Financial Services is littered with jargon and many firms rely on smoke and mirrors to confuse you so you cannot discern what you are paying your advisor. You should be able to discern what your costs are relatively easily.
One of the very first things we share with families when we are exploring working together is how we are compensated for the services we provide.
We have a slide in our presentation that outlines the investment families are making in their future. The slides lay out how that fee ranges from .60- 180 basis points (or bps) and yes there is that jargon again. So simply, 50 bps is the equivalent of .5% and 100 bps is 1%.
The range provided is fairly wide and we explain that it depends on several factors, but before moving forward, after we have all the information we need about the family we will provide them with what the specific investment will be for them. This total fee includes all the costs associated with investing, this is where many in the profession are not fully transparent.
Let me share a real story that recently took place.
A family we were exploring the opportunity to work with was taken aback when we got to the slide mentioned above. They went on to express that they were paying their current advisor significantly less than what we were outlining. I asked them how much they believed they were paying and they informed me they were paying their advisor, from a big bank investment arm, 1%. I asked them if they would be open to sharing their most recent statement with my team so we could take a look to confirm what they were telling us.
We let them know that if this was the case we would simply confirm and if it was not we would outline what their costs were and they agreed.
In reviewing the statement from the bank it was clear that the advisor was charging this family an asset management fee of 1%. When looking at the investments themselves, they were exclusively invested in mutual funds, which have expense ratios and were not included in the advisor fee.
We were shocked to find that the funds carried, on average, an additional 1% expense.
Yes, you read that right, they were paying the advisor 1% and the investments were costing another 1% so all in they were paying 2% so their total cost was twice what they had thought!
Once our review was done we met with the family again and reviewed this information with them, they had no idea.
When they asked how they did not know about this I simply explained that unless the advisor informed them of the additional expense they would have had to read the prospectus or done research on their own.
The family was disappointed, not only because of the higher expense that they were not aware of but also because they were not getting any planning or advice beyond that of the investments.
The fee we were speaking with the family about, with our firm, was for investments as well as for planning.
When evaluating the investment you are making in your family by working with an advisor you cannot simply look at the advisory fee you are paying, you need to look at the costs of the underlying investments in your portfolio too.
At Mitlin Financial, we use individual securities and exchange-traded funds for the most part within the portfolios of our families which have no, or low expenses associated with them. This is something we disclose to be as transparent as possible, as we are driven by the desire for those we serve to understand.
Advisors can add an incredible amount of value to you and your family and they deserve to be fairly compensated.
In turn, you deserve to understand what the total fee is for engaging the advisor and their team. This leads to a better long-term relationship on both sides.
We would be happy to schedule a time to discuss how you are paying for the advice and guidance you are receiving.
If you are concerned about what you are currently paying or confused about how your advisor is being compensated feel free to schedule a 30 Minute Zoom Meeting as we would be happy to assist you in understanding your total costs.
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal, and/or tax advice. Investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. To determine what may be appropriate for you, consult your financial advisor.