Fees and more Fees and the world of investment


It is understood that the financial world survives on the fees paid by investors and consumers associated with their accounts. Fees aren’t a bad thing, but there’s more and more media today about “withdrawing fees” and how that can dampen a portfolio over the years.

The challenge is that the world of benefits is so complex that it is almost impossible to calculate exactly what benefits someone pays in the various investments they hold. Some say the market wants it that way – to keep consumers in the dark, not understanding all the various fees they pay each month or quarter. On the surface, in a basic asset management arrangement, there is a percentage of “assets under management” that someone pays for the services provided by the manager. However, behind these fees may be additional layers of mutual fund fees, transaction fees, annual account maintenance fees and others, which, when added together, can be equated with a large number. Take it out for over 20 or more years, and it’s worth the performance pull.

In the world of rents, the debate over benefits is raging. Some variable annuities on the market have fees higher than 4% per annum. A master’s degree in mathematics would be required to sort all the prospectuses to calculate all the different ways in which the policyholder is charged. The basic fee structure in variable annuities and fixed index annuities is fairly easy to decipher. It’s getting harder when the policyholder chooses different “riders” or “extras” for the basic contract – then the “fee withdrawal” occurs.

One of the world’s most popular mutual fund companies makes a fairly valid claim that it is almost impossible to find an asset manager who outperforms their S&P Index 500 fund without fees. Their fund has a cost ratio of 0.05%. There are various easily accessible studies that show that almost 80% of funds with active management do not outperform the performance of this fund – which is not actively managed. This is proof that the world of fees reduces the performance of most all consumers.

The dirty word in the financial world today is “commission”. That word conjures up visions of an old-style stockbroker beating people on the phone until they buy. It is true that for many long-term investors it would most likely be better to get expert advice and buy their investments with an advance commission and to do so by withdrawing high current management fees. The jury is still thinking about it, and the instability in the market will not allow the “fee debate” to settle to the back pages of the financial statements. As markets increase, the discussion of fees decreases; when markets are in decline, the debate over fees intensifies.