In what should be a fascinating report for many investors, a study compiled by online advisory firm Personal Capital (and reported on by WealthManagement.com earlier this month) looked at management fees charged by an assortment of different brokerage houses.
Anonymous data was gathered from over 150,000 investors to ascertain the true client costs from both advisory and fund-related fees across 11 different brokerage firms.
While percentage fees of assets under management may seem small on the surface, the accumulated costs of those fees can certainly add up to a considerable amount of money.
Excessive fees can certainly undermine the long-term performance of portfolios—especially when using brokerage firms who very rarely tend to outperform—and investors should certainly be aware of them.
Here at KAM we looked at the total fees being charged by those firms and included ourselves as well. The following chart shows the amount of total fees a client is charged with each firm on an annual basis. The fee charged by Kruse Asset Management is an aggregate of that paid by our top ten clients (by total assets).
Barring the USAA—which offers incentivized rates and discounts to individuals who have served with America’s military—we are proud to charge the smallest percentage rate of all of the firms who had been surveyed.
We were particularly surprised by some of the exorbitant rates clients were charged by some firms, particularly when year-after-year they underperform the market. Rather than pay a brokerage firm upwards of 120 basis points on your assets, it wouldn’t just be cheaper to simply out your money in the iShares Core S&P 500 ETF (an expense ratio of just 0.07%) but your portfolio would be doing better!
However, of the twelve firms surveyed, KAM did have the joint the fifth highest asset fee (costs incurred by mutual funds and ETFs). While this may seem costly, it’s worth bearing in mind that we put significant emphasis on diversification and investing client portfolios across more than twenty distinct asset classes.
Despite the asset fees being a little higher with a well-diversified portfolio, the superior risk-adjusted returns provided make it a well-justified cost for long-term outperformance.
So what can be inferred from that information?
Brokers are making you broker!
Not only do larger brokerage firms tend to underperform the market, but it’s costing you more money to earn less money!
At Kruse Asset Management not only have we outperformed the market for eight of the past ten years, but we charge our clients considerably less for our services. We work for others, not ourselves, and our goal is meeting the investment goals of our clients.