Reasonable Investment Expenses
What is reasonable for one investor may be unreasonable for another investor. It all depends on your amount of assets, the services you receive, and the achievement of your goals.
Assets
Your assets determine how much money advisors make when they sell you investment products and services. For example, you have $200,000 of investable assets:
- A fee advisor may charge a 1% fee so his revenue is $2,000
- A sales rep collects a 5% commission so his revenue is $10,000
Advice & Services
Reasonable expenses start with what you get back for the thousands of dollars of fees and commissions that were deducted from your investment accounts. The fee advisor provides advice and ongoing services for the $2,000 annual fee. The sales rep collected $10,000 for convincing you to buy his sales recommendations. In this example, the $2,000 fee is reasonable because you get back a lot of value. The $10,000 is unreasonable because you do not benefit from ongoing advice and services.
Financial Goals
The best definition for reasonable expenses is the achievement of your financial goals after all expenses are deducted. Expenses are reasonable if you are achieving your financial goals, let's say it is an average return of 12% a year. If you are not achieving your goals, whatever you paid for knowledge, advice, and services was too much.
Paladin says.....
You have to connect the dots. What do you get back for the all of the expenses you are paying? Are you achieving your financial goals? Wall Street should add a lot of value to justify its expenses. Delivering value is more than selling you investment products. The bottom-line is you are paying a lot of money to achieve your financial goals.