Thoughts on Fees

An important component of investor return is investment management fees.

Having worked at some of the world’s largest financial services companies (HSBC, Merrill Lynch and UBS) I am very familiar with the various fee structures charged.  My goal has always been to assess a fee that is competitive and reasonable.


1. Client believes they could use some help
2. Client is willing to pay for help
3. Client would like their account managed

Is the Fee Reasonable?

  • The average mutual fund annual expense is about 1.25%; not including sales charges which are typically 5.75%
  • Bank Trust fees are typically 1.50%- 2.25%
  • Variable annuities are typically 2%+

Advantages of Fee-Based Relationship

  • Removes issue of commission costs when considering a transaction so that the client is in a better position to make the investment decision
  • Puts client and advisor on the same page. (i.e. the better the client does, the better the advisor does.)
  • Allows client to better anticipate cost

“It’s been my experience that people who focus only on expenses end up costing themselves twice as much in the long run. And remember the old saying: price is only an issue in the absence of value.”

Ray Magliozzi (“Car Talk” brothers); National Public Radio, July 2012

Things to Keep in Mind

Your management fee not only covers the cost of managing your account but also:

  • Drafting of personalized and comprehensive investment plan
  • Management of account including asset allocation and rebalancing
  • Quarterly reviews including accountability measures
  • Tax management
  • The implementation of risk management measures
  • Review and recommendations on work retirement plans
  • Direction on other financial matters (mortgages, life insurance, etc.)

Important Caveat

When comparing fees it is very important to ask, “What is the “all in” fee?" All-in refers to the management fee plus the embedded costs of the investments. For instance, an advisor might say “I charge 1%.” However, that may not count the additional .75% to 1.25% that is embedded within the mutual funds or Exchange-Traded Funds “ETF’s”.


Standard Followed

Required to put client interest’s first?

Required to disclose conflicts of interest?

How are they paid? 

Registered Investment Advisor (RIA)

Fiduciary Standard



Fee for service


Suitability Rule



Typically paid based on commissions from products sold. 

(Neil Farrell is a Registered Investment Advisor Representative (RIAR))

“There is scarcely anything in the world that some man cannot make a little worse, and sell a little more cheaply. The person who buys on price alone is this man’s lawful prey.” 

John Ruskin, English art critic and social thinker, Victorian era