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SEC Investor Bulletin Educates Investors About Impact of Fees on Portfolio Values

The Securities Exchange Commission (SEC), Investor Bulletin on fees and expenses reminds investors about the effect fees on investment accounts can have on a portfolio over the long run.  According to the SEC Investor Bulletin, “These fees may seem small, but over time they can have a major impact on your investment portfolio.”  The SEC’s Office of Investor Education illustrates the effects through the use of a graph.  In the hypothetical example, a $100,000 portfolio is assumed to grow 4% annually with annual fees of 0.25%, 0.50% and 1.00% that are deducted over a 20-year period.  The differences between the account values at the end of period show a $30,000 disparity in portfolio values between the portfolios with 1.00% and 0.25% in annual fees deducted from the respective portfolios.  This simplistic example should make investors wary about the fees they are paying, whether disclosed or not, these fees can greatly diminish any retirement nest egg.

The SEC Investor Bulletin urges investors to “get informed” by reviewing account statements, confirmations and investment prospectuses to become better informed.  The bulletin also provides helpful questions investors should ask their financial advisors before investing:

What are all the fees relating to this account?

  • What fees will I pay to purchase, hold and sell this investment?
  • How can I reduce or eliminate some of the fees I will pay?
  • Do I need to keep a minimum account balance to reduce or avoid any fees?
  • Are there any other transaction or advisory fees?
  • How do the fees and expense of the product compare to other products that can help me meet my objectives?
  • How much does the investment have to increase in value to break even?
  • How do you get paid?
  • Do I have a choice on how to pay you?

The SEC Investor Bulletin explains examples of the different types of transaction fees and ongoing fees to be aware to determine what fees you pay.  It is important to ask not only what fees do you pay, but why?  How financial advisors are paid may create a conflict of interest between you and your financial advisor which might lead to unsuitable investment advice that may be the result of a breach of fiduciary duty.

For example, a recommended investment in a variable annuity used as funding vehicles for an Individual Retirement Accounts (IRA) may represent a conflict of interest when compensation is compared to mutual funds which pay lower compensation through sales volume discounts to investors.  This is further supported by the fact that IRA accounts are already tax deferred and variable annuity contracts have mortality and administrative costs (typically 1.25% per annum) which simply add an additional layer of fees with no additional tax benefits.  Another example is alternative investments, including Managed Futures Funds, which are considered by many to have substantial undisclosed fees which are poorly explained to investors and as a result the long-term effects of the fees are misunderstood.

The Silver Law Group has Martindale Hubbell “AV” Preeminent Peer Review™ rated lawyers committed to the advocacy of investor rights who suffered losses from excessive fees related to investments in variable annuities and/or alternative investments.  If you are interested in learning more about the handling of your investment account by a full-service brokerage firm or your legal rights, you are encouraged to contact our law firm for a free consultation. Our attorneys have significant experience representing investors in variable annuity claims.  If you have questions about your legal rights, or have been the victim of investment fraud, please contact us, toll free at (855) 755-4799.

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