Your Investments: Do Fees and Expenses REALLY Matter That Much?
Hell yes they do! Yeah, fees and expenses matter a whole lot when you put together and manage a portfolio. But the big question is “Does this mean I should only own the lowest cost investments”?
Well, at Hamilton Wealth Management we manage our client investment models based on one overriding theme: Own the investments we believe provide the best potential returns for the risk taken. Very importantly, that means returns AFTER fees and expenses of the fund, ETF or whatever investment. So, yes, we sure do consider the cost of ownership for each investment.
However, sometimes we do include a fund in our models (ETF’s usually) that aren’t as low fee as maybe the ubiquitous SPY, a very low-cost S&P 500 Index ETF (Expense ratio is less than 0.1%). Why would we ever do that, select an investment with a higher expense? Lots of potential reasons: Maybe in a different asset class there is no option that is low-cost. Or maybe we prefer the active management for one or two asset classes. Or maybe we think the S&P 500 index is overvalued at some point and we don’t want to own it at all for some clients. Lots of reasons.
However, here’s the key point I want to make in this article: The reason to own ANY investment in a portfolio should NEVER be that the “advisor” gets paid more to sell that investment or her/his firm has a “deal” with that fund company to include them in their “preferred” fund list.
Oh, and yeah, if you are a Financial Advisor managing advisory assets for your clients, and you work at a firm that does this, I’m calling you out! That’s right – if you or your firm have a reason other than what’s in the clients’ best interest to include or exclude certain investment options from the portfolio you should change firms. If you continue to put outside interests ahead of clients’ interests, then you should avoid ever looking in the mirror!
At Hamilton Wealth Management we have no “side deals” with any fund company, our advisory accounts are managed for a fee based on a % of the assets in the account, no other revenue sources from that account or funds. None. If our clients see an investment in their portfolios, they can be assured we added it to the allocation for their benefit, not ours. We get paid the same regardless of the investments we select, exactly the same. There is no incentive to do other than what we believe will benefit the clients.
So, if you work with an advisor to manage your portfolio, ask them: “Do you or your firm benefit in any way from selecting any of the investments in my portfolio”? If they can’t answer that, well…. Now you know.
Lastly, you need to consider any “wasted’ fees and expenses. Many firm have high “platform fees” or “Admin fees” taxed onto the investment fees and the advisor’s fee. What do you as the client get for those fees? Usually not much, except lower investment returns. Your advisor should feel an obligation to affiliate with and RIA with low or no fees for the accounts, hold assets at a very low-cost custodian, and in all ways minimize or eliminate ALL fees/expenses that really add little or no value.
If you have any questions about how your portfolio is being managed, get in touch with us and we’ll have a look for you. If we see no issues like these, we’ll tell you. If we see issues, we’ll tell you that also and discuss your options. Sound fair?