Recently, my pal Fran Walsh commented on a meme I posted on Twitter/X. For whatever reason, the fee sensitive crowd has gotten super loud. Many love to highlight the costs of a financial advisor who charges a fee.
I can make a few different arguments in favor of advisors who charge a fee. First of all, many financial advisors are charging a fee for asset management but going much further than that with their clients through comprehensive planning.
But nonetheless, if someone maintained the exact same portfolio and cadence of investments as someone did with an advisor charging them, the non-advised individual would end up with more money.
However, that is if they did the exact same thing. In many cases, an advisor’s value shines when things get tough. When the market sells off, when something like a Tariff Tantrum occurs, or when a life event unfolds are all instances in which people might look to get a little more tactical in their portfolios.
People are generally emotional and these emotions can drive some of the worst financial decisions. Imagine selling during COVID only to watch the market roar back. Same with the Tariff Tantrum. An advisor that was investing prudently and keeping their clients invested during short-term turmoil is likely worth their weight in gold. A psychological source of alpha, if you will. A barrier between a decision that could lead to a chain of trying to time markets versus staying the course and seeing the long-term vision.
Anyway, people are very fee sensitive lately. Except that same sensitivity hardly ever is highlighted at the portfolio level.
Here is the meme I posted that Fran commented on:
It seems to me that lots of people take issue with an advisor charging a fee. Yet at the fund level (ETFs & mutual funds) people seem much less inclined to take issue. I am not sure if that is due to people just generally overlooking the cost of the funds or if they truly do not care that the fund charges that amount.
Personally, I think a 3x inverse leveraged ETF that offers absolutely nothing but speculation costing the same as a true financial planner is pretty wild.
Now, onto Fran’s comment and to further the actual point here:
And this is where the irony comes in. People are taking issue with an advisor that charges 1%, yet their own portfolio is charging an overall expense ratio of .7%.
Look, if you’re fee sensitive, then be fee sensitive!! There are tons of different funds out there now and many of them are charging very nominal fees.
But being “anti-AUM fee” and having a portfolio that is being charged 70% of what a planner charges while offering absolutely nothing else is kind of ridiculous.
Again, planners are out here doing much more than just overseeing a portfolio. Here’s a list of items that I see on a regular basis:
Cash flow and budgeting: Whether someone is paid a salary consistently or paid massive commissions on a semi-annual basis, we plan around this.
Retirement planning: We’re running simulations to give better context around what someone’s actually building towards. “I want to be rich” is not a retirement plan. Adding context as to why we’re accumulating money and what it can afford us is massive.
Investment planning: Not only what we’re investing in but where are we investing. 401(k)s, HSA, Roth IRAs, brokerage accounts are all different avenues to building our asset base for retirement. Some look to real estate. It can get so granular from there on the tax planning front.
Tax planning: Are we exhausting all the avenues to be a tax efficient investor? Is the business we’re running capturing the tax advantages offered to business owners?
Estate planning: From basic estate planning documents to charity to trusts. This is one of the most interesting aspects of planning and it can get complex very quickly.
While it’d be nice if our ETFs were helping us with these aspects of our lives, they’re likely not. They are solely one small aspect.
For those of you who are fee sensitive, it might be worth taking a minute to check the expense ratios on your investments. You may be surprised as to what the funds are charging!
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