Prospective clients come from all walks of life, work in diverse industries and jobs, and have different needs, goals and objectives.  However, in many instances they shared one thing in common: the perception that the advice that was being received from an adviser was for free.

When we all have to work to make money to live you have to sit back and ask; “Why did they think this way?”   They had to have realized that no one works for free.  Maybe the reason is because a large percentage of financial advisers don’t even know the answer themselves!   Startling as this may seem a new survey was just released which shows that this could be the case.

Peak Advisor Alliance and Cerulli Associates did such an analysis and found that 63% of all advisors underestimated their fees by 0.30%.   Those surveyed actually thought they were charging slightly below 1.50%, but the reality is that they were charging their clients, on average, 1.83%.     

Another shocking fact from the survey showed that 60 percent of clients do not understand how their financial advisor is charging them.    This number may probably be much higher than what was reported in the eye opening survey because in many instances investors say they understand what the fee structure is when the odds are they don’t.

Ron Carson the founder of Peak Advisor Alliance concluded that, “Advisors must be transparent about the fee structure with their clients to help build trust early in the relationship. If a client doesn’t know or understand the fees they are being charged, they most likely will not ever fully trust their advisor, which can be toxic to the relationship in the long run.”

So if you are an investor and aren’t aware, shouldn’t you demand transparency?  Shouldn’t you want to know why so many advisers offering plain vanilla, buy-and-hold investment management strategies don’t know what they are charging you and are probably charging you way too much for those services?    Now do you think you are getting investment advice for free?

Tom is the Founder of TRG and has been the President and Chief Investment Officer since 2008.