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Investment Returns and Receiving Value from Your Advisor - Episode 15 Thumbnail

Investment Returns and Receiving Value from Your Advisor - Episode 15

Understanding investment fees is challenging! In this article, I discuss why investment fees are traditionally so high, how to think about value in relation to an advisor's fees, and why Eagle Ridge Wealth Advisors is different when it comes to value and transparency.

Listen to Episode 15 Here:


You can listen online through the direct player above, or a much easier way to listen is by subscribing to the podcast through a free podcast app on your phone.  The podcast is available on iTunes, Spotify, Google Play Music, iHeartRadio, and Stitcher


Understanding Investment Fees is Challenging!

As some of you have heard me mention before, similar to the medical field, we often find many people have no idea what they’re paying when it comes to their finances.

Don’t feel bad. After all the different statements, ADVs, and different forms of paperwork for financial instruments that I’ve seen, it’s quite clear that some are meant to be obscure and difficult to understand. They don't want you to know what you are paying!

This past year alone, I’ve seen many different fee structures for financial advice and investment management, and in all but two, the annual fees were over 2.5%, almost 3% all in, on an annual basis.  

In my opinion, that is quite a bit higher than it needs to be, and certainly when taking into account the subpar value that was provided to many of those clients these past few years. In the two that had relatively okay fees, their investments weren’t properly allocated to suit the goals of the households they represented, so they had subpar results, as well.  

Why are Investment Fees so High?

Some of you have heard me mention this in one form or another, but the reason for these high fees and the low value proposition that many of you may find yourself in, is in the nature of how the incentives are set up at most of these companies.  

Most banks, insurance companies or old school wall street firms that you have all heard of, and some may even use, have an obligation to their shareholders over you as a client.  

These companies are incentivized to have as many accounts as possible and to get as much revenue as possible from each account. The yield to broker ratio, or the yield to advisor ratio, these days, for some of these places is 3% annually per account.  

This means they are tasked with getting 3% out of each account annually, so they can get more bonuses and move their stock price higher for their investors.  

Back in the day, I used to work for a public company that had relatively high fees, so I’ve seen it first-hand. They are not fiduciaries, so they are not required to put your interests above their shareholders.  

They basically become account managers and may have 1,000 accounts per advisor. An account manager is totally different from a fiduciary, fee-only advisor required to work in your best interests. 

Fees vs. Value

You also can’t look at fees in a vacuum. If someone could double your money every year or save you a ton in taxes, then you would obviously be willing to pay them quite a bit for that, right?

However, anyone that has studied investing, knows that this is like catching lightning in a bottle. It’s just not going to happen consistently over a long period of time.  

What we do at Eagle Ridge Wealth Advisors is invest in a cross section of the best companies in the world believing that they will provide decent results over time. And they have, especially for our clients close to or in retirement, where we focus on return of your money as much as we focus on return on your money!

The ERWA Difference

Now, generally, when we’re buying something, most of us pay attention to how much it costs, i.e., buying a car, a home, or just buying groceries, right? But we don’t always go with the cheapest brand or the cheapest car. We try to go for the best value for what we want or need. The sweet spot!

This is where we are at Eagle Ridge Wealth Advisors. We’re not the cheapest, low-cost, robo-advisor option, or the phone-center option; we are the high-value option. We believe the value we provide far exceeds the cost. We also believe in transparency, which is another novel idea in the financial industry.  

Every investment has a cost, even if you don't realize you're paying it. Examples of investment costs here are:

  • Certain types of insurance 
  • Certain types of mutual funds 
  • Certain classes of mutual funds 
  • ETFs (aka Exchange Traded Funds) 
  • 12b-1 fees, which are fund advertising fees 
  • Annuities - Some annuities are notorious for being a "black box," or having fees that are extremely hard to determine. 

 There are many kinds of costs, but they all have one thing in common: If the money is going somewhere else, it's not going to you. 

Now, it’s human to want to hit a home run or find the next Amazon, Microsoft, Apple, or whichever cannabis stock is the flavor of the month, but what most fail to realize is what they should be focusing on is what type of income they will actually need in retirement as opposed to how big their returns are.

Consider this: What if I told you that you were going to underperform the market for the rest of your life (and almost everyone does), but you would never run out of money.  You’d probably be alright with that, right?

Alternatively, what if I told you that you were going to beat the market by a few percent each year, but still run out of money in retirement? You probably wouldn’t be so happy with that, right?

Most people can’t see the forest for the trees!

That’s what we specialize in, getting to the root of what you actually need as opposed to what you think you need.

We’ve also found we are able to leverage the latest technology and networks we’re involved with to provide high-value options for our clients very efficiently and at reasonable costs.  

Bottom line: 

  • We are capitalist and we certainly like to make a profit; after all, businesses can’t survive without one…
  • But we believe incentives should be aligned with our clients as much as possible. 
  • Educating, informing, and transparency are paramount at my firm.  
  • We believe that no matter what direction you choose for financial advice, if the advisors aren’t transparent with how and how much they are paid, that is a huge red flag. 

2019 IRA Contribution Reminder

On a totally separate note: if you have a traditional or a Roth IRA, and didn’t contribute to it in 2019, you have until April 15, 2020 to contribute and have it count towards the 2019 contribution.

In addition, we are accepting new clients, so feel free to explore our website and reach out and see if our value proposition works for you! We will be happy to show you where we can add value.

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