At the Front Street Foundation’s recent Money Series workshop, an attendee asked a deceptively difficult question. She wanted to understand how to figure out the cost of her investment program. That’s a simple enough request, right?
It should be easy for consumers to safely navigate the investment industry. Never is this more the case than it is today. Just last month, essentially every professional who provides financial advice must now operate under the same fiduciary duty rules independent registered investment advisors have always lived under. It is a long overdue and good change for investors.
Given this, my initial suggestion was for her to ask her current advisor what she’s paying. After all, it is a quick calculation for a professional to make and, now, it is her advisor’s obligation to provide her this information. Sadly, she didn’t trust her advisor to give her the straight scoop. She clearly has a larger issue to address, other than knowing the cost of her investment program.
I’ve been asked about fees often in my career and have helped calculate the fees paid by investors on countless occasions. Here’s a basic primer on how you can do it from the comfort of your own home.
For the typical investor who invest in mutual funds, grab your most recent brokerage account statement and go visit morningstar.com.
Each mutual fund you own has a unique ticker symbol. Find the ticker symbol on your statement and just enter it in the search box at the top of the website. Click on the resulting mutual fund’s tab labeled, Expense, and scan down the page for the words, “Net Expense Ratio.”
The net expense ratio is the all-in cost of your mutual fund, presented on a percentage basis. Simply take this percentage and multiply it by the current value of your mutual fund holding. Repeat this process for each mutual fund you own and, finally, add up all the fees. Yes, some math is required!
However, there’s more. If you have also hired an adviser to manage your investments, you are probably paying advisory fees too. Further, if you’ve chosen to work with someone who sells financial products for a commission, some deeper digging is required.
No consumer would dream of buying groceries, clothes or a plane ticket without knowing the price. It begs the question, why do so many do just that when it comes to their investments?
Jason P. Tank, CFA will present, “Understanding Your Investment Fees” at the Front Street Foundation’s Money Series on June 15th at 6:30pm in the McGuire Room at the Traverse Area District Library. Call (231) 714-6459 or visit FrontStreetFoundation.org, if you plan to attend. Front Street Foundation is a local nonprofit providing financial education for all people.