealth Management, LLC are non-affiliated separate corporate entities.