A new report finds that nearly two-thirds of financial advisors underestimate the fees they charge to their clients.
In a survey, Peak Advisor Alliance and Cerulli Associates found that nearly 63% of advisors surveyed thought they were charging total fees of less than 1.5%. This estimate was low by 30 basis points, the firms said.
What this means is that advisors are actually charging clients more than they think they are. It’s not that they’re being dishonest per se, since the study didn’t find that the advisors had lied to clients. It’s just that they thought they were giving their clients better value than they actually were.
This study points out a key “must do” of any investment strategy you may consider: know how much you are paying in fees. And verify the information yourself, (since, apparently, many financial advisors aren’t too clear on the subject).
According to a May, 2013 in Forbes, people who hire an investment advisor to manage a mutual fund portfolio or exchange-traded fund (ETF) portfolio can lose as much as 40% per year to fees.
The author of the Forbes Personal Finance piece, Rick Ferri, broke down this 40% as: the fees from the mutual funds added to the advisor fees, divided by the expected portfolio return before fees.
Sound complicated? Well, it is complicated – so if your advisor isn’t even clear on what he or she is charging you, you really need to do your own homework on fees. In the end, it is your money that gets lost to these fees, turning an otherwise good investment into a lousy one.
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