In an effort to educate consumers on the fees they pay, hybrid robo-advice firm Personal Capital has released a report on advisory fees charged by American institutions — and which ones cost the most.
“[A]dvisory fees are 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,” Jay Shah, CEO of Personal Capital, said in a company statement. Citing a separate Harris poll conducted for Personal Capital, Financial Advisor IQ
said 61% of consumers don’t know the amount they pay in investment fees.
Personal Capital’s new report, titled Hidden beneath the Surface: What Americans Are Paying in Advisory Fees
, was based on a survey of 6,000 of the firm’s users “who are in an advisory relationship and have used our free tools” to link to external accounts. Ameriprise was the highest-charging firm, with a total fee of 2.25%-3.5%. It was followed by UBS (2.94%), Morgan Stanley (2.42%-2.92%), Wells Fargo (1.93%-2.43%), and Merrill Lynch (1.33%-2.33%).
To make “viable comparisons,” the firm restricted its investigation to financial-advice programs that have account minimums between $100,000 and $1 million; that have managed accounts with guidance from humans; with portfolios of equities, bonds, mutual funds, or ETFs; and without considerations for tax consequences.
The firm looked at the average fund fee and the advisory fees charged at each firm. But the study also excluded “costs tied to electronic funds transfer and wire fees, IRA and retirement plan fees, margin interest, ADR fees, account opening or closing fees, or other account-level transactional fees.”
“We disagree with the methodology of this report, which does not reflect the actual experience of clients or the breadth of investment options available at Ameriprise,” the reportedly top-charging institution said in an email to Financial Advisor IQ
. “The average advisory fee our clients pay is approximately 1% and varies based on the products and services each individual client wants and needs.”
Ameriprise added that its fees are competitive and appropriate, considering the comprehensive services it provides for the individual needs of “millions of satisfied clients.”
Shah acknowledged that investors have different needs. Those with less money and an uncomplicated financial life might be satisfied with “an ultra-low-cost, low-service provider.” For clients in more complex financial situations, “services like tax optimization, rebalancing, and estate planning can add value far beyond the slightly higher cost.”
That doesn’t mean fee disparities should be overlooked. In its report, Personal Capital said that the difference between a 1% fee and a 2% fee can amount to US$240,000 over a 30-year time horizon.
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