There are literally hundreds of combinations of financial service expenses: Fees, commissions, bundled, unbundled, wrapped, layered, sliding schedules, discounts, penalties, etc. Consequently, it is impossible for Watchdog to develop a simple, all encompassing calculator that determines the reasonableness of the investment fees you are paying in relation to the value of the services you receive from your advisor.
Your financial advisor can answer expense, services, and value questions. Unfortunately, he has a major conflict of interest. His income is highly correlated to the expenses you pay. And, there is a bigger problem. Advisors, who charge excessive expenses, will not voluntarily disclose expense related information. You are going to have to ask very specific questions and require documented responses. We can help!
1. Do you believe you know all 10 types of expenses that may be deducted from your investment accounts?
2. Do you believe you know all of the expenses that are deducted from your investment and insurance accounts?
If you answer Yes, consider yourself lucky. If No, require your advisor to describe all of the fees, commissions and transaction charges that are being deducted from your accounts. This includes fees that are charged by third parties such as custodians, mutual funds, annuity companies, and broker/dealers.
3. Does your advisor provide a quarterly calculation that shows all of the expenses you incur as a percentage of your assets?
Require this calculation from your financial advisor at the end of each quarter and at the end of the year. You may be paying excessive fees if they are more than 3% per year and you have less than $350,000 of invested assets. You may be paying excessive fees if they are more than 2% per year and you have more than $1 million of invested assets.
4. Do you believe you know all of the services you receive for the expenses that are deducted from your accounts.
If your answer is Yes, consider yourself very lucky. Very few investors receive this information from their advisors. If your answer is No, require your advisor to document all of the services you receive and match the services to the associated expenses.
5. Do you believe you are receiving adequate value based on the amount of expense you are paying?
Value can be sage advice, risk management, competitive investment performance, reasonable expense, and the achievement of your financial goals.
There is an easy way to obtain this information from your current advisor(s). Become a Watchdog User and select our quarterly Monitor service. We will obtain the data for you and provide a report so you have a permanent record of your your expenses.