Evaluating Financial Advisor Fees

Is your portfolio more complicated than necessary? I met with a prospective client this week whose current advisor has their IRA in a portfolio that includes the 22 funds shown in the image. In addition, they have two taxable accounts with this advisor that include another 24 funds. Overall, there are 46 unique funds being used across the 3 accounts and the advisor is charging a 1.5% AUM fee for the investment management. This might have seemed like a reasonable fee to them on the surface. There is a lot of perceived complexity, and it looks like it must take a lot of effort to research these funds and make sure an appropriate allocation to each fund is maintained. But here is the dirty, little secret… This portfolio can be recreated with just 3 funds that are rebalanced once per year: 48% Total US Stock Market 19% Total International Stock Market 33% Total Bond Market How do I know this? I analyzed the underlying asset exposures of the portfolio. Here is a breakdown of the process so you can do the same: First, go to Portfolio Visualizer and plug the ticker symbols and allocations into the “Backtest Portfolio” tool on the website. Then, scroll down to the “Exposures” tab and look at the “Asset Allocation” to determine the combined exposure to US Stocks, International Stocks, and Bonds. It's as simple as that. This is the process I used and I then plugged the asset allocations into index funds to compare how the 3-fund portfolio would have compared to the 22-fund portfolio. I was not at all surprised to see that the performance was almost identical. You can see the comparison in the backtest linked in the comments along with a picture of the comparison. But it’s hard to justify a 1.5% AUM investment management fee if you are only holding 3 funds. If you are currently paying someone to manage your portfolio, please go through the process mentioned above. You might be paying a hefty fee for perceived complexity and not actual value. Feel free to reach out if you need help with your analysis. #Investing #Engineers

Wall Street's hidden fees are crippling your investment returns ...and you'll never see them on a statement. 👉 I'm talking about the "expense ratio" of your funds. Loading clients up with high-fee funds is a sneaky way some companies extract more money. This is a common practice at the "big box" firms. If your advisor at XYZ Investments has you in a portfolio full of XYZ funds... Your Spidey sense should start tingling! 🧠 "Are they really working in my best interest?" ------------- ➡️ Here's how to audit your portfolio fees: Google the 5 letter ticker symbol for each fund and see what comes up for expense ratio. For example - this fund has an expense ratio of 1.3% which is SKY HIGH. - If the fund gains 10% in a year, you get 8.7%. - If the fund loses 10% in a year, you lose 11.3%. 💡 Best practice is to keep expense ratios below 0.3%. This fund is over 4x that expensive! That earns it a 💩💩💩💩 rating. ------------ BUT WAIT - THERE'S MORE! This fund steps up to a 💩💩💩💩💩 rating because it also comes with a 5.25% front load. What's that mean? If you put in $100, only $94.75 actually gets invested. You lose 5% right off the bat as a sales charge. And then the ongoing expense ratio kicks in. Crazy, right? As John Bogle said, "Fund performance comes and goes. Costs go on forever." Cost is one aspect of investing you can control. How much are you losing to hidden fees every year? 🤔 Let me know if you need help figuring it out. 📨 ------------ I'm Allen Mueller, a financial advisor who helps Aerospace & Defense professionals build wealth, win the tax game, and make work optional. + Follow and hit that 🔔 for more personal finance content! + DM me 📨 or visit my website to book a complimentary meeting. ------------ **This post is general education, not financial advice.**

Whenever we recover money in an investment fraud case, our clients are almost always facing a decision they have to make. They need a new financial advisor. Most of my clients have just gotten burned by a rogue advisor. They had their trust betrayed and their family's financial future put in jeopardy. For a client of mine who's just been through that ordeal, trusting another financial advisor requires a tremendous leap of faith. I’ve sat through hundreds and hundreds of advisor pitches with my clients over the years. The themes in all of these initial meetings are often the same: We can: • provide you with better service • likely grow your portfolio more than others, and • charge you less fees than your prior advisor. They might show you what that service looks like. Some will show you Morningstar reports or pie charts illustrating prior returns and even expense ratios on some funds. But for the third thing on that list, very very rarely will the advisor sit down with a prospective client and walk them through all the fees the client is actually paying based on their actual portfolio and present those all-in figures in a way that the client can digest and understand in a meaningful way. I am not suggesting the advisors are being dishonest on this topic (because the fee information is technically "available" to the client in voluminous disclosure documents) but zero percent of real people are are able digest that stuff in way that is meaningful to them. Of the thousands of individual investors I have met with over the past 25 years, not a single one of them knew the total fees they were paying for investment management services. Most say, "I am paying 1%.... or .75% of my assets under management" but they don't understand that the additional fees they are paying will increase that expense by anywhere from 20-40% higher than that, and sometime even more. When I'm evaluating an investor advisor, there are a number of factors I'll consider. How much experience does this advisor have? Does this advisor have a strong reputation? (running a search on brokercheck.finra.org and www.advisorinfo.sec.gov can help with this). Is the advisor reasonable and completely transparent about all the fees being charged, not just the fee they are charging? The longer I spend in this industry, the more I want more transparency from the financial services industry. Not just with how they protect your money, but also with what they charge you.

As a financial professional, it is so easy to take advantage of people. And that's why I have a love/hate relationship with the industry. I love that personal financial planning could have such a profound and positive impact on your life. But at the same time, the crap and damage the industry can do is something that needs attention and awareness. One thing you should be aware of is the cost of investments. Or the Expense Ratio, as it is called in the industry. Expense Ratio is a fee you pay when you own certain investments, such as mutual funds and exchange trades funds. Problem is, you don't see the fee as a separate item, like on a statement. It is baked into the price of the investment. Two funds that have the SAME strategy can have very DIFFERENT Expense Ratios. This isn't like organic vs non-organic food where the price premium can be justified. There isn't a difference in strategy. You are just paying more money for no benefit to you other than making the financial professional and company richer. So, if you have a Financial Advisor, get your investment statements and review the Expense Ratios for every single fund. Anything that is 0.20% or higher is worth the review. The advisor should have no problem explaining why you have the investments and their costs. Also, review your 401K options. This one is tricky because you are limited to what the employer offers. Look for key words like "Active management". Those funds are typically more expensive than "Passive" funds. Unnecessarily high Expense Ratios is something you can control. It can add up to 10s of thousands of dollars over your lifetime. Zero benefit to you. Just money given to the financial industry. There might be times when funds with higher Expense Ratios may make sense. But when that happens, you should know WHY you are using it. So please don't pay more than you need to. If you need help reviewing your investments and 401K to see if you are paying too much for nothing, let me know. #knowyourkoyns

The same fee from one advisor can be a BARGAIN while being EXCESSIVE with another. It all depends on the value provided. I prefer to provide upfront an estimated total dollar amount of fees. Not just my fee, but also the estimate of the investment fees (ETF or mutual fund expense ratios for example.) If it comes out of a client's pocket, they deserve to see it, and in dollars, not percentages. This process started when a prospect explained that although they weren't receiving tax planning, they appreciated the lower fees their current advisor was charging. Once I added up the advisory fees and fund expense ratios, the prospect turned pale. (1.25% advisory plus 1.1% expense ratios add up on a $2.5 million account, almost $60,000 a year!) Although not anywhere close to what the prospect was paying, my fees are definitely NOT cheap! However, after experiencing a year of my service and planning, clients see why the value dwarfs the fees.