Investment Management, Socially Responsible Investing

Hide and Go Seek Price Tags

In the May 7th , 2017 edition of the Wall Street Journal a reporter, Andrea Fuller, tried to find her investment fees from a large investment house. She was passed around many times and given incorrect information again and again. Her article was hilarious but for being at her expense in time and lost trust.

Consumers at the big old-line investment firms have long had to search for the price tag. It is deliberately hidden. Your brokerage statement is too often read and not understood because it is made incomprehensible by design. Your price tag is missing because it is deliberately concealed from you. Enormous efforts in time, energy and cash have been expended at every level to lobby congress and the rulemaking bodies to keep the price tag from view.

First let me say that your representative at one of these various firms in town is no doubt a fine person doing good work for you. That has almost always been my experience over the last 23 years working in this field. This one area lands squarely on the big investment companies senior management shoulders.

There are many instances of hiding costs in the financial industry. I managed a big old-line investment company’s local branch office here in Bellingham for 10 years. Fee based accounts and the fee (your cost) to the consumer were communicated by the firm only once out of every three-monthly statements. The statements were almost always ten or more double sided pages long and the fee would be printed under the heading account activity. Then the subheading; cash related activity and it would be just one line, management fee and the dollar amount, sandwiched in between minutia details of dividends, interest, mutual fund reinvestments, and buys and sells. If you do not want to tell someone something, you can tell it to them bundled with mountains of superfluous information and you can bet they won’t find it. As Ms. Fuller’s experience shows just calling up your investment company can lead you to a frustrating round of being passed on to different departments before getting a conclusive answer.

Our team left that business back in 2012 for a multitude of reasons and we founded a Registered Investment Advisor (RIA) firm here in Bellingham. Providing very similar services to the colossal investment houses but under much more stringent rules about fee disclosure the Registered Investment Advisor service providers are quickly outpacing the old-line firms. We are happy for the transparency and disclosure that we prepare and deliver out to our clients now. Our RIA firm like all RIA firms is required by law to provide the Management Fee Summary report. Which includes: billing period dates in a from and to format, the dollar amount of fee, the balance in the account it was charged on, the annual management percentage rate of the fee, and the quarterly fee rate. Contrast that to just an out of context dollar figure and the words “management fee” from the big brokerage companies in one out three statements. This is unfortunate because consumers are deprived of the basic information to comparison shop and thereby prevent themselves from being over charged and paying a premium for the same service they can obtain on better terms locally elsewhere. A gas station tells you the price per gallon and a good grocery store does the math for you and breaks out your unit cost per pound so why not the big investment shops?

I hope one day the financial services industry states in plain English what the entire revenue derived from the client, either direct or indirect, is printed on the monthly statement in plain English. Until then you should shop around and ask for samples of your fee statements to see for yourself if you can comprehend them.


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