Recently, a new client joined my practice and her investing costs dropped by almost 70%. She was paying far too much for a big, old brand name with their fancy suits and high-rise office space. Her accountant finally convinced her that the “value” she was receiving was not worth the cost.
She’s not the only investor coming to this realization. As you may already know, the financial services industry is undergoing a massive reinvention as technology and government involvement are forcing narrowed margins. Transparency is causing “fee compression,” where costs to the consumer are coming down, but expenses for financial professionals are increasing, reducing gross profit. With shrinking income and increased regulatory costs, broker-dealers and advisers must decide what to do with their businesses. Some are adjusting willingly, but others are digging their heels in. Some insurance and investment companies are reducing costs by reducing the number of investments they offer. Financial advisers are deciding to cut segments of their less-profitable clients.
The reality is that the industry has long operated with a set of rules and expectations that I do not think hold true any longer. The seismic shift created by technology has plunged transaction costs, and the average investor can access mind-boggling piles of information. The speed at which innovative and useful investment products can be crafted and brought to market has increased dramatically. (Don’t forget, only 50 years ago you had stocks, bonds, whole life insurance and a few mutual funds. Look at the options now!) And the expectations of consumers continue to shift, often to the unreasonable, in all parts of life.
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Are investors reaping the benefits of these changes yet? Possibly, but there are some challenges as some costs aren’t as easy to pull out as others. Here is a quick overview of the costs of investing:
Please note that these costs are each independent of one another. You can pay high transactional costs and get no relationship (not ideal). You can also pay modest relational costs and receive innovative products. Or you may choose to forgo the relational costs in the name of the lowest transactional costs. You get to decide what makes sense for your situation and your expectations.
However, please let me be abundantly clear — there is a cost to relationship. You want highly qualified, high-character people handling your money. And those folks will not work for free, at your job or in the financial industry. But do not resign yourself to believe the only way that you can get relationship is to pay exorbitant fees.
Here are a couple of ideas you might use to find an adviser who is right for you:
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7 Dr. Seuss Quotes Retirees Should Live ByYou're off to great places! Why Dr. Seuss is the retirement guru you didn't know you needed.
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Fed's Rate Cuts Could Have Impacts You Might Not AnticipateUnderstanding how lower interest rates could impact your wallet can help you determine the right financial moves to make.
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Past Performance Is Not Indicative of Your Adviser's ExpertiseMany people find a financial adviser by searching online or asking for referrals from friends or family. This can actually end up costing you big-time.
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I'm a Financial Adviser: The Fed's Rate Cuts Could Have Impacts You Might Not Anticipate
Understanding how lower interest rates could impact your wallet can help you determine the right financial moves to make.
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Past Performance Is Not Indicative of Your Financial Adviser's Expertise
Many people find a financial adviser by searching online or asking for referrals from friends or family. This can actually end up costing you big-time.
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I'm a Financial Planner: If You're Not Doing Roth Conversions, You Need to Read ThisRoth conversions and other Roth strategies can be complex, but don't dismiss these tax planning tools outright. They could really work for you and your heirs.
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Could Traditional Retirement Expectations Be Killing Us? A Retirement Psychologist Makes the CaseA retirement psychologist makes the case: A fulfilling retirement begins with a blueprint for living, rather than simply the accumulation of a large nest egg.
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I'm a Financial Adviser: This Is How You Can Adapt to Social Security UncertaintyRather than letting the unknowns make you anxious, focus on building a flexible income strategy that can adapt to possible future Social Security changes.
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I'm a Financial Planner for Millionaires: Here's How to Give Your Kids Cash Gifts Without Triggering IRS PaperworkMost people can gift large sums without paying tax or filing a return, especially by structuring gifts across two tax years or splitting gifts with a spouse.
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'Boomer Candy' Investments Might Seem Sweet, But They Can Have a Sour AftertasteProducts such as index annuities, structured notes and buffered ETFs might seem appealing, but sometimes they can rob you of flexibility and trap your capital.
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Quick Question: Are You Planning for a 20-Year Retirement or a 30-Year Retirement?You probably should be planning for a much longer retirement than you are. To avoid running out of retirement savings, you really need to make a plan.
