The slap this week goes out to those fee-based brokers and advisors who are charging outrageous fees.
Morgan Stanley, in a recent regulatory filing, listed what investors should be paying across many asset classes.
It says the annual fees should run from 0.23% for fixed income – municipal bonds in particular – to 0.42% for small caps, the most expensive ones to trade.
[ad#Google Adsense 336×280-IA]But the same document said that Morgan Stanley financial advisors can charge as much as 2.5% annually.
And that is in addition to other fees clients are being charged by mutual funds.
So what happened to the 0.23% to 0.42%?
PriceMetrix, a wealth management data tracking company, lists the median fee for accounts of $10 million or more at 0.65%.
That means at least half of investors are paying more.
And 13% of decamillionaires are paying 1% or higher.
Again, where’s the 0.23% to 0.42%?
Doug Black, founder of investor advocate firm Aronson SpringReef, reported that he recently reviewed 31 fee-based portfolios for prospective clients that totaled about $650 million. Even these very rich folks were leaving $13 million a year on the table, which works out to 2%.
That’s not a low rate.
That kind of money is supposed to get the lowest management rates available.
During his reviews, Black also found some outrageous and blatant cases of abuse.
One advisor charged his client a 2.5% fee for a $2 million bond transaction… 2.5%!
Even for a small investor with nowhere near the account values we are talking about here, that trade should have been around 0.5% or less.
How about 3.5% a year for an annuity, or a 10% upfront fee that paid the broker 7%?
So, if the uber-wealthy are getting this kind of treatment, what do you think they’re doing to us?
Make sure you are looking at your total cost to invest. Starting each year deep in the hole because of fees is not where you want to be.
— Steve McDonald
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Source: Wealthy Retirement