HighView Family Story: Retirement Plans Uncover Unclear Fee Disclosure by Investment Advisor

This family story is the second of a series in which we discuss some of the common investment challenges families face and what ultimately led them to HighView. Here, we explore the topic of fee transparency. Although recent regulatory changes (CRM2) made strides towards mandating transparency, they unfortunately do not tell the full fee story. This perpetuates an environment of unclear fee disclosure and ultimately leaves families to pay sizable fees that eat away at their returns.

In this story, the parents were approaching retirement and considering how their net worth would carry them through and adapt to changing lifestyle needs. They had approximately $1 million in investable assets and anticipated adding over $1 million after downsizing their home.

They had been working with a financial advisor for over 10 years who had been a personal contact, but were uncomfortable with his abilities to handle their increased wealth. They asked their accountant to recommend alternative wealth managers.

• When the Fee Isn’t the Fee: The family’s annual statements from their advisor divulged a 1% fee, a required disclosure since CRM2 regulations came into effect at the end of 2016. This 1% fee is the amount of money paid directly to the dealer (or advisor’s office). When HighView dug deeper during our discovery process, however, we needed to disclose that the actual fees were 2.5%. The additional 1.5% fee was embedded in their mutual fund products, compensating the mutual fund company to invest on their behalf. Regrettably, this portion of the fee is not required to be on the annual fee disclosure statement provided by the advisor’s office.

• Putting a Detailed Wealth Plan into Action: When HighView began working with the family, we produced a goal–oriented wealth plan to meet retirement cash flow needs while taking into account the levels of risk and volatility they were willing to tolerate.

• Performing Regular Reviews: Providing quarterly statements and annual reviews made it easy for the family to track their progress towards achieving their goals. In these reports, we clearly outline all fees (not just fees paid to the ‘dealer’).

Read the full family story here.

HighView is an independent fiduciary portfolio management firm whose sole purpose is to provide our clients with peace of mind by making their wealth sustainable. We would be happy to discuss our goals-based investment approach with you and your professional advisors.

You may also be interested in:

• HighView Family Story: Former Entrepreneur with Multiple Advisors in Need of Integrated Family Wealth and Succession Plan
• Mitigating Volatility to Create Sustainable Family Wealth
• 7 Common Hurdles in Creating Sustainable Wealth