Footing the Bill

Adam M. Grossman

IN MY HOMETOWN of Boston, there’s an old joke about our dismal winter weather. “February,” they say, “is the longest month of the year.” I don’t disagree and so, each year at Presidents’ Day, my family tries to get away for a warm weather vacation.

On these trips, we often stay at the same hotel and, because of that, we have noticed certain patterns. Among them: Most years, there is the same large corporate gathering. Truth be told, it’s hard to miss. There are five-star dinners under a tent by the beach. There are groups huddled with cigars by the pool. In short, it appears that no expense has been spared. Not surprisingly, it turns out that this group is a high-level delegation from a well-known Wall Street firm.

Knowing the hotel bill for my family’s single room, I can only imagine the total cost for this corporate gathering. The opulence, repeated year after year, is an image I can’t shake. It doesn’t take much analysis to figure out how they afford this luxury. Some of it is underwritten directly by individual investors, when they buy mutual funds or trade stocks. And a lot of it is earned from institutions, such as pension funds, which hold individual retirees’ savings. Ultimately, then, this Wall Street firm’s monstrous bill is paid largely by mom and pop investors.

This strikes me as a problem, for three reasons. First, data has shown that fees have the most predictable impact on investment returns, so unnecessarily high fees directly affect people’s ability to meet their financial goals. Index funds have brought down the cost of investing, but financial advisors’ fees remain stubbornly high.

Second, employees who save through their company’s 401(k) plan have no control over the menu of funds available. If the only funds on offer are the high-fee sort, employees are stuck overpaying.

Third, most investment fees are structured as a percentage of a client’s assets. This is a problem because it means that these fees rise quietly over time, as financial markets climb and investors add to their accounts.

Earlier this year, when I decided to start my own investment firm, I made it my goal to serve individual investors, those who I feel are being treated the worst by Wall Street, and to focus on holding down the cost of both my services and the investments I recommend. This was an easy decision. By whittling away unnecessary expenses, I am able to pass significant savings on to my clients.

Early in my career, an industry veteran summed things up: “This is the most overcompensated profession in the history of the universe.” I couldn’t have said it better. My hope is that in the future, when I am an industry veteran advising young people, I will speak of the industry’s high fees—and the lavish getaways that they paid for—as an historical anomaly that’s long gone.

Adam M. Grossman’s previous blogs were Trust Issues, Contain Yourself and Take It Slow. Adam is the founder of Mayport Wealth Management, a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers.

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