In recent years, there has been growing discussion about the level of fees charged to investors. This is attributed, in part, to increased regulatory and investor scrutiny. In addition, the proliferation of discount brokerage firms has arguably helped shed some light on the relative levels of various types of hidden fees, such as trading fees and mutual fund loads. It’s no question that fees can reduce portfolio returns to some extent, but are you educated about the fees you are being charged and why?

Not only do wealthy investors generally place a high level of importance on fees, slightly more than half claim to have a good understanding of them as well. If this is the case, where are they getting their information about fees? It is surprising to learn that 29% of affluent investors that don’t have a “primary advisor” still obtain investment product fee information from an advisor. Investment company website usage is significantly higher (69%) for investors that don’t have an advisor compared to those that do (45%).

Although fees are important to most wealthy investors, they’re not used as a basis for comparison shopping. Overall, 32% of investors either “strongly agree” or “agree” that they comparison shop versus 44% that “strongly disagree” or “disagree.”

Based on occupation and top box percentages, wealthy investors that are retired are slightly more likely to comparison shop versus non-retirees. The largest disparity among the analyzed segments occurs based on advisor usage. Investors that don’t use an advisor are significantly more likely to comparison shop (29%) compared to those that use an advisor (18%).

Wealthy investors generally feel that the fees they are charged by their advisor/financial institution are not negotiable, though this is a feeling and not a fact. Thirty-five percent “strongly disagree” that their fees are negotiable while only 14% “strongly agree” that their fees are negotiable. A slightly higher percentage of investors with $1MM or more in assets (18%) “strongly agree” that fees are negotiable compared to investors that are less wealthy (13%). This is particularly interesting in light of investment advisory accounts (i.e. mutual fund wrap accounts or managed accounts) where in many cases, the advisor usually has influence over the ultimate asset management fee that is paid, especially at higher asset levels, though this seems unbeknownst to investors.

Generally speaking, the responses appear to be fairly spread out over the five possible choices. Of the investors in the top box (i.e. “strongly agree”), those that do not have a primary financial advisor were most likely to comparison shop (29%). Looking at the other end of the spectrum at those that “strongly disagree,” investors with “Full Service Brokers” and “Banker or Private Banker” cited themselves as least likely to comparison shop based on fees with 41% and 36% of the respective groups answering this way.

Of all the types of wealthy investors, the self-directed are the most fee-focused. If you fall into this category, having easy access and understandable information about the products and services financial firms distribute on both their website and in hard copy materials is crucial to a good relationship with any advisor. It is less important for those who define themselves as advisor dependent and/or event driven, but it will become more of an issue of importance going forward, considering what the economic crisis has changed about the industry. Fees are a critical issue for investors at this time. Most investors don’t feel they are receiving value for their fees. Brokerage firms must assess how each investor views fees and determine the appropriate methodology for that customer and all investors must ask for information on this subject, if they are not getting it already.

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