At the beginning of this decade, there was an effort made by some financial institutions to move from a transaction-based to a fee-based business model to protect consumers from baseless transactions made only to generate sales commissions.

Because nearly six in ten affluent investors have a primary financial advisor, (someone whom they rely upon for financial advice and counsel) this change in fee structure affected most affluent investors. Currently, three-fourths (76%) of affluent clients are aware of the fees and fee structures of their primary financial advisor. Those individuals who feel that their advisor does a good job of explaining fees are much more satisfied with their advisors. But fees such as the 12b-1 fee (which is an operational expense associated with mutual funds, and generally between 0.25-1% of a fund's net assets), as well as transaction fees paid when purchasing securities, are not as obvious to some investors compared to those fees paid directly to one’s primary advisor for services rendered.

Seven in ten feel that their advisor does a good job of explaining fees and fee structures to them, leaving one-third who feel that advisors are inadequate in this regard.

While the percentage of affluent investors familiar with these costs is less than that found for advisor fees, the pattern of awareness is similar. That is, older investors and millionaires are more likely than non-millionaires and those aged 50 and younger to be aware of these fees.Seven in ten feel that their advisor does a good job of explaining fees and fee structures to them, leaving one-third who feel that advisors are inadequate in this regard. One-fourth of investors feel that their advisor avoids talking about the fees and commissions charged, but overall, one-half of affluent investors are not very concerned with the amount they are paying in fees. Regardless, there is a strong relationship with investor age.

Younger Investors Less Sure

With each successively older age segment, the proportion saying they are not very concerned with the amount they are paying grows larger. While the youngest age bracket is the most concerned with what they are paying, they are the least likely to feel they are also aware of what they are paying, and the least likely to agree that their advisors are doing a good job of explaining what they are paying.Asking questions about fees and fee structures is a critical component in the advisor-affluent investor relationship.

Fees and fee structures can be complex, multi-tiered aspects of financial management. Younger investors especially need to understand the fees and fee structure they are working with as they typically have fewer assets and relatively more to lose if they aren’t aware of an advisor’s fee structure.Opening a dialogue about fees can be uncomfortable and possibly difficult depending on your advisor’s comfort level with the fee structure and willingness to discuss it, but it is an important aspect of your advisor/client relationship; one that you should be fully aware of and understand. An unfair or out-of-norm fee structure can cost an investor hundreds of thousands over the course of a long advisor relationship. Taking fees seriously is another way to protect your assets, educate yourself, and be an informed financial management consumer.

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