Hidden Fees and Hidden Agendas

Many investors choose their financial advisor based on a personal or professional connection. If you’re like most people, you’ve likely stayed with that advisor for years because you trust them, appreciate their guidance, and your portfolio may have even performed well.

But even trusted relationships benefit from a periodic review. It’s essential to understand how your advisor is compensated and whether any hidden fees are affecting your long-term returns. Over time, even small differences in fees can have a significant effect on your overall wealth.

For example, a $1 million portfolio growing at 6% annually over 20 years would reach about $3.2 million. If that same portfolio incurred an additional 1% in annual fees, the growth would instead be roughly $2.6 million—a difference of $600,000.

This isn’t about distrust. The financial services industry is inherently complex, and compensation structures can be difficult to interpret. Understanding these dynamics can help you make more informed decisions about how and where you invest.

Uncover embedded fees

If you’re invested in mutual funds or ETFs (exchange-traded funds), those funds typically charge an annual expense ratio to cover operational costs. For most investors, these charges are typically around 0.25%.

For example, if you have $200,000 invested in a fund with a 1% annual fee, that’s $2,000 per year in costs—regardless of the fund’s performance. These fees are automatically deducted before you see your returns.

Some funds also charge sales commissions when you buy or sell, and others include additional expenses, such as 12b-1 fees to support marketing. In some cases, firms may charge higher fees for their own proprietary products. Understanding these costs ensures you know exactly what you’re paying for.

For investors with portfolios over $1 million, mutual funds are often less efficient. Larger investors can typically achieve more flexibility and tax efficiency through separately managed accounts that hold individual securities. This approach allows for more customized management of capital gains and losses.

Understand how commissions create bias

In addition to fund fees, many advisors receive commissions for selling certain products. These incentives can influence recommendations, even unintentionally.

You should feel comfortable asking your advisor for clear documentation of how they’re paid. It is important that you understand how your advisor is compensated. Are they paid through advisory fees, commissions, or perhaps they charge an ad valorem fee (a percentage of assets under management)? The ad valorem structure, for example, helps align your advisor’s success with your own: When your portfolio grows, so does their compensation.

It’s also wise to ask about fiduciary status. Fiduciaries are legally obligated to act in your best interest, though not all advisors operate under that standard in every capacity. It is beneficial to understand when you are being advised by a fiduciary and when you are not.

Stay engaged

If you discover fees or structures you weren’t aware of, don’t be discouraged. The financial industry can be convoluted, and transparency isn’t always straightforward. The key is to stay informed and ask questions regularly. A trustworthy advisor should always welcome those conversations.

At Whittier Trust, we believe in full transparency. We do not use hidden or embedded fees, and we don’t utilize a commission structure. Our clients hold separately managed accounts with individual securities, designed to minimize costs and taxes while maximizing control.

Our advisors are paid on an ad valorem basis—if you do well, we do well. This alignment fosters long-term relationships, which is why 99% of Whittier Trust clients stay with us, as do their children and grandchildren.

That’s what it means to build trust that lasts for generations.