Coping with complexity: Four pitfalls informed investors can avoid paid WhittierTrust
If you speak with a HNW investor about the fees associated with their wealth management relationships, odds are, you’ll hear them assert that their “all-in” costs are something like 50 to 100 basis points per annum. Probe a bit more, though—ask whether there could be additional fees buried deeper within the relationship—and most will say absolutely not.
In addition, fee arrangements with managers can dramatically affect performance. Though a firm is saying that its choice of managers is based on quality and appropriateness, in reality, the choice could be biased by fee concessions by certain managers trying to increase assets under management . “So investors may be prevented from [access to] the best of the best in terms of managers,” says Kraus.
Strategically, the idea of limiting market risk and setting an acceptable return sounds great. “But unless you find several hours to go through the accompanying 100- to 250-page [prospectus] to find where discussions of fees have been buried, you won’t notice you’re paying 2-3% in fees to purchase these instruments and many times giving up dividend yield,” says Kraus.
What Kraus strongly recommends “is that HNW investors get together with their advisors and wealth managers and demand a detailed accounting of their fees, commissions and product costs, including managers and mutual funds.” Be certain, says Kraus, “to ask to see this performed for every aspect of the relationship: every account, every product. It should be done annually if possible as well.”
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