In this article, we are going to be looking at the costs of assets under management fees (AUM) and the investment fees you have owning your investments.  AUM fees are what some advisories charge for managing your assets.  Typically, it is a percentage of your assets that you have with them under management.  Investments fees are what it cost to hold investments like mutual funds made up of stocks and bonds.

AUM and Investment Fees

Let’s say you already have an advisor that is charging you the typical 1% in fees for under $1 million dollars in assets under management (AUM).  In this case, you have $500,000, so the annual fee for advisory services is $5,000. This doesn’t include your actual investment fees which can be made up of various mutual funds of stocks and bonds.  Maybe you even have an annuity thrown in there too. The investment fees can easily add up to another 1% in fees. Another $5,000 for a total of $10,000 per year.

AUM Fees Go Down With More Money, Right?

When you accumulate more money the percentage of the advisory fees goes down for AUM.  Therefore you would think you are paying less or the same for the service.  However, you are actually paying a lot more money annually.  For what really is little if any more time on the advisors part for managing the money. For example, I am working with a client right now that has a good amount of money 3.5 million roughly.  A typical advisor fee for that much would be right around 0.70%. That annual fee would jump up to $24,500 versus the $5,000 mentioned earlier for managing 0.5 million. That is just for the advisory services again that doesn’t include the typical 1% for investment fees as well.

What do Fees do to Your Overall Return?

Let’s go back to the first example with $500,000 in assets and AUM fee of 1% ($5,000) annually and investment fees of 1% ($5,000) annually.  Let’s say that over time you average an 8% return on your investments. After the AUM fee comes out you only get 7% (12.5% of your return is gone).  Then investment fees come out and your down to 6% (another 12.5% of your return is gone). With all the fees your return just went down 25%.

What can you do about it?  

The smartest investor of our time backs up the low-cost investment strategy. “Costs really matter in investments,” Buffett says. “If returns are going to be 7 or 8 percent and you’re paying 1 percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.”  Most of the time we can get your investment fee to be under 0.10%, which can have a profound impact.

We do charge a one-time upfront financial planning fee and then an ongoing planning fee after that between $50-$150 per month. Between $600 – $1,800 annually in an annual planning fee + your investment cost of 0.10 or below.  The investment costs to be clear are not charged by us they are charged by the custodian (i.e. Vanguard, Fidelity) where your money is held.  If you have that same $500,000 in assets that would equate to 0.25% of your assets annually at the most for the annual planning fee of $1,200. On the 3.5 million mentioned previously, it would be 0.3 of your assets annually at most for the annual planning fee. As your assets increase the monthly fee may be the same because we don’t charge by how much money you have. As your investments earn more money it means you keep more money, not us.

At Peeling Back Layers we offer a flat fee and we advise you to be in low-cost broad-based index funds all over the world.  In turn, you get to hold onto more of your money!  If what I said you don’t completely understand don’t worry we educate you along the way and are there by your side every step.  We don’t manage your money because we believe with our guidance and help along the way you can manage your own.

Take Action: Contact us to set up a free no-obligation appointment today!  You can do this! Believe in yourself! Keep more of your hard-earned money!

What can a little change do to your portfolio?  Take a look below. Which would you choose? Based on the 8% yearly return over 20 years.

We can help you keep more of your money and not have to be lost in fees.  It can make a huge difference on your life!

Contact us to set up a free no-obligation appointment today! A small change can make a huge difference.