Every dollar of expense is one less dollar you have available for reinvestment or for your future use. Plus, expenses reduce the net performance of your assets. Consequently, prudent investors monitor their expenses very closely.
We wish financial service expenses were simple, straightforward, and easy to understand. But, they are just the opposite.
- There are layers of expenses
- Some expenses are fully disclosed and some are hidden
- You need a PhD to understand how fees are actually calculated and manipulated
It stands to reason that high expenses maximize Wall Street revenue and profit. The more fees, commissions, and transaction charges it extracts from your assets the more money it makes.
High expenses also create a downside for Wall Street. You may not buy what is being sold to you if know all of the actual expenses. This creates an incentive for Wall Street to bury expense disclosures and make them as complicated as possible.
You have to ask the right questions to obtain the expense information you need to determine your actual costs. And, you should trust what you see and not what you hear. Prudent investors require documented responses so they have a written record of their expenses. Verbal information is called a sales pitch.
What should I do if my advisor cannot or will not provide complete expense data? All advisors have access to expense data. Withheld information is a major indicator that you are being charged excessive expenses. Find an advisor who will provide full disclosure for all expenses that will be charged to your accounts.
Expense information that is volunteered by advisors may be the tip of the proverbial iceberg. You have to require advisors to disclose all of the layers of expenses (there can be five or more) that are deducted from your assets.