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The financial services industry is riddled with fees most investors are just plainly unaware or don’t understand – and it is not your fault! 


So as in everything we do, we want to make it much more transparent. First off, putting commissions and direct advisor pricing aside, let’s talk about product fees. Product fees are those that you pay when  you buy say a Mutual Fund or Annuity. The Expense Ratio is what is mostly advertised, but there are more hidden fees. 


But this is just the tip of the proverbial iceberg. There are many products and many fees, and much of the time they are hard to understand and sometimes find based on how they are applied. How can they do that you ask? Well, let’s take that mutual fund. At the end of the day the fund’s price is set based on the activity from the underlying holdings, this is called the Net Asset Value (NAV). So if there was one stock and the stock closed at say $10, then the NAV for the fund would be $10, right? Not really, the fund has the expense ratio and in this case it didn’t trade, but if it traded then there are fees there, so the fund actually closed lower than the stock price. In most cases, there a hundreds of positions in a mutual fund. 

This happens with Annuities, ETF’s, Master Limited Partnerships etc…

Industry Fees and Pricing

Advisory Fees

Commission or Product Based 


In this industry, there are mainly two ways most advisors charge fee’s. One way is the outdated way that still persists in way too many forms, and that is in the process of charging commissions on either trades or kick-backs on product sales. This process is in direct conflict with the potential client as the advice may not be for the benefit of the client, and might be more aligned with the goals of the advisor. This can clearly cause a potential for a conflict of interest. 


Fee Based (% of assets being managed)


The more transparent way, is as a percentage of assets they manage or advise on, commonly call fee only. Typically, the advisory firm will charge an annual fee that is charged quarterly in arrears, based on the assets and days they were managing and advising. This has several implications for the client. One, the more assets the advisors have to manage, the more money they can make, so if the advisor is selecting securities and investments they think will align with the client and grow their assets, then the interests of the advisor and client are aligned. Additionally, this relationship is more transparent. 


We are a fee only Advisors, registered as Registered Investment Advisors. Our licensing holds us to be a fiduciary for you and your family or business, meaning your interests must come in front of ours and any conflicts must be clearly outlined in our disclosure document, referred to as our ADV, the disclosure document required by state and federal regulators. Click here to review ours, there are currently no conflicts of interests such as fee sharing etc.

Mutual Fund Fees.

Most investors we meet have products in their portfolio’s where they often do not fully understand the mechanics or fees. This disturbs us immensely because it is indicative of a world that should no longer exist. Mutual Funds can have expenses as high as 5%. These fees are not just the widely advertised  Expense Ratio. This is just one component. The additional fees are 12b-1, management expenses and trading expenses. Trading expenses alone can double the Expense Ratio, so even if you are paying 1% and are thinking this is ‘cheap’, now double that and tack on some additional for good measure. We are just scraping the surface. Learn more below! 


Sources of Cost:

Margin Fee Based

Products Commissions

What you need to know about Mutual Fund fees. 


Over the past 15 years we have never come across an investor that completely understands the expenses associated with Mutual Funds.


It is extremely rare that we come across a potential client that is aware of all the fees they are paying, both to their Investment Advisor and the fees associated with the client’s investment. 


We believe, as with any service, that you get what you pay for. In our case, you pay us to manage your money and not for someone else to manage your money. With mutual funds, the investments are chosen by the fund manager – along with the risk.  


In addition to the Management Fee, you have fixed and variable expenses often associated with mutual fund type investments. The fixed cost with fund purchases is often called the Annual Expense Ratio.  Even no-load funds (funds that do not charge commissions to buy and sell) have this fee. As of December 31, 2009, Morningstar reported that the average expense ratio for mutual funds was 1.19%(1). Many are more than 2%. This fee only covers certain fixed costs for the fund to operate. 


The variable cost to Investors comes in as commissions from the managers of the fund; generated when the fund manager buys or sells securities within the fund, this is not to be confused with brokerage commissions. This cost is also transferred to the Investor. Many investors have never heard of these fees, and sadly many advisors, because they are located outside of the prospectus in a document called the Statement of Additional information (SAI). The SAI can now be found online, but traditionally the document had to be requested and mailed. According to Morningstar, the fees associated with trading can equal or exceed the Annual Expense Ratio. 


Mutal funds


Based on data provided by 561 advisory firms for Rydex Advisor Benchmarking Research Study (2009)..2Based on all mutual funds tracked by Morningstar (as of 12/31/09). 3Based on each mutual funds SAI, according to study by Virginia Tech, University of Virginia and Boston College, titled “Scale Effects in Mutual Fund Performance: The Role of Trading Costs” (3/2007). *We typically invest in equities and do not hold onto ETF’s over the longer term, the expenses incurred are based on short term holdings and fees associated with limited holding periods. Note: This chart is for illustrative purposes only. Actual expenses may vary by investment product; expenses should be reviewed on a case by case basis. This document does not constitute an offer to sell or solicit securities to any person. The decision to buy or sell securities should not be made based on information in this document. Investors should always review brokerage commissions and other fees associated with investment accounts or products.  

Fuest & Klein Wealth Advisors LLC
Fuest & Klein Wealth Advisors LLC

Annuities and The Fees

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