The financial services industry is no different than your local grocery stores. You can buy an item at the full retail price or you can go to a discount store and get it on sale. If you have the choice of buying the exact same product at either a premium cost or a discount, which one would you grab off the shelf? Most likely, you’d choose the cheaper alternative.
It’s the same with your investments. There are retail accounts with high fees and discount accounts that save you money. Is your current financial advisor charging you too much and are you being raked over the coals for fees? Do you even know how much you’re paying?
This situation is not new. Financial advisors have always charged fees and/or commissions for their products and services. This is how they get paid for their advice and help. Going back to our grocery store analogy, the staff running the store needs to earn a paycheck. They do this by selling products and getting repeated business from their great service. But are they charging a fair amount? Are you getting your money’s worth?
Unfortunately, you can’t line up all the financial advisors and products on a shelf so you can compare them. It’s up to you to research on your own and figure out if you are paying premium, retail, or discounted costs on your investments. It’s essential to know this because over the course of your working career all the way through to your retirement, fees can add up and make a substantial dent in your savings. Here’s some information that might help you understand the world of financial fees.
Discount brokerage companies generally thrive because they cut out the middleman, thus cutting out unnecessary fees for the customer. They created a platform for DIY investors to invest without high fees. But what if you don’t want to do it on your own? What if you need advice from a professional? After all, who wants to mess up their own retirement and have to work longer or, even worse, go back to work? Let’s look at the three common fee tiers you see in the financial industry.
Some companies charge substantially more than the industry norm. They might only charge high fees on one particular product, but unfortunately, it can be difficult to pinpoint exactly what the fee structure is. Keep an eye out for companies that charge twice for advice or products.
There are also full retail options and these are normally your most common financial advisors who work at banks, insurance companies, Ameriprise, Edward Jones, Merrill Lynch, or Morgan Stanley-type firms. Over the last decade, many of these companies have changed their fee structures internally and given the advisor more flexibility for what they charge clients. However, large companies usually have higher overhead costs and lower revenue sharing with the advisor on the fees that are charged. For the most part, these companies are still considered retail. Many of these companies have options to offer some discounts or discounted plans and it is usually up to the advisor to decide if they want to discount their fees.
Last but not least, there are discount advisors. They work with discounted investment platforms like Fidelity, Charles Schwab, and TD Ameritrade that charge lower fees compared to the traditional retail providers. Advisors tend to shy away from this discounted space because the advisors themselves lose out on potential company-provided benefits such as 401(k) plans, health insurance, or life and disability insurance that usually come with retail platforms.
You should be asking your advisor or financial institution how much you are paying in fees. You don’t want to lose your hard-earned money if you can avoid it. Have a third-party review the current costs associated with your investments so you can get an idea of how much or how little you are losing to fees. Schedule a call and meet me virtually to find out if you are paying premium, retail, or discounted fees.