In a low returns environment, private banks and conventional financial advice firms continue to charge 1% to 2% in fees, irrespective of portfolio performance. Common sense suggests that the lower the costs are for investors, the higher their share of an investment’s returns will be. In addition, what remains invisible is the implicit fees on returns caused by inefficient model portfolios and poor asset allocation decisions. This further detracts another 0.5% annually from investor returns, which investors don’t see.
A +1.5% cost over a typical 5% annualized return suddenly becomes a meaningful number. It suggests a +30% value destruction for the price of having a ‘personalized’ relationship with a friendly financial advisor.
Probably much too high a price to pay?