SILICON VALLEY, Calif., Oct. 25, 2017 /PRNewswire/ -- According to Personal Capital's latest report, Hidden Beneath the Surface: What Americans are Paying in Advisory Fees, Americans can pay up to three-and-a-half percent per year in advisory fees and fund fees at some of the nation's most well-known firms. While the difference between a 1 percent annual fee and a 3 percent annual fee may not seem like much, the total amount lost over time could add up to more than $400,000 – higher than the median price of a home in the United States.
An additional 1 or 2 percent per year in investment fees may sound small, but a new study from Personal Capital shows how over a lifetime, the total cost of hidden and hard-to-understand account fees has a staggering effect on consumers' savings. Compounded over decades, the seemingly trivial fees that advisory firms charge investors every month add up to hundreds of thousands of dollars by the time their customers retire.
Personal Capital's report focused on investment advisors with a national footprint, a statistically significant number of customers in Personal Capital's database, and available fee data that Personal Capital's technology could reliably identify and interpret. It reveals that fee schedules are often hidden, complicated and full of obscured charges.
What's more, investors don't understand what they're paying in fees. A survey issued by Personal Capital in May 2017 found that only 21 percent of investors know they pay fees on their accounts, but are not sure how much they pay, while 10 percent of investors don't even know if they pay any fees on their accounts.
Fee ranges that were calculated for and/or filed with the SEC for a sample of 10 advisory programs that met the report's criteria, from highest to lowest, include:
- Ameriprise (Managed Accounts & Financial Planning Service)
- UBS (Portfolio Management Program)
- Morgan Stanley (Select UMA Program)
- Wells Fargo (Private Investment Management)
- Merrill Lynch (Personal Investment Advisory)
- JP Morgan (Mutual Fund Advisory Portfolio)
- Edward Jones (Unified Managed Account Model)
- Personal Capital (Investment Services/Wealth Management)
- Charles Schwab (Schwab Intelligent Advisory)
- Vanguard (Personal Advisor Services)
"Many Americans don't understand how much they pay their financial advisors – and it isn't their fault. It's quite common to find advisory fees and expense ratios explained with industry jargon that is nearly impossible to decipher or hidden in the fine print – and then tracing them through your account is another feat altogether," said Jay Shah, Personal Capital CEO. "Investors shouldn't lose college savings, second homes and retirement dreams to fees. If the industry isn't going to embrace full transparency, then it's up to customers to empower themselves by using technology and asking the right questions."
Personal Capital suggests that consumers ask their advisors a few simple questions to ensure they are getting financial advice in their best interest. Consumers should specifically ask about all-in costs – including annual, ongoing advisory fees, as well as other costs highlighted above – which could be the difference between a 1 percent and 3 percent or more in annual fees.
"There is no one-size-fits-all solution when it comes to investing your life savings," Shah added. "Someone with a smaller portfolio and an uncomplicated financial life may be able to get what they need from an ultra low-cost, low-service provider. But for an investor with more complex needs, or who wants advice that goes beyond a few mutual fund recommendations, there can be tremendous value in comprehensive financial planning by a fiduciary informed by sophisticated and dynamically updated digital tools. If done correctly, services like tax optimization, rebalancing, and estate planning can add value far beyond the slightly higher cost. It's not just about the fees, but about knowing what you get for them."
To find full methodology Personal Capital used to build this report, please see here:
To calculate fund fees, Personal Capital aggregated data from a sample of more than 6,000 of its users who are in an advisory relationship and have used our free tool to link their accounts. For each financial institution in our analysis, we examined the account history of real users to determine the exact dollar amount of mutual fund or ETF fees they paid as part of an advisory relationship during Q1 of 2017. Dividing the total fund fees paid by the total account values, we determined a weighted average fund fee across all advisory accounts held at each firm. Report may be reviewed for additional details.
About Personal Capital
Personal Capital is the smart way to track and manage your financial life. Personal Capital combines award-winning online financial tools that provide unprecedented transparency into your finances and for our clients personal attention from registered financial advisors. The result is a complete transformation in the way you understand, manage and grow your net worth.
SOURCE Personal Capital