Most investors are blind to the true investment fees they are paying their financial advisors who are managing their financial portfolios.
In a financial study on investment fees done in 2013 of over 1,000 Canadians, over 25 years old with more than $25,000 in investable assets, researchers discovered that:
• 25% say they didn’t pay their advisors anything.
• 19% knew they paid something but didn’t know what that might be.
In fact, in one study by the OSC, it was found that 73% of investors believed that advisors would look out for their best interests irrespective of how they were compensated. According to research published by the National Bureau of Economic Research, most investors believe it’s prudent and sufficient to consult with product-oriented brokers before purchasing investments they are proposing. As Warren Buffet said, ‘that’s like asking a barber if you need a haircut.”
Canadians pay such high fees that a 2011 financial report by Morningstar gave Canada an “F” for its mutual fund fees (only country out of 22 to get a failing grade). Studies also show that in the U.S. nearly 25% of all investors’ retirement savings will be eaten up by financial fees. In Canada, this number is actually closer to 50%. Can you imagine? Half of your retirement savings gone to fees?
There is also no data that links high costs with outperformance over any meaningful period of time. In fact, Morningstar has reluctantly agreed that investment fees are a more robust predictor of future results than it’s own star system.
Study after study has demonstrated that investors do not have a firm understanding of the actual fees they pay and what impact investment fees have on returns.
It should also be noted the fees are unregulated. So it is entirely up to the investor to figure out if the investment fees being charged are ridiculous and outlandish.
So what is the solution to these incredibly high and hidden investment fees?
We believe here at Prime Quadrant in educating investors to the best of our ability. We have taken it upon ourselves to support our strong belief in fee transparency.