The financial industry is adept at keeping its customers in
the dark about what they are spending.
There are plenty of regulations in place that are supposed to
make such costs transparent, but most of the disclosures are in
small print and peppered with legalterms .
I'm not suggesting that all fees and charges are unfair. In
fact, decades of consumer advocacy have reduced the number and
types of tricksbrokers ,financial advisors , and money managers
once used to fleece their clients.
But there are still things to watch out for...
Some money managers and financial advisors provide a range of
financial services, includingasset allocation ,stock andbond
recommendations, reporting, and so on.
Most of themwill charge you a fee for financial advice. Some
will also collect commissions on any transactions.
One of the biggest problems with money managers and financial
advisors is that they have a predisposition for mutualfunds .
They likemutual funds because they are easy. But as you know,
mutual funds are very expensive.
And that's not all... With amoney manager , you are likely
paying other fees too. My colleague Tim has a good friend with a
UBS-managed account. Tim studied the fine print and this is what
-- A 1% annual fee on the portfolio paid to the
-- An average 1.44% annual fee on the 15-20 mutual
funds the manager hadput his friend into.
The fine print showed other fees that were impossible to
-- Omnibus Processing Fees
-- Trailers and 12-b Fees
-- Networking Fees
-- Finders Fees
-- Account Services Fees for Affiliated Fund
--Revenue Sharing Payments
So Tim's friend is paying 2.44% in disclosed fees -- and he
may be paying even more if you consider the hidden or
There is an argument to be made that fee-only financial
advisors and/or money managers are better because you don't have
to pay transactions costs. This is not necessarily true. Your
account could be billed for certaintransaction costs separately.
The money manager doesn't receive this fee, but you pay it.
The only way to know what you are paying afinancial advisor
and/or money manager is to write them a letter asking them to
disclose all costs clearly and fully.
If you use a money manager or financial advisor, you should
expect him to be completely forthcoming and transparent about
what you are paying. If you aren't sure, the first step is to ask
him in writing, "Please send me a clear and comprehensive account
of all charges, fees, commissions, and other costs I am paying
for your service."
And ask him to copy his manager on that message.
If you are ever told, "There is nocommission on a purchase,"
you are speaking to a liar. It may be true that no actual
commissions (as defined by the industry) are being charged, but
you can be sure that there are other charges, either embedded in
the transaction or put through to you as "management fees."
s, there are some situations in which you may be happy to pay the
fees they are charging. And there are certainly financial
advisors and money managers who are smart and caring and do a
But you need to know exactly what the costs are
-- immediately and over time.
Then, and only then, can you decide if these sorts of services
are good for you.
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