What does your financial advisor charge you to manage your investment accounts? That’s the question I inevitably pose to new clients when we discuss their investments. In most sales training programs, financial advisors are taught how to handle that question, make light of it, and minimize the importance of cost. In fact, I’d say minimizing the significance of cost is one of the best skill sets a salesman can have in any industry if you think about it. It’s really easy to steer a conversation away from cost when you’ve provided a solid client experience that may have involved a round of golf or football tickets. It’s especially easy to avoid steering the conversation towards the cost if someone has made a decision based on emotion (car industry). In my opinion, however, getting people to make decisions based on emotion is not exceptional advising - it’s merely salesmanship. In the absence of value, salesmanship is paramount. I take pride in delivering significantly more value than anyone that would try to call themself my competitor. I wouldn’t do it any other way.

Think about it: if your advisor is doing a crappy job managing your money, you’re always going to get the run-around. I’ll tell you how the game is played in the financial industry: Your advisor is busy servicing clients and seeing new ones. The last thing he or she typically wants to do is actively keep up with YOUR investments, so he or she finds a good fund manager to outsource the management to. This management isn’t going to come for free. Now, you see what we did? We created two mouths to feed. You are paying your financial advisor a standard fee, and you are paying the fund manager that he or she has selected in the form of fees that come out of your investment returns.

How do you know if your advisor uses a fund manager or an outsourced mutual fund approach? Look at what your account is invested in. If it is invested in predominantly mutual funds, look up those funds to see their annual fees. Some are as high as 1-2%! There are tons of third-party sites that you can use to screen these funds. Let’s say you have a bad year and your accounts don’t perform well. Your advisor will probably recommend a different strategy; they’ll blame the fund or the manager and find a different place to invest your money. It’s all a shell game. You are paying someone to find someone else to manage your money. Cut out the middleman and advisors that don’t actually manage your money!

Here is an example of what fees one might incur with a $200,000 investment account:

1.5% management fee +

1.5% mutual fund fee

= $6,000 per year in fees (3% of your total account value). This means if a portfolio earns a 7% return in a given year, you will receive only 4% once all of the fees are paid. Most people don’t notice these costs when the market is humming along nicely because they’re still making money. It usually takes a downturn in the market before people start wondering why their losses are so great. A portfolio that loses 10% in a given year will actually lose 13% once these fees are added in. Wouldn’t it make more sense to cut out the middleman and find someone that will make every investment independently without ancillary costs or middlemen? That’s where we come in.