First came the robo-advisors offering to manage money for a little as 25 basis points. Now, fee-mongers take note: Here comes FeeX, the self-proclaimed “Robin Hood of Fees.” The upstart taps the wisdom of the crowds to help investors compare how much they are paying for the mutual funds in their 401(k) or 403(b) accounts. The FeeX Sucker Meter will let investors know how much they’re paying relative to their peers.
Founder Uri Geller is no lightweight. He was the co-founder of Waze, the mobile app that crowdsources traffic and offers alternative routes. He launched Waze in 2008 and sold it to Google for $1.3 billion in 2013. His new venture, FeeX aims to ensure that investors are aware of the amount of mutual fund fees deducted directly from their fund balances.
Here’s an except from his humorous blog post about his mutual fund wrap account:
Eventually I figured it out: “EXP RATIO” stands for expense ratio. It’s a percentage that’s deducted from my return each year, and get this: it’s not shown on my statement! This particular fund had an expense ratio of 1.65%. This means that if I have an average balance of $10,000 for the year, the annual fee will be $165. I checked the other funds, and they had expense ratios ranging from about 1.3% to 1.75%. Most unbelievable of all was that these fees were IN ADDITION TO the 1.5% that Johnny was charging me.
“Johnny, am I right to understand that you’re charging me 1.5% each year to put me in a series of mutual funds that are each charging me another 1.5% or so on average? Isn’t that double dipping?”
“Well, uh, Uri, that’s not really the way I would look at it.”
If you’re an advisor who has been less than candid with clients as to the amount of mutual fund fees that they’re actually paying — be warned: the Game Over sign is flashing!
As a financial advisor recruiter, I find advisors to be very sensitive to how much their clients are paying in fees. After the crash, many advisors abandoned poorly performing SMA’s because they were upset that their clients were paying quarterly fees for accounts that were underwater. Most advisors want to deliver good performance to clients at the lowest possible cost. That’s been one of the drivers behind the explosive growth of ETF usage by advisors in the last few years. Client fee schedules are part and parcel of virtually every recruiting conversation with a prospective firm of which I’ve been a part. Advisors need to be assured that clients won’t pay higher fees at new firms.
Enhanced transparency in pricing is good for the advisory business. It rewards those advisors who are choosing reasonably priced products for clients and who are providing value. Clients are encouraged to seek them out and to place more assets with them. Moreover, full disclosure in client fees is here to stay. It’s no accident that just last week, FINRA proposed rules for non traded REIT’s that would enable clients to see the value of their holdings for the first time,after the broker’s commission has been deducted.
Whether all advisors are ultimately governed by a uniform fiduciary standard or not, it’s clear that full transparency on fees is part of the advisor’s duty to act in the client’s best interests. Both are key ingredients of the regulatory framework now and going forward.