- posted 5 years ago
Wall Street Journal recently published, in their WSJ.Money magazine, an article titled "The Seven-Figure Portfolio Fee". Here's a link to it:
The subtitle is "The cost of managing finances is coming down for many investors. But, for the wealthy, it's a different story.
They proceed to discuss just how much assets-under-management fees add up to for very and extremely wealthy clients, starting with a $5million portfolio (managed at 1% of assets), a $10million portfolio (at 0.50% of assets), a $50million portfolio (at 0.25% of assets), and a $100million portfolio (also at 0.25% of assets -- 0.25% seems to be the lowest tier to which most AUM-based advisors fees may reach, though when a client has that kind of money involved, of course, fees are certainly subject to negotiation!)
Anyway, the numbers are shocking (to anyone who hasn't done the math already). Over the course of 25 years, the $5million client will have paid $1,643,300 in fees (clearly they are including some kind of portfolio growth, since 25x$50,000 = $1.25million). Now, of course, that doesn't say anything about what that client got for all that money. At 1% of assets, the client was paying $50,000 each year -- again, that *is* a lot of money.
And it gets even worse -- per the article, "the typical American household is being charged 1 to 2 percent of its portfolio". 2%!
And if that paid for nothing but portfolio management, it's an astoundingly high amount of money. If all that client needed was someone to manage, say, a 60% stock, 40% bond portfolio in a cost effective and efficient manner, such a portfolio could be built out of index funds for about one tenth of that fee, and a portfolio manager putting together such an index-fund based portfolio should probably not charge more than 25-50 basis for it -- meaning that if it's just portfolio management and nothing else, that $5million client is probably paying somewhere between two and three times as much as he could be.
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-- David S. Meyers, CFP(R) http://www.MeyersMoney.com
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