HOW DO MOST FINANCIAL FIRMS CHARGE FOR ADVICE?
- The vast majority of financial services and advisory firms are owned by a bank, large broker-dealer, or insurance company. They have multiple operating layers which generate revenue through commissioned investment or insurance sales, advisory fees, revenue-sharing arrangements, and a variety of other fees. Such fees passed along to the client can be very difficult to calculate.
- Many companies build their fees into products (annuities, mutual funds, insurance products, etc.) where they aren’t easily identifiable on a monthly account statement.
- Product fees are often paid annually as long as you own them. For example:
- 12(b)-1 mutual fund fees can be the most elusive fees for the consumer to identify and generally pay 0.25% per year to your broker.
- Annuities can often charge between 2.5% and 4.5% per year depending on the various investment options, rider charges, and insurance costs. So, a client with a $100,000 annuity may pay anywhere from $2,500 to $4,500 per year in expenses to the insurance company and broker.
- Lack of transparency causes problems when trying to understand the full price for advice when you use commission or commission and fee advisors.
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