It's 2019. Do You Know What Your Mutual Fund Fees Are?

Warren Ward |

As Robert Heinlein famously shared: There ain’t no such thing as a free lunch. At the time he was writing, some bars sold lunch to patrons, others provided a ‘free’ lunch to theirs. It’s obvious that there must have been some sort of catch and, in this case, it was that the drinks were more expensive.


This concept carries over to many parts of life, including investing. Our practice is part of an organization called NAPFA which is dedicated to transparency in all things – including costs. We believe that once our clients pay for our services, it becomes our duty to obtain all investments - and other components of a plan - at the lowest possible cost. Unfortunately for America’s investors, not all investment advisory firms operate in the same way.


This morning, the ultimate regulator of our industry announced settlements with 79 investment firms regarding unobvious fees that investors have been paying since 1940. The Securities and Exchange Commission had settled similar cases against 12 other investment firms during the last couple of years, so apparently it’s an issue they are finally taking seriously. The question on my mind is: why aren’t investors doing the same?


Details about firm operations and fees are available through all advisors’ websites, including ours. And investors are provided a booklet full of disclosures when they invest – no doubt describing these sneaky charges. The typical investment advisor response to this issue is that the investor was provided with the information, somewhere in the ream of paper they received. At WWA we know that most people won’t read our disclosures in detail, so we go through the salient points verbally to be sure there are no misunderstandings.


We understand that the selection of an advisor can be somewhat arduous, as in-person interviews should probably follow perusal of disclosure documents. And, according to Department of Labor research, most people believe all investment advisors are obligated to act in their best interests. So, many people simply go with the first advisor they meet, apparently assuming that a well-known brand will guarantee some measure of integrity. Unfortunately, that is not necessarily the case. Here’s a list of the firms cited today and I’d suggest making sure that your advisor isn’t on it.


If you do find your advisor’s employer on that list, how should you respond? A local advisor might say that it’s a systemic problem of which she or he wasn’t aware; i.e. ‘It’s not me, it’s them’. That could be true, but shouldn’t that be cause for reconsideration about how well informed your advisor really is?


Last fall, another NAPFA advisor wrote an article for one of our journals titled: ‘Cheap is great; free will usually cost you’. It’s a concept that all those who’ve ever been offered a ‘free lunch’ will understand and it might be worth the few minutes it’ll take to read it. If you have a few more minutes, here’s a link to a longer article I wrote last year.


In dealings with all investment concerns, perhaps forewarned is forearmed. So, in speaking with your advisor – or any other salesperson – always remember Robert Heinlein.