The High Cost of Financial Advice: A Tale of Two Portfolios

Suzie and I present a microcosm of the debate around financial advisors. I choose to use Vanguard and keep my costs low, whereas Suzie uses a former long-time colleague from her days in the banking sector who happens to be an independent wealth manager to operate her portfolio. To me, the portfolio seems unnecessarily complicated with an average fund fee of slightly over 1.5% in addition to a 0.5% advisor fee. This seems exorbitant in my eyes.

My wife’s portfolio is approximately 50% larger than mine but pays 900% more in fees. And no, I didn’t make a mistake with an extra zero. The difference in absolute fees becomes even more substantial as the portfolio grows. While my Vanguard fees benefit from the platform’s fee cap, Suzie’s fees continue to scale directly with the size of her portfolio. This illustrates how the impact of higher percentage fees becomes increasingly significant, dramatically reducing the potential for long-term compound growth on larger sums of money.

For simplicity’s sake, if I take a 7% average gross return, my portfolio will be bigger than Suzie’s within 25 years. If that doesn’t work as a stark reminder about the corrosive effect of fees, I really don’t know what will. (I got Google Gemini to work this out for me)

The question is whether the additional services provided by Suzie’s wealth manager justify the significantly higher cost, especially when simpler, lower-cost alternatives exist. Luckily for me, I’m in the privileged position that Suzie is my wife and doesn’t mind me logging into her portfolio’s access portal and nosing around. Our portfolios are substantially similar in makeup. I’ve a slightly higher equity allocation, and Suzie has more infrastructure and utilities, which I think is the reason it had slightly less volatility during the recent market turmoil. But our performance before fees is not much different. In fact, I’m performing slightly better, which might be my marginally higher equity percentage in play.

But I can categorically state there is no massive outperformance in the high-fee option.

“How could you have let this come about?” you may be thinking to yourself. In my defense, until very recently, I was consumed by running my business and, at the end of the day, it’s not my portfolio, although it’s intimately linked to mine and my wife’s future financial well-being. The fact of the matter is it’s Suzie’s portfolio.. But the question has definitely been on my mind to the extent it was causing me sleepless nights

I did what all married couples in a strong, loving relationship would do. I broached the topic, and we talked. I even used the figures in this article to illustrate my point, and thankfully, I’ve had some success. Recently, we sat together and opened an account with Vanguard for Suzie. It’s only been funded with the minimum opening requirements so far. I wait for my wife to gather the courage to speak with an advisor who was a long-term work colleague and friend about moving her funds from his business.