Clarity on Fees and Their Impact (Part 1)


My firm is focused on helping employers, and individual consumers, improve their understanding of investment fees.  We believe there is too much ignorance of investment fees and their impact on performance.  As I talk with plan sponsors, and individuals as well, the vast majority simply don’t know what they pay.  Is this strange how uninformed investors are about their investing fees?

Yes!  Most people use price as the first criteria in evaluating almost everything – from the purchase of a home to a gallon of gas.  (We see sticker prices everywhere, all the time.)  Then, after we evaluate whether or not the price works for us, we go from there.  We assess the value of what we are getting and then compare it back to the price – and in some evaluations, go back and forth until we decide whether or not to buy.  It is a process we do all the time, several times a day, and in many cases without giving it much thought – it is part of our routine.  But for investment products, price may be the last thing that comes up or not reviewed much at all.

If fee ignorance is an issue for investors, which I believe it is, I am not interested in blaming the industry.  Sure, I don’t think much of most of the sales and marketing tactics of investment firms and/or individual representatives and agents.  But consumers have a wide range of investment options, sources of information, and should do what they need to do to become educated.

Let me be clear that after 18 years in the business I have concluded that low cost index investing is the way to go.  I am confident this is the best investment approach and am disappointed it took me so long to reach this conclusion. To go even further, I believe that much of the asset allocation and financial planning services are overpriced, too.   However other practitioners would argue that this is a simplistic approach that does not consider the value of investment services.   Either way, consumers of investment products need to do a better job of understanding the fees they pay and why they pay them.

Next, I will take a brief look at the impact of fees.

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