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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Are You Ghosting Your Finances? What to Do About Your Money Stress
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4 Smart Ways Retirees Can Give More to Charity, From a Financial AdviserFor retirees, tax efficiency and charitable giving should go hand in hand. After all, why not maximize your gifts and minimize the amount that goes to the IRS?
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3 Year-End Tax Strategies for Retirees With $2 Million to $10 MillionTo avoid the OBBB messing up your whole tax strategy, get your Roth conversions and charitable bunching done by year's end.
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'Politics' Is a Dirty Word for Some Financial Advisers: 3 Reasons This Financial Planner Vehemently DisagreesYour financial plan should be aligned with your values and your politics. If your adviser refuses to talk about them, it's time to go elsewhere.
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For a Move Abroad, Choosing a Fiduciary Financial Planner Who Sees Both Sides of the Border Is CriticalWorking with a cross-border financial planner is essential to integrate tax, estate and visa considerations and avoid costly, unexpected liabilities.
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I'm a Financial Adviser: This Tax Trap Costs High Earners Thousands Each YearMutual funds in taxable accounts can quietly erode your returns. More efficient tools, such as ETFs and direct indexing, can help improve after-tax returns.
