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Do You Want Fee Disclosure? Thumbnail

Do You Want Fee Disclosure?

Your “No Duh” headline of the day came from a recent article in InvestmentNews.  Apparently, clients want more transparency on how they pay their advisors and their advisors total fees.  Really?  You don’t say? People want more clarity and less confusion?  Huh?  Who would’ve thought that? Oh…wait…me!!!

First, when reading this article I was reminded of a scene in Band of Brothers (greatest mini-series ever made and book was still so much better).  In the scene, members of the 101st are in the back of a troop truck and one of them, Private Janovec (played by Tom Hardy), is reading.  Instead of me describing the scene, just watch the clip of it on YouTube.  My reaction to this article was the same as Luz’s in the back of the truck – No *#!&.

Back to this article.  The Securities and Exchange Commission (SEC) recently held some roundtables in Houston and Atlanta.  The SEC wants to hear from “main street investors” aka you, about your investor experience at these roundtables.  The goal for the SEC is to “enhance retail investor protection and promote choice and access to a variety of investment services and products.”

Part of what the SEC wants commentary on is a four-page document tentatively titled – Is a Brokerage Account Right for You?  Sexy, right?  There is a section in the document that discusses fees.  Some of the specific feedback included the following comments:

  • “Why shouldn't brokerages and advisory firms have the ability to take a transaction, one account, and outline: These are going to be the fees that you will either incur at the time of closing the transaction, ongoing or at sale?" asked one participant. "Why is it too difficult to do something like that?”
  • "Why not an electronic scorecard where you can compare various financial professionals so you could weigh whatever measures you want,"
  • Said by one participant who lost $2.3 million when her advisor put her money in an unregistered security - "My eyes glaze over when I look at this form because it's boring and old school and looks like something the government produced.”
  • The same participant from above summarized her desire for the form - "The form needs to be more blunt," Ms. Davis said. "Do you want a one-night stand or do you want a spouse? To me, that's what it comes down to."

I give the SEC a ton of credit for doing these investor roundtables seeking input on their proposals.  The final product will most likely put the responsibility on you to learn exactly what fees you are paying your advisor.  So, be ready to ask questions such as:

  • Does anyone besides me pay you? You know, commissions.  If so, do you earn more to recommend certain products?
  • Will you provide a written itemization of all your fees and expenses? And be sure this is a gross number, and not their net number after a Broker-Dealer or brokerage firm takes their cut.
  • Are your fees negotiable?
  • Do you receive any referral fees if you send clients to other professionals, like attorneys or CPAs?
  • Can you illustrate what my total fees will be based on the assets you will manage for me?

So, while it may seem apparent investors want more clarity when it comes to fees, don’t be like old Private Janovec who apparently had to go half-way around the world to learn the Germans were bad back in WWII.  Learn to ask those questions about fees ahead of time.  And, if you have been working with someone for 30+ years, it is not too late to ask. Or, just find a flat fee advisor like yours truly whose firm was founded on the tenet of doing everything I can to keep the confusion out of retirement planning.

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