Many Pay High Investment Company Fees For Services They Don't Use, Survey Shows (consumerreports.org) 95
Penelope Wang, writing for Consumer Reports: If you are investing in stocks, bonds, or mutual funds, you have a wide range of options to help manage your portfolio -- everything from traditional brokerages to mutual fund companies to online financial firms. But as consumers search for an investment company, many pay little attention to the fees they're being charged, according to a just-released Consumer Reports survey of more than 46,000 CR members. Four out of 10 surveyed said they weren't sure what they paid in fees. And of those who knew the costs, only 60 percent rated their investment company in our survey as Excellent or Very Good on the amount charged.
"Hidden and confusing fees are proliferating across the marketplace, making it hard for consumers to know what they're getting for their money, and to comparison shop across providers," says Anna Laitin, director of financial policy at Consumers Union, the advocacy division of Consumer Reports. "It is concerning that so many investors don't know how much they are paying in fees and that many of those who do understand the fees don't appear to think they are getting their money's worth," she says.
"Hidden and confusing fees are proliferating across the marketplace, making it hard for consumers to know what they're getting for their money, and to comparison shop across providers," says Anna Laitin, director of financial policy at Consumers Union, the advocacy division of Consumer Reports. "It is concerning that so many investors don't know how much they are paying in fees and that many of those who do understand the fees don't appear to think they are getting their money's worth," she says.
Re:News for Wall Street, stuff that steals money? (Score:5, Interesting)
Am I on the wrong website? Since when is this news for people who exchanged all their humanity for money?
Oh come on man. Look at the tech industry these days, not only has just about everyone given up on their humanity, they have also sold out their intellectual integrity and any morals they may have had for money, and the chance at a reasonably priced rental.
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Not like the financial industry is a paragon of morality or intellectual integrity. Usury has had a bad name for millennia, and the proliferation of questionable economic theory (that just happens to benefit the rich), and bank bailouts, should drive the final nails in that coffin.
I'm surprised the investment companies aren't more of a confusopoly, considering related financial services (banks, credit cards) are. Might be down to better competition.
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Also, humanity is overrated. I'm just waiting for better VR tech, then I can spend some quality time with my Waifu.
People chuckle about sexbots, but virtual significant others will come before even that. An AI that can accurately simulate every facet of an SO is difficult; one that can simulate only enough to be the best lover you've ever had is FAR easier, just like how drawing an ugly person takes far more effort and skill than drawing an impossibly beautiful one.
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A bit of misplaced blame there. Everyone wants to get by, but we have ~30% taxes on income, ~35% taxes on corporate profits, ~5% taxes (average) on sales, 2.5% average inflation compounded annually since the 1980's, etc - all in all getting your money to the maker of a product you're looking at paying out about 80% of that just in taxes before it reaches the poor bastard assembling the thing (and that's a best case scenario when you're buying direct from a manufacturer, it only gets worse from there.) His
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A bit of misplaced blame there. Everyone wants to get by, but we have ~30% taxes on income, ~35% taxes on corporate profits, ~5% taxes (average) on sales, 2.5% average inflation compounded annually since the 1980's, etc - all in all getting your money to the maker of a product you're looking at paying out about 80% of that just in taxes before it reaches the poor bastard assembling the thing (and that's a best case scenario when you're buying direct from a manufacturer, it only gets worse from there.) Historically societies have collapsed right around the 50% taxation mark, we're long overdue for that and everyone (very likely every software developer, engineer, and other nerd on this site included) is in the exact same boat of thinking about how to get the most out of their clients without alienating them in the process.
TL;DR: The issue is taxes, not people being greedy on the civilian side.
You're right taxes end of things. But think about how the people who actually benefit from them have turned the electorate against itself. Taxing people to build a 100 billion dollar high speed rail line that is nothing but graft ? Distract the electorate with a satellite to police other states (U.S. and foreign) carbon emissions ?? Or start up another war promoting really strange people over those that are qualified and force everyone to address them by whatever they feel like ?
If anyone goes against it, s
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Re the prior comment. Man I do need my coffee but the gist is correct. People in tech have allowed themselves to become whipped dogs, to just get by. They allow themselves to be easily manipulated by pardon the term fairy stories, while they are being robbed.
Re:News for Wall Street, stuff that steals money? (Score:4, Interesting)
Since when is this news for people who exchanged all their humanity for money?
If the saying "early is on time, on time is late" had a corollary in personal economics, it would go something like this: "Investing is keeping up, saving is falling behind."
Investing is a normal activity for people to engage in, especially since interest rates on ordinary savings accounts haven't been keeping up with inflation for quite a while. I don't think you have to have exchanged all of your humanity for money to have some concern for how a confusing fee landscape might impact an ordinary mortal's putting money away for a rainy day/retirement. Nerds who have managed to get a little ahead might be very interested in understanding how to avoid being fleeced while investing.
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I'd extend that a bit. Saving (getting interests) *never* keeps up with inflation over any significant amount of time. There may be short periods when inflation drops but there's an overhang of higher interest on secure bonds and accounts that were bought before the drop, but over the long term interest is always below the rate of inflation. If you want your money to keep up with or beat inflation, it has to be invested in something that inflates along with inflation, or faster. That's stocks, real estate,
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If I had mod points I'd give them to you. Instead, I'll just mention that back in '82 when I was just 23 yrs old, with $600 to my name, I made my first stock purchase (60 shares of Detroit Edison), because I knew I could do better there than what I was getting from the banks. I reinvested the dividends, through the company's dividend reinvestment program (DRIP), at 5% off of the market price, and no fees. Somewhere along the way, I sold off the original shares. but what remains is pure profit in the mid
The thing is (Score:2)
Everyone knows it and they expect it. If people didn't expect to get ripped off on some level they'd be moron's.
--
I wake up laughing -- Bruce Willis
Blaming the victims much? (Score:1)
No, I do not expect anyone to be a criminal.
And ye, make no mistake, theft, robbery, fraud, usury, racketeering and profit, interest and "intellectual property" are all crimes, and the same kind of crime too: Taking money, and giving nothing back in return. (Every case of giving back something of non-equal value can be split into a case of a fair deal and a case of giving nothing back. E.g. in the case of a sale, the latter is called "profit".)
And if somebody *is* a criminal, I can expect me and my social g
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I don't think it's widely known just how much a "full service broker" is a racket. Paying someone else to manage your money is generally a terrible idea. It makes sense when you're setting up a trust fund for your idiot grandkid, maybe, if you can afford to just add that much more to the trust. But in general, the only way you'll come out ahead paying a broker 2% of your account annually is if he's doing illegal insider trading on your behalf (and unless you're in the 0.01%, he's not).
ISPs (Score:3)
WOAH, sounds just like Comcast and CenturyLink!
Fees Don't Matter When You Don't Trade (Score:5, Insightful)
Unless you're a very high net worth individual, you probably don't have access to the sorts of funds that charge a percentage of assets under management and even if you did you'd be better off without the professional traders. Instead you probably pay commission on trades and the financial industry is setup to get you into a trading mindset. They're always trying to get you into this or rotate out of that so that they can make extra trade commissions off of you. Warren Buffet was right when he observed that you should treat trades like an extremely scarce commodity. The example he used was of a punch card with 25 punches on it representing all of the trades that you will make in your lifetime. If you don't want to own a security for 10 years then you sure as hell don't want to own it for 10 hours or 10 minutes. If you think that's crazy then consider this. Warren Buffet defeated all challengers in his ten year charity benefit investment competition starting in 2008 [investopedia.com]. How did he do it? He bought the S&P 500 Index fund and sat on it. Buffet won handily with an average 7.1% return, including the time period of the Great Recession, against a runner up of 2.2% average return for the next best actively managed portfolio. Think about that the next time an investment broker pitches you a financial product or a trade. The old adage still applies. If it sounds to good to be true it probably is.
Re:Fees Don't Matter When You Don't Trade (Score:4, Informative)
If I recall, the ruse went something like this:-
1. A client of the bank used the trading platform provided by the bank to put in a purchase for a large enough quantity of stock that it would likely have the effect of adjusting the price of that stock. 2. The bank made a determination that this would be a "market moving" trade, and so, using an "ultra fast" computer link, ordered that precise amount of the stock for the bank's own portfolio. 3. In response to the bank's purchase, the price of the stock went up. 4. Then the bank processed the purchase order from their client, except that what actually happened at this point was that the bank sold the client the shares from the bank's own portfolio, because of course the bank had just "beaten the client to the punch". 5. The bank booked the difference in prices as an operating profit.
Having said that, it's worth bearing in mind that this sort of practice is only really effective in high frequency trading scenarios. If the client is adopting a buy-and-hold strategy [something along the lines of a Warren Buffet approach] then, excepting the odd period of extreme volatility [witness last week's sell-off], perhaps coming just in time to bolster Q3 earnings?, those sorts of short-term variations won't have so much impact on the long-term growth of a stock or the market in general.
Re:Fees Don't Matter When You Don't Trade (Score:5, Informative)
FYI this is called Front Running [wikipedia.org] and is illegal. Market specialists [wikipedia.org] were accused of doing this back in the 70s IIRC. High-speed trading scenarios aren't required if the brokerage only makes loose guarantees of how long it'll be before your trade executes.
Re:Fees Don't Matter When You Don't Trade (Score:4, Informative)
It depends a lot on the broker and market - different countries have different rules. US rules are pretty lax and let the broker get away with skimming money because they're only required to provide a client with the current best round lot price even if the order can be satisfied with an odd lot in the market at a better price. Also, some brokers actually do give you access to the stock market and allow you to use various execution strategies on their platform.
It's a bit different with derivative markets where the broker may be creating their own instruments (options, futures, CFDs, etc.) - in this case the broker creates the product and sets the price. You can't trade against other participants, only the broker. You're pretty much guaranteed to be paying unfair premiums in broker market derivatives.
The main function a retail broker provides is managing risk for small clients. The exchange isn't going to deal with investors directly because of settlement risk, i.e. the risk that someone can't deliver cash to cover their buys and/or stock to cover their sells by settlement time. Brokers and other exchange participants (e.g. market makers) are required to show that they have adequate working capital and risk control procedures to manage the risk to the exchange's satisfaction. If there's any failure to settle, it's the broker who's on the line. The broker then applies their own risk management methodology when vetting investors and setting limits on their trading.
Yes, brokers are a point of friction, and they do add to transaction costs. Ideally, competition should drive prices down. As risk management systems are improved/automated, the price brokers need to charge can be reduced. If entrenched brokers are charging too much, upstart brokers can undercut them. Of course you also need a regulatory environment that facilitates a fair market for broker services.
Oh and Goldman Sachs are cunts - we all know that.
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This operates in exactly the way you describe, but the OP and your comments both stand. For example, if you are a "buy-and-hold" investor, then paying for the benefits of a fund sup
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OUCH.
Fidelity and Vanguard in the US have a variety of index funds with a 0.05% load per year or less. You fellows in the UK are paying too much for that service.
Re:Fees Don't Matter When You Don't Trade (Score:4, Informative)
That's not really true. A lot of small-time investors are invested in funds that charge significant fees based on the amount invested. Almost all mutual funds have some sort of percentage fee, though it is quite small for the better index funds. On top of that, many retail investors are paying a "financial adviser" (really a salesperson) a percentage of assets under management (often 1-1.5%). Total fees can easily be greater than 2% a year. That doesn't sound like much, but if you are a retired person, that amount represents HALF your annual income (not including social security).
The sad thing is that all these fees are rarely necessary. Simply investing in low-fee index funds from the likes of Vanguard or Fidelity gets your fees down to a nominal level (like .05%). Indeed, trading makes no sense for the retail investor, but fees on trades are rarely the biggest fees retail investors pay.
You do make a point about hedge funds, which are designed to fleece the rich. They are often worse than retail mutual funds, traditionally charging a "2 and 20" (i.e. 2% of assets invested PLUS 20% of the return). Then, pile on private equity investments that add restrictions to liquidity on top of all that. But, of course, they have a slick "wealth manager" that plays golf with them and makes them think they are getting "exclusive" opportunities because they are oh so special for being rich.
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That's not really true. A lot of small-time investors are invested in funds that charge significant fees based on the amount invested. Almost all mutual funds have some sort of percentage fee, though it is quite small for the better index funds. On top of that, many retail investors are paying a "financial adviser" (really a salesperson) a percentage of assets under management (often 1-1.5%). Total fees can easily be greater than 2% a year. That doesn't sound like much, but if you are a retired person, that amount represents HALF your annual income (not including social security). The sad thing is that all these fees are rarely necessary. Simply investing in low-fee index funds from the likes of Vanguard or Fidelity gets your fees down to a nominal level (like .05%). Indeed, trading makes no sense for the retail investor, but fees on trades are rarely the biggest fees retail investors pay.
Well said. The best book I ever read was https://www.amazon.com/Only-Investment-Guide-Youll-Ever/dp/0547447256 [amazon.com]. Coming from a blue-collar background with no family history of success in money management beyond my parent's getting a VA-backed mortgage, I bought it after I had gotten out in the workforce in a tech job and started wondering what I should be doing with my excess cash (a novel concept to me). I made some cautious trades in individual stocks and some options, guided by a broker who had picked
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you probably don't have access to the sorts of funds that charge a percentage of assets under management
Uhm, wrong... Most mutual funds, index funds, REITs, etc, and even simple commodity ETFs' management compensation works this way.
Annual percentage of assets under management is by far a most common way that fund managers receive most compensation for most funds; the only real way of avoiding such charges is to manage it yourself or find a personal broker willing to make a deal with you to do it fo
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That's just not true. All of the financial firms you see advertised on TV (Edward Jones for example) is marketed to middle class families and charge a % of assets under management.
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IIRC, both Buffett and David Gardner (Motley Fool) have said they would have better overall returns if they never sold anything they bought. Sure, some went to zero, but they were made up for by ones that came back.
a 0.5% reduction is fees is a 40% INCREASE in 401K (Score:5, Insightful)
Just remember that people...a 0.5% reduction in fees is often a 40% INCREASE in your pension when you retire. The numbers are so small i.e 0.5% that most people don't seem to do the math or care. But here's how it works
Your average return is probably around 4-6% each year if you are 60/40% bonds/equities or similar (this can be higher or lower obviously) for general employee 401Ks that most people don't look
So your REAL return is minus inflation lets say that's around 2.5% - so you are actually only getting 1.5%-3.5% ..
Your 401K provider then takes 0,5-1.5% of this!! That's basically saying they take no risk and can take 40-100% of your return for providing an IT platform, some customer service and linking to exchanges and brokers...
Frankly its ridiculous - its like Microsoft charging you a % fee for how much you make from its products...investment products should obviously be charged at a flat fee i.e 40USD/ mth like any other service...but then, that's why they can afford to lobby politicians and drive a porsche whilst the people who retire on their 401Ks live out a meager lifestyle and wonder where their money went!? All because they can't be bothered to look at their 401K or plan for the future...its a great system for the motivated to rob the unmotivated.
Take heed...investigate what your paying and move to index trackers or trusted funds that charge more BUT RETURN MORE TOO!
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...investment products should obviously be charged at a flat fee i.e 40USD/ mth like any other service...but then, that's why they can afford to lobby politicians and drive a porsche whilst the people who retire on their 401Ks live out a meager lifestyle and wonder where their money went!?
No. People aren't going to PAY 40$ a month (or any amount for that matter) to invest. That's silly and you know why because you explained the reason people don't seem to "care" about the 0.5% yourself. They don't even notice it. It'll hurt when they run the numbers once it comes retiring time; but not as much as if they didn't invest for retirement at all, like most people nowadays seem to do.
Just use Vanguard... (Score:4, Interesting)
Seriously, just use Vanguard.
less than 10 basis points for alot of the mainstream indexes and no commissions...
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News for nerds? (Score:2)
This is a very real problem, but in what universe is this within the Slashdot remit?
Next up - refrigerator shelving that cracks and yellows before its time!
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Some of my best investment ideas came from /. This was especially true in the early years. So, I will give them a little slack on this one.
Unfortunately most people have no idea how to manage their money. This has led to requirements for fiduciary oversight that adds layers of management and cost.
The mutual fund situation though is really sad, especially in most 401k’s. Most funds fail to outperform their benchmark, and the fees are way too high for the service provided. There were a few that were wo
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Investment companies are a racket (Score:5, Insightful)
For normal people, investment companies are a racket. They exist to take your money...and keep it.
If you go to an investment brokerage that actively manages your money, they not only have their own fees, they also love to buy into high-fee mutual funds that give them a kick-back. My mother had her money with a name-brand brokerage, with a broker she considered a friend - and they still kept buying and selling these high-fee mutual funds. The buying is bad enough, but cashing out and buying into another fund a year later is... Well, it's very clever. For the broker. Who is fulfilling their primary goal of keeping their clients' money for themselves.
Normal people wanting to invest really have only two choices:
- Take charge of your own investments. Learn what you're doing, and buy stuff for the long-term. If you buy a stock, buy it with the intent to keep it for several years.
- If that's not your thing, they buy low-fee index funds. In addition to the market index funds, there are also more specific ones out there. The point is, they are funds with little management, and hence very low fees. Buy into index funds, and sit on them for the long term.
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The described behavior is called "churning" and it is a form of fraud. It may sometimes be financially responsible to ditch one fund and buy a similar fund in the same year, though. This is a mechanism to "capture gains or losses" by effectively cashing out of a long-held fund. The intent here is that you already have gains/losses that offset this amount. In this way, tax exposure is limited.
As to the advice of fund with low fees... I point to the Warren Buffett million dollar bet (http://fortune.com/2017/1
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I check my portfolio maybe twice a year and have never been happy with the fees. When I'm making money on the investment, I
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We're meeting with a financial adviser this week to discuss our finances. Both our companies and the firm they use for managing our RRSPs offer financial advisers, but we want someone independent with no skin in the game. We made it very clear when booking our appointment that we're not interested in moving our RRSP so I'm hoping to get some good advise. The index fund option is very interesting, the wife and I both agreed we should go down that route and reading the Warren Buffet article lends more credence to that strategy. Will be interesting to hear what this adviser says.
Best of luck to you. My experience with financial advisors is that, even when you're paying for their time, they try and convince you to do the most boneheaded things in order to maximize their income. I honestly believe that they are more despicable than the stereotypical used car salesman. I once had one try to convince me to refinance my mortgage to a HIGHER interest rate and could provide no real justification for it. However, the paperwork he showed me made it clear that he got a commission on that
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As someone who just recently switched careers to be a financial advisor, I find your experience to be disheartening. I spent twenty years as an engineer but didn't feel fulfilled because I couldn't see a direct impact of my labor improving the lives of the people around me, so I wanted a way to more directly benefit those around me. I agree with the general sentiment in this thread that it's hard for the average investor to quantify the financial benefit of working with an advisor on an account with fee-bas
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Great advertising piece. Reading between the lines: if you think you can do it alone, good luck sucker! There's some truth to that, but a person who's aware of what's going on, has a plan, and is willing to spend some time tracking and managing things (what's your personal billing rate?) can in fact to a fair job on their own, with a little luck. Just be aware that even the much-vaunted Vanguard has some ringers with high expenses, and if they're your 401K manager (you have to have a manager for 401Ks and I
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I didn't mean for that to come off as an "advertisement" (it's not like I even posted contact information), but I think any person is motivated to justify their value (either to potential or existing customers or to their employer). I also don't think you're a "sucker" for trying to do it on your own. I just don't agree with articles and the following discussion that attempt to speak for everyone when it comes to fees for service. Does it make sense to pay an accountant to do your taxes? How about paying
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You could drive past whatever bridge/reservoir/building/car you helped engineer and see what it was doing for people's lives at any time.
By touting investments that may or may not make money, but will eat at the people putting down all the cash and taking all the risk with fees. What a humanitarian
Re:Investment companies are a racket (Score:5, Insightful)
Do yourself a favor. Ignore the financial adviser and just open an account with Vanguard or Fidelity. Put 70% of your money in a total stock market index, and 30% in a total bond market index. Rebalance annually (i.e. reallocate so you don't drift too far from 70/30). That's literally all you need to do. The financial industry wants you to think it's complicated so they can skim fees for "managing" or "advising."
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Do yourself a favor. Ignore the financial adviser and just open an account with Vanguard or Fidelity. Put 70% of your money in a total stock market index, and 30% in a total bond market index. Rebalance annually (i.e. reallocate so you don't drift too far from 70/30). That's literally all you need to do. The financial industry wants you to think it's complicated so they can skim fees for "managing" or "advising."
I will add that if you have a certain amount of money in the account that Fidelity (and probably Vanguard) waive the annual account fees and you just have to pay the fees on the funds (which partially go to the investment company). I am more aggressive than 70/30 but I have a lot longer to wait for retirement than just 20 years.
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> 70% of the money in an index that only invests in the stock markets and the remaining 30% in an index that only invests in bonds?
I believe that's what you're saying but would love confirmation of my understanding.
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Forgive the question but when you say "total stock market index" and "total bond market index", are you saying I should split my money thus: > 70% of the money in an index that only invests in the stock markets and the remaining 30% in an index that only invests in bonds? I believe that's what you're saying but would love confirmation of my understanding.
An Index Fund basically buys key stocks that it believes will follow the general trend of whatever exchange it is tied to. So if the entire exchange goes up by 18% an index fund would be expected to mirror that change closely. I think what the GP was referring to are funds that are not tied to a specific exchange but try and mirror the US stock markets in general. But like the Dow Jones Industrial Average is basically an index that tracks the NYSE. If you look at the prospectus for these kinds of funds
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The main thing to look at are the annual fees for the index fund. Real highway robbery is 1% or so. Standard Vanguard index funds should be less than 0.1%. For example, the "Vanguard 500 Index Fund ETF" is 0.04%. If you can get an equivalent through Robinhood at like 0.03%, that's good but the main thing is just to pay higher than .1% or so.
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At most, redirect new money and dividends to asset classes who have fallen behind. They may never catch up, but that's OK.
Who are some of the people screaming the loudest about rebalancing? Investment companies and advisers. They skim off money on every transaction. No profit is made from people who buy and hold.
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That's a good point. I should clarify I only rebalance my 401k and Roth accounts. The fees for doing so are effectively nill. In a taxable account, you can manually "rebalance" by simply adjusting how you invest new money.
Corporate theft is the US economic model (Score:2, Interesting)
Once you are kicked into the gutter it will be too late. There is short window where America's side into a third world country can be reversed, but it won't last long.
The current set of Republican grifters must be unseated and then prosecute
Someone has to say it clearly (Score:1)
If you do not put your retirement money into Vanguard Index 500 Fund that tracks the S&P 500, you're not playing the odds. It's automatic, so nobody at Vanguard's compensation is likely to be increased by decreasing your total return, low-fee and tracks 500 stock-index so it's diverse and transparent.
In terms of time-periods similar in length to a normal American's career, the returns earned from dollar-cost averaging into the market are probably the best you're going to do with the lowest risk. Over
Obama's Admin had a rule going in place (Score:2, Insightful)
I'll give you 3 guesses what happened to that rule when the administration changed....
BTW, what the *bleep* is this doing on
Money mag is enough (Score:3)
Dont watch any financial news channels, There is not enough info to fill 24x7. They fill it with fluff, speculation and misinformation. Makes you trigger happy, second guess yourself and trade. You lose time and money.
Most retirement planning advice is bullshit. They assume you will spend in retirement as much as you are spending when you were earning and have no flexibility in spending. Estimate you expenses into a four categories: Essential (food, shelter, clothing, medicine) Discretionary (travel, entertainment, charity), Indulgence, Principle Protection (money to be reinvested on good years). First goal, save enough for essential without touching the principle, then discretionary. Then for Principle protection. Then for indulgence. Spend less on lean years. Spend more on good years. Reinvest in good years to hedge against inflation.