Recently, I met with someone who had a "fee-based" wrap account with a financial advisor/broker. Wrap accounts charge a flat annual fee on all the accounts an individual or household has at a broker. The idea is that they make it easier for the client to understand the cost of doing business and brokers tell people you don't have to worry about commissions. The amount of the wrap account fee is usually based on assets under management and normally tops out at 3%.
Many people believe the wrap fee covers all expenses including the investments inside the accounts. That is not the case. Mutual fund companies and Exchange Traded Funds have their own internal costs that are independent of brokerage fees. I have seen people pay a wrap fee of 2.25% and had mutual funds that charged anywhere from 1.25% up to 2.25%. Their total cost for investing was around 4% every year! That is a high hurdle to leap to make a profit investing. Also, around 80% of actively managed mutual funds do not beat their benchmark index. So, these people are losing on two fronts.
What should a person do? At Peteson Wealth Advisory, we invest in ETFs that have low expense ratios. Vanguard, SPDR and iShares offer ETFs with expenses around 0.1% to 0.2%. PWA does comprehensive financial planning which includes investment management, estate planning, tax planning, insurance, and retirement planning. Our annual fee is at most 2% on $100,000 or less of assets under management (AUM) and the fee goes lower as AUM grows. We receive no commissions or revenue sharing from mutual funds or other financial institutions.
Its your money. Keep more of it!
