Even after 20 years as a financial professional, I’m still surprised at how many otherwise skilled investors never ask certain straightforward questions. “How do I know which fees pay for what?” “If a fee is waived for one area of financial planning, is a different one tacked somewhere else?” “And how would I know?” Here at the Charles Schwab Independent Branch in Saratoga Springs, we navigate the tricky web of making sure that fees or no fees, you know without a doubt which fees you’re paying for.
As a financial professional, I’m encouraging people to get gutsy and ask themselves and their financial professional a question they probably haven’t asked before: How much am I paying in fees?
It’s a question that you might expect would have a simple answer, but if you dig into it, you might find yourself doing a bit of head scratching. In the world of financial services, there are different kinds of fees—trade commissions, fund fees, and advisory or management fees to name a few. While cost is only one factor when it comes to dissecting the value of an investment or your relationship with a financial professional, it’s important for investors to understand what they’re paying, why and how these costs impact their returns.
According to a 2013 Schwab study, 83 percent of investors do research before making a major purchase. Yet, just half of investors say they know how much they pay for their investments and only 16 percent who work with an investment professional have asked how fees and commissions impact their portfolio’s returns. But the fact is a seemingly small difference in fees can make a potentially big difference in your return, especially over time.
For example, I have had many conversations with clients who have bond portfolios managed outside of Schwab who are unaware of mark-ups that brokers can build into the price of a bond but aren’t legally required to disclose.
It’s important to understand, however, that not all investing fees are bad. It’s really a matter of understanding the value you are getting from what you pay. You might be willing to pay a slightly higher fee for different kinds of services that add value, such as more personalized financial planning or a higher-touch relationship. Maybe you’re a small business owner with a specialized set of financial needs that require more help and attention from a financial professional.
A couple ways to be more aware of the fees you’re paying are to regularly review your statement and ask your financial advisor directly about the different fees you are paying, why you’re paying them and how they are impacting your financial goals.
Starting with these questions will help you become more knowledgeable and confident about your finances and the value you’re receiving. But don’t stop there! Keep asking questions and stay engaged, because these can be your most valuable assets when it comes to achieving long-term financial success.
Since my number one goal as a Schwab Independent Branch Leader is to help you achieve your dreams, it’s of great importance to me to help you understand how to maximize your earnings. You could be paying unnecessary fees that are hindering that goal. Call or come by the branch – we look forward to meeting you and helping you navigate the right financial management structure for you.
MAUREEN PARKER is an Independent Branch Leader and Financial Consultant at Charles Schwab with over 20 years of experience helping clients achieve their financial goals. Some content provided here has been compiled from previously published articles authored by various parties at Schwab. 1119-95UX