Ameriprise, UBS, Morgan Stanley, Wells Fargo and Merrill Lynch Called Out as Most Expensive Advice Firms
Hybrid human-and-robo advice and financial-data aggregation firm Personal Capital is shining a bright light on advisory fees — and it’s naming names in a bid to inform consumers who charges what.
“Many Americans don’t understand how much they pay their financial advisors, and it isn’t their fault,” Jay Shah, CEO of Personal Capital, says in a press release. Often “advisory fees and expense ratios are explained with industry jargon that is nearly impossible to decipher or hidden in the fine print – and then tracing them through your account is another feat altogether.”
In fact, a separate Harris poll conducted for Personal Capital last spring says 61% of consumers don’t know how much they pay in investment fees.
Meanwhile consumers can pay as much as 3.50% for Ameriprise’s Managed Accounts and Personal Financial Services program or as little, comparatively, as 0.38% for Vanguard’s Personal Advisor Services program.
Ameriprise takes issue with the status Personal Capital confers on it.
“We disagree with the methodology of this report, which does not reflect the actual experience of clients or the breadth of investment options available at Ameriprise,” the Minneapolis-based firm writes in an email statement to FA-IQ. “The average advisory fee our clients pay is approximately 1% and varies based on the products and services each individual client wants and needs.”
Ameriprise adds its “fees are competitive with other full-service firms and appropriate for the value and comprehensive services we provide to meet the personalized needs of our millions of satisfied clients.”
But Shah doesn’t disparage higher-cost advice firms or gainsay the value of higher-end programs.
“There’s no one-size-fits-all solution when it comes to investing your life savings,” he says.
For instance, someone with relatively less money “and an uncomplicated financial life” may be well-suited to “an ultra low-cost, low-service provider,” Shah says. “But for an investor with more complex needs, or who wants advice that goes beyond a few mutual fund recommendations, there can be tremendous value in comprehensive financial planning by a fiduciary informed by sophisticated and dynamically updated digital tools.”
Adds Shah: “Done correctly, services like tax optimization, rebalancing, and estate planning can add value far beyond the slightly higher cost. It’s not just about the fees but about knowing what you get for them.”
Personal Capital says price disparity matters more to consumers’ long-term well-being than they probably realize.
“While the difference between a 1.0% annual fee and a 3.0% annual fee may sound trivial, the impact over time can be staggering,” Personal Capital says in its new report “Hidden Beneath the Surface: What Americans Are Paying in Advisory Fees.”
San Carlos, Calif.-based Personal Capital says the amount lost to fees in this example is over $400,000 on a 30-year horizon — more than the median cost of a house in this country. A smaller difference of, say, 1.0% can still drain $240,000 in fees over 30 years. And these figures don’t account for the inability of the money lost to fees “to grow and compound,” according to the firm, which based its report on a survey of 6,000 of its users “who are in an advisory relationship and have used our free tools” to link their outside accounts.
For Shah, high fees can jeopardize “college savings, second homes and retirement dreams” for some investors. “If the industry is going to embrace full transparency then it’s up to customers to empower themselves by using technology and asking the right questions.”
To make “viable comparisons,” Personal Capital looked only at programs that have account minimums between $100,000 and $1 million; that provide managed accounts with guidance from humans; that provide portfolios of “individual stocks, bonds, mutual funds or ETFs;” and that don’t — as in “do not” — take tax consequences into account. Personal Capital also excludes from its tallies “costs tied to electronic funds transfer and wire fees, IRA and retirement plan fees, margin interest, ADR fees, account opening or closing fees, or other account-level transactional fees,” it says in the methodology section of its report.
After Ameriprise, Personal Capital pegs UBS as home to the most expensive financial advice program, followed by Morgan Stanley, Wells Fargo, Merrill Lynch, JPMorgan, Edward Jones, Personal Capital itself, Charles Schwab and, as indicated earlier, Vanguard.
Eight-year-old Personal Capital — an upstart “cyborg” financial advice firm that combines robo services with human interaction — manages $4.3 billion across more than 30,000 accounts, according to its most recent ADV filing with the SEC.