What Are You Really Paying? A Guide to Financial Advisor Fees and Investment Costs
By Dragan Mark Filipovic, CFAFounder and Chief Investment Officer
An advisory fee tells you part of what you pay to invest. Depending on your portfolio, you may also pay fund expenses, transaction costs and other charges that do not appear as a single deduction on your statement.
The useful question is: What does this investment relationship cost in total, and what am I receiving for it? Putting the answer in dollars makes different arrangements easier to compare.
At a glance
- Compare advisory fees, fund expenses and applicable additional charges.
- Put the costs in annual dollars.
- Consider the services you receive and the trade-offs before making changes.
Separate the layers of cost
An advisory fee pays for the agreed services of the advisor. It may be based on assets under management, a fixed amount or another arrangement. For an asset-based fee, confirm the rate, which assets are billed, the valuation method and whether the quoted rate changes at different account sizes.
Mutual funds and exchange-traded funds have operating expenses, commonly expressed as an expense ratio. These expenses are paid from fund assets and reduce returns; they generally do not appear as a separate advisory-fee withdrawal from your account.
Other costs depend on what you own and how you trade. They can include transaction fees, bid-ask spreads, account charges and product-specific expenses. Not every cost applies to every portfolio. Review the actual holdings and account terms rather than assuming either that everything is included or that every possible charge applies.
Translate percentages into dollars
Here is an illustrative annual advisory-fee comparison at several unchanged portfolio values:
| Portfolio value | At 0.50% annually | At 1.00% annually | Annual difference |
|---|---|---|---|
| $500,000 | $2,500 | $5,000 | $2,500 |
| $1,000,000 | $5,000 | $10,000 | $5,000 |
| $2,000,000 | $10,000 | $20,000 | $10,000 |
On a $1 million portfolio, the difference between these advisory fees is $5,000 per year.
Comparison note: Each rate applies to the full, unchanged balance for one year. Figures exclude fund expenses, other charges, market changes and cash flows. The 1.00% rate is used for illustration; actual advisory fees vary by firm and service.
Gold Coast’s standard annual advisory fee is 0.50% of assets under management. Underlying fund expenses and applicable third-party charges are separate. The advisory agreement and fee disclosures govern the actual calculation and billing.
Look beyond the advisory fee
Suppose a hypothetical $1 million portfolio has a 0.50% advisory fee and a weighted average fund expense ratio of 0.10%. Those two layers would represent approximately $6,000 annually at an unchanged balance, before other applicable costs. The 0.10% fund expense is an assumption for this example, not a quoted expense for a Gold Coast portfolio.
Before other applicable costs; hypothetical $1 million unchanged balance.
The weighted average matters. A fund that represents 5% of your portfolio should not receive the same weight in the calculation as one that represents 50%. Ask your advisor to explain the calculation using your actual holdings.
Understand your current costs with a Portfolio Second Opinion
Where to find your fee information
- Advisory agreement or fee schedule: your advisory rate and billing terms.
- Account statements: advisory-fee deductions and other listed charges.
- Fund prospectuses or fund websites: expense ratios for your actual holdings.
- Account fee schedule and trade confirmations: applicable account and transaction charges.
Compare the work you receive
A lower fee leaves more money invested when other factors are equal. It does not establish that two portfolios have the same risk, holdings, service or future performance.
Ask what the ongoing relationship includes. Who manages the portfolio? How are withdrawals and cash needs incorporated? Are investment costs and relevant tax consequences considered before changes? Will you work with the person responsible for the investment decisions?
For Gold Coast clients, investment planning, portfolio management, retirement considerations and tax-aware investing are coordinated within one ongoing wealth management relationship. They are connected parts of how we manage investments over time.
Work directly with Dragan Mark Filipovic, CFA, Gold Coast’s founder and Chief Investment Officer, who personally manages your portfolio.
Request a comparison you can understand
You should be able to obtain clear answers to these questions:
- What is my estimated annual advisory fee in dollars?
- What are the expenses of my underlying investments?
- Which additional charges could apply?
- What services and responsibilities are included?
- Would changing the arrangement create taxes or other one-time costs?
Do not sell an investment solely because a cheaper alternative exists. Any change should also account for the holding’s role, unrealized gains, restrictions and the expected benefit of replacing it.
Put your current costs in context
If you already have an advisor, bring a recent investment statement and your advisory fee schedule, if available, to a Gold Coast Portfolio Second Opinion.
We can review identifiable advisory fees, fund expenses and other investment charges alongside your holdings, risk and cash needs. We will discuss what services you receive, how Gold Coast’s ongoing wealth management relationship compares with what you need, and relevant trade-offs before making changes.
Managing your investments yourself? Request a Complimentary Portfolio Review instead.
Both reviews are complimentary, with no obligation to become a client.