Ask an Advisor Video Series – Fees… Fees… What Fees?
Video Transcript
Transparency: Fees & Costs
Thomas Talbott: Oh, hi, I was just going through my credit card statement to see what the charges are. Now do know that I pay off my credit card each month so I don’t have to pay any of the interest or fees associated with that. Fees. You know, we all pay fees every single month. It may be the entertainment that we watch on TV, it could be a gym membership. If you live at a continuing care retirement community, obviously there’s monthly fees associated with that. Ever tried buying a car or a house? There’s plenty of fees that you’re paying in regard to that. We pay fees all the time. But the question is, do you know what fees you are paying with your investments?
This industry, the financial industry, has been very good at obscuring what those fees are. Matter of fact, the Department of Labor, a number of years ago, came out with rulings to say that fees needed to be clearly disclosed on what employees were paying for their 401(k) retirement plan.
No Fees Are Hidden Fees
Let me give you two examples of folks that I have worked with that had no idea what fees they were actually paying. The first one told me that he didn’t pay any fees at all to have his account managed. The other one is dealing with the hidden fees in annuities. Some time back when I was talking with somebody when they found out how I get paid and that we just charge a fee for our advice, he commented, “Oh, I don’t pay any fees for my investments.”
He did have an account at a large brokerage firm, and asked me to evaluate it. I was able to uncover that the mutual funds, that that account was made up of, actually had high internal annual expenses. When I showed that to him, he was quite surprised because the advice that he was given was not holistic and it was limited to just a few money issues.
And it was actually more than what the fee would be charged to manage an account. When he found that out, he soon moved his account to our oversight. The fees and annuities have become a real problem for some annuitants. Two clients that I’ve recently worked with both had annuities from the same company.
There are high annual expenses in annuities, fees that are often contingent on what bonuses or riders that people have. But the real problem comes in when they try to get out of it. This particular contract had a 16-year surrender charge schedule. The one client was in it for 14 years and it would still be 6 percent of the total account value to get out of it.
In my opinion, that’s totally ludicrous. I bet you that the agent that sold them that contract made a high commission on that. Something that they didn’t probably want to readily reveal to the annuitant. Matter of fact, I’m guessing that he earned 6, 8, or 10 percent in commissions. There is a better way of dealing with your investments in financial planning than paying high fees and commissions.
Stay Informed: Know What to Look For
Let me just mention three real quickly.
- The first one, don’t be lured into thinking that you’re not paying anything for your investments.
- Number two is try to find out and understand what those costs actually are.
- And number three, realize that there are different ways that investment advisors get paid.
One way is through commissions, which means that a company is paying them for the product that they sell. Obviously, the agent is getting paid a commission, but the company is also taking a cut. Both those things run the fees up. The second way that investment advisors get paid is the way that we have chosen.
Which is fee only, not to accept any backdoor money, not to make any commissions on any of the services, or oversight that we give. If you have questions about the fees that are in your investments, give us a call. We would be happy to show them to you or answer questions that you have, in any of these other fee areas.
Schedule an introductory phone call with Thomas at this link: Thomas Talbott – Introductory Phone Call
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