Do You Know How Much You’re Paying for Investment Advice?

The U.K., the Netherlands and Australia have recently established new rules that will ban commissions on popular investments like mutual funds with a view to eliminating hidden charges. Competent, professional investment advice has value. After all, a difference of just 1% in annual returns amounts to approximately $180,000 over a ten-year period on an original investment of $1.0 million. But investment advice can be difficult to evaluate and costs are often opaque and confusing.

Investors should know what they’re getting and what they are paying. Hidden charges make this difficult. By banning hidden charges, these countries expect that the market will develop new and more transparent ways to serve prospective clients. A fee for service system, for example, is completely transparent with all of the charges clearly stated. This better enables investors to determine the value of investment advice, relative to its cost, and the appropriateness to their situation.

All comments or suggestions are welcome.

Walter J. Kirchberger, CFA