Home > What do you pay for your funds and advice?

What do you pay for your funds and advice?

March 16th, 2008 at 03:36 pm

I have yet to meet someone using a financial advisor who knows what they are paying in total for their fund costs and advice fees. It's close to impossible to know. For example, the few most knowledgable think that the expense ratio discloses all the fund costs. Nope:

"The study finds that 43 percent of the funds’ expenses are omitted from their expense ratios and that the transaction costs of some funds exceed 400 percent of their expense ratios." - Zero Alpha Group

If you do not know what you are paying, here is how to find out at least what your expense ratio is.

We'll go step by step using Morningstar, a respected site that gives information about investments. You’ll need your investment statement.

1. Take a look at your investing statement and see if you can find your fund's 'ticker'. It's usually 5 letters that represent your fund. An example of a ticker is 'VFINX'. (If you can't find a ticker, then we’ll use the fund name.)

2. Next, we’ll open a second internet session to access Morningstar, You will be bouncing between this screen for instructions and Morningstar, so open in a separate session.

Let’s go. Smile

3. In the upper left corner on Morningstar where it says ‘Quotes’, enter your fund's ticker and click the arrow. If you couldn't find the ticker, enter the fund name. If your fund doesn't come up, enter the name of the fund company (examples: Vanguard, American, Riversource, Columbia, T Rowe Price, etc) and look through the list of funds for your fund.) Write down the ticker and click on the fund name.

Note: If you have a problem, please let me know and I will try to assist.

4. You will now see a 'snapshot' of your fund's information. But for now, we want to look at the costs. On the left side of the screen, left of the chart, look for 'Fees and Expenses' and go there.

5. Now you can see your fund's costs. (For a detailed explanation of all costs, look at the 'Data Definitions' on the lower section of the page.) In brief, a ‘load’ is a sales commission, usually taken right off the top of any money you invest. This pays your broker (financial advisor). A 12b-1 fee is called a marketing fee but is usually also used as a hidden commission. All funds have a fund management fee, but the cost of management can be very different between funds.

Let's use Vanguard's S & P 500 index fund as a comparison with your fund's costs. Take a look at the Vanguard index fund and see how your costs might differ. The ticker is VFINX.

6. Finally, take a look at the rest of your funds to find out what you are paying for your investments.

You now know what you are paying for your fund fees and commissions.

(Take a break...have coffee. Hug your children. Eat chocolate.)

Next, we want to find out what you're paying your 'financial advisor' for his advice. Usually, they are paid one of three ways:


Note: I recently read that about 95% of 'financial advisors' get commissions of some sort. A fee BASED advisor is not fee ONLY and can get commissions.

Often 'commissions' means they sell you loaded funds...funds with commission charges. The commission can come off the top - a front end load. You can see the load disclosed on the Morningstar fees and expenses page you looked at earlier. You might have been sold a 'B' or 'C' share. These funds don't charge a front-end load, but they do charge an ongoing commission in the form of a higher 12b-1 fee.

Let's look at an example of the same fund with different share classes:

Class A - Front end load (note the 12b-1 fee): Ticker = IGLGX

Class B - Deferred load (note 12b-1 fee) that is higher but reverts to A share costs after a few years. Ticker = IDGBX

Class C - Deferred load (note 12b-1 fee) that is higher and stays high. Ticker =RGCEX

In addition to these commissions, your financial advisor may also charge you a planning fee and may receive other forms of payments/commissions.

Note: If you invest a large sum of money in a loaded fund, you should pay a reduced load - this is called a breakpoint.

Fee based:

This usually means that your financial advisor charges you a percent of your assets every year. Let's assume you have $500,000 invested and your wrap fee is 1.5%. You will pay $7,500 that year. That's $625 a month. Remember that in addition to the wrap fee you will pay your fund expenses (above), but not the load. A fee based advisor may also take commissions, just not in the form of a load.

Fee only:

A fee only planner does not take commissions. They may charge a percent of your assets, or a flat (one time) fee, or an hourly fee.

Ask your financial advisor to provide, in writing, exactly how he is paid and how much he receives. Do not be afraid to do this. It is your money, your financial future and if he has a problem giving you this information in writing, you have a serious problem. Do not let him make you feel guilty. Do not let him intimidate you or evade. If this is hard for you to do, ask in an email. But be sure to get every fee in writing and a total of what, in dollars, you paid for the previous month. Fund fees and his fees. ALL fees. Then you can think if you would have written a check for that amount.

I am reading a book that talks about how the financial sales industry is set up to make it hard to ask directly about fees. I'll address that in another blog entry.

Now you can add up all your investment cost. Now you know what you are paying for your investments.


(I appreciate any help in making this more reader friendly.)

My free website:

6 Responses to “What do you pay for your funds and advice?”

  1. scfr Says:

    Welcome! So glad you've decided to join us!
    I know I'm going to love reading your posts.

    The expense ratio for our mutual fund investments is 0.28% Smile
    Text is and Link is
    I pay for subscriptions to the Wall Street Journal and Money magazine, and read a variety of finance books (checked out from the libarary). That's where I pay for my financial advice ... Period.

    The only time I paid for a financial advisor was several years ago when I made a donation to PBS during pledge week in exchange for a financial plan from Jonathan Pond.

    I'm fortunate that I'm able to get a free financial analysis from a CFP through another source.

    I agree that it's so important to learn for yourself and make your own decisions about your investments.

    Well ... once again, welcome!

    And just as an FYI, if you post 2 entries close together, the first one will not show up on the "new entries" list and lots of people will miss it.

  2. baselle Says:

    Great post. Might also want to talk about class R shares in 401K/403B accounts. Apparently when a company has enough money in its retirement plan, the participants get a break, and class R shares are a bit better, fee wise.

    I do a lot of my own research, and control the fees where I can. I'm with Vanguard, so most of my money is in accounts with a very low fee structure (0.18 - .5% fees). The 403B fee structure is better than it used to be, but not fantastic - again, around (.5% fees). The tax deferral and the match compensate for the fees.

    Also, very helpful tip is bracket your links by bracketing them with {url} {/url} Where it says {, use [ and }, use ] - need to substitute so you can hopefully see what I type. Big Grin

  3. Anniebird Says:

    Thank you both a ton for the tips. I badly needed them!

    scrf, I'm also a very boring investor. I took a look at your portfolio and mine is more boring, I think! We both have TIPS. I'll be back you YOUR blog with comments soon. I really enjoyed what you wrote!

    baselle, I will indeed add R shares. I want to do a whole entry on 401ks, too. I was amazed to find those can have tons of hidden fees and be very expensive.

    Text is and Link is
    I'm really adding the link to test the URL tip - lol.

    I use Vanguard, too. I'm very happy there. A cute Vanguard story: one of the Vanguard clients was on the phone with a rep and the rep said 'someone here wants to talk to you'. A new voice said 'why do you want those index funds', or something like that...and it was John Bogle!

    Thank you both very much!!

  4. Broken Arrow Says:

    Welcome Annie.

    I agree that for a lot of people out there, passive type investing such as index funds, and through reputable brokerages such as Vanguard, will serve quite nicely.

    Some are not as keen on them, but they typically fall under two basic categories: The first is the ones you've mentioned, and basically don't know better. The second are ones that do know better and want to go beyond index funds....

    I only say this because, given enough time, you may run into a few in the latter category here. Big Grin But this is a very friendly community, and I hope that you will enjoy your stay and the occasional invigorating ah conversation. Big Grin

    By the way, you've heard of right?

  5. Anniebird Says:

    Hi Broken Arrow!

    Yes, you are right. Look at hedge funds, for example. Yikes! But it is certainly up the the individual how he wants to invest. Smile
    The bottom line is that no one can predict the market and investors should apply that principle ruthlessly.

    Also, I've learned to have pretty thick skin. Smile And I enjoy HONEST invigorating conversations. And yes, I know about the diehards. Taylor is a true gentleman! And, I have the book.

    This is a book I recently found that is pretty interesting:

    Text is and Link is
    Also, I'm very sorry about your ivy plant.

  6. Robert Says:

    As a financial advisor, working in the field for twenty years I feel that there are additional comments that need to be made above and beyond portfolio returns.

    There is ample evidence that index (unmanaged ETF's) outperform managed funds during steady bull markets and evidence that shows well managed (high alpha) managed funds do better than their respective benchmarks (net of fees) in negative, high volatility markets. Regardless; you also have to look at the behavior of the investor. My conservative clients tend to get more aggressive in good markets - my role is to protect the client from themselves and reiterate risk & return. After discussions the client tends to realize that they are not as aggressive as they thought they were and as a result they stay at a risk level they are truly comfortable with. During the great market meltdown of 2008 I had two out of 200+ client sell, all re-balanced and many increased equity exposure at the end of 08 early 09 and took advantage of the equity rebound. With discussions on returns let us not forget what the average investor actually makes, (the average equity investor makes less than inflation and taxes, regardless of how "cheap" the funds s/he buys.)

    More importantly, as these clients have ongoing, comprehensive financial plans, the clients that have passed away or become disabled, become sick (long term care) had these issues addressed prior. They and their familes are financially sound, something I regret to say cannot be said for many "investors."

    When you talk of financial planners there are many things said that need more clarification. If you are looking at managing investments only, and that is all the "financial planner" does, then they are not (by definition from the Certified Financial Planning board) true financial planners.

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