How Much Are You Really Paying?

William Miller |

Do you know how much you're paying when it comes to your investments?

You wouldn't buy an apple for $2.00 when you can buy the same apple or a very similar apple for $0.5, right? The same principle applies to choosing a financial adviser or choosing an investment portfolio, you need to know the all-in cost to your portfolio fees. Your total portfolio fees are made up of a few different fees including your advisor’s fee, expense ratios, and some miscellaneous fees.

To understand how quickly your fees can add up and the effect they will have on your portfolio reference the chart below:

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Everything in the chart is the same except the underlying expenses for the assets (.72% difference in expense ratios). The advisor fees are both 1%, the growth on the portfolios is both 8%, and both show 30 years of growth. That hidden .72% expense ratio on Portfolio 1 will cost the investor over $250,000 in retirement!

Financial Advisor Fee

How an advisor charges their fee can vary based on their practice period some advisors charge an hourly rate, a flat rate, or a percentage of the assets that they manage. Many advisors charge fees based on the assets they manage (AUM Fee). Typically, it's somewhere in the range of 1% but fees are set by the financial advisor, and that’s why you need to talk to them about their fees.

When looking at the financial advisor fees, I always try to remind individuals that it's important to see if the fee that you're paying (cost) is worth the value that you are receiving.

Underlying Asset Fees

In addition to your advisors' fees, your underlying investments might have a fee associated with them if they are a mutual fund or an exchange-traded fund (ETF). Even if the objective of the two funds is similar, the cost associated with them might not be. Below are two mutual funds both following the S&P 500 index different expense ratios. For example, let’s look at the fund cost associated with each one with $100,000 invested.

  1. Ryder S&P 500 (RYSPX) has an expense ratio of 1.65% = $1,650/year
  2. Vanguard 500 Index (VFIAX) has an expense ratio of .04% = $40/year

That is a difference of $1,250/year!

Yes, you read that right $1,250/year extra you could be paying for a fund. Therefore you need to choose an advisor that compares the different available options for your investments.

Miscellaneous Fees

There are different miscellaneous fees that could be associated with your account. These are usually charged by the custodian (TD, Fidelity, Pershing, etc.). 

  1. Request For Paper Copies
  2. Placing Trades
  3. Option Trading
  4. Account Maintenance
  5. Account Termination
  6. Wire Transfer

These fees will vary from custodian to custodian but are something that you should understand.

If you are not sure what you are paying in fees or just want a clear explanation you can reach out and schedule time with us here.


*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax, legal, or investment advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their accountant, financial planner, and counsel. Neither the information presented, nor any opinion expressed constitutes a representation by WM Wealth Planning as a specific recommendation to the purchase or sale of any securities/investment. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by WM Wealth Planning for educational purposes*