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Breaking Down Investment Fees

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It seems like there are so many different fees when it comes to investing and retirement. Join Johnathan and Melissa Rankin to talk about 401k fees, mutual fund fees, ETF fees, annuities fees, and more. We also have a fun break covering some of the top things baby boomers think are cool! All that and more on this episode of The Retire Once Show. A Retirement Podcast designed to help get you to retirement and stay retired.

Submit questions to the show at Retire@theoremwm.com

- Johnathan Rankin CRPC® CEPA®, Founder & CEO,

-  Melissa Rankin - Wealth Management Advisor

- Theorem Wealth Management, Financial Advisor Dallas Texas

- Retire Once Show - 2022 Retirement Podcast Series



0:11 - Intro

3:28 - Do you know all of your 401K Fees?

8:55 - Investment Fees

9:55 - ETF Fees

12:36 - Mutual Fund Fees

23:11 - Top Things Baby Boomers Think Are Cool!

28:25 - Annuity Fees

34:37 - Financial advisor Fees

45:56 - Closing statements


Does Your Home Belong In Your Retirement Plan

Is The Housing Market About To Crash

How Should You Invest For Retirement

Hello, and welcome to the retire once show. This is episodethree. I am Jonathan Rankin. I'm the founder and CEO of theorem wealthmanagement. I am your host and I am joined by my lovely cohost. Hi, I'm MelissaRankin and we are, we are live from the global world headquarters of thicker.


Theorem wealth management located in Dallas, Texas. Come onnow. So you've got the intro wrong. How are we supposed to do? Okay. That'strue. Okay. So we're here. Hopefully you were able to check out our last twoepisodes. Uh, before we dive in, we've got a jam packed show for you today.We're going to be talking all about investment fees.


I noticed that sounds like fun, but our goal here is toreally help you understand what you're paying. In the investments that you own.And I think there's a lot of confusion about investment fees. There's a lot oftalk about it, but yet I haven't seen anything that is just a full XPLAN.You're all the fees that are out there.


What are they? So that's what we're going to talk abouttoday. So a buckle in this, one's going to be a wild ride and if you're joiningus live, it is Friday. So this is just a nice fun thing to kick off theweekend. That's true. So for the, uh, the few that are in the room and themillions and millions of watching us as we do this, uh, we are happy thatyou're here.


Uh, before we get jump started, uh, make sure that yousubscribe. If you're watching this on YouTube. Subscribe to the channel. Soyou're notified every time we launched an episode, if you're listening to thison apple, Spotify, wherever you're listening to this subscribe hit that littlebutton. Uh, make sure you join us.


I mean, this is we're, we're trying to build retirementparadise here. That's what we're trying to build. And so be a part of thatcommunity. Join our, join our little committee. We want to help you to it andsee you through it. And all the other cheeses, it goes along with it. Exactly.We want you to be like every stock photo of retirees that you see running onthe beach, running on the beach, sitting on the beach, holding hands, justrandomly holding hands, throwing up a grandchild in the air, something, youknow, all of those that sounds safe.


I mean, you know, we've been married now. We are, this'll beyear seven. We've been together for what? 13 years now. I don't. How often dowe just stand around all day? Because we're not retired. That's right. We'renot a stock photo. So, um, that's our goal. We want to build this community. Sojoin us, subscribe to everything.


Also, you can check out everything we talk about in theshow, in the description below. If you're watching this on YouTube or in theshow notes, uh, you can also head over to retire once show.com. That'll link toeverything we talk about. So, uh, with that let's, let's, let's get started insome. Some fun, fetal feedstock.


That's right. It's interesting that, I mean, we say fee talkand chuckle around it because fees are almost like, um, I dunno, like a badword when it comes to your investments and finances, they shouldn't be, itshould be very transparent, but it's something that isn't really, I mean, solet's just kick it off.


Let's start. Account fees. Yeah. Account. I think mainlywe're with this being a retirement show, obviously we're not going to, we'regoing to try to touch on as many different fees that are out there as possible,but we're really going to focus on the ones that we've seen clients haveexposure to. So we're gonna start with 401k fees.


You know, this is the most popular savings vehicle out therefor, uh, for retirees. So saving in your company. Well, what does that thing?It's free. I'm just going to throw that in. Most people think, oh, well mycompany offers it or it's sponsored by my company. It's gotta be free. It's mymoney. I mean, I think that's, I'm just, you know, going with the generalpopulation, I think most people think it's free.


Yeah. Uh, there was actually a, the, so the governmentaccountability office did a study in 2021 and they said that 40% of planparticipants don't understand their fees. And to your point, 41% of peopledidn't even think they were paying fees. And I didn't even know that article.So yeah, so the, it is, it is not real, relatively a common knowledge that yourpaying fees in their 401k.


So what are you paying? Well, you know, the department oflabor that talk about dividing the fees into three categories, so you've gotinvestment fees and we're going to dive into all of that and just a bitplanning administration fees. And that includes everything that it takes to runthe 4 0 1. And then there are individual service fees.


So if you're taking out a loan or doing a distribution, uh,any of those little individual fees or services that are done on your specificaccount, you might incur a fee there. So I know something. When they take adistribution from their 401k, they might be charged, you know, 10 or $20 pertransaction.


That's a service fee. So those are the three types of feesthat are typically associated with a 401k. And like I said, we'll dive intoinvestment fees here in jail. So, um, when you look at a, there was a, therewas a study from employee fiduciary last year, and they said that the averageall-in fee of 401ks was 1.18%.


And I mean, you hear that and you think, okay, well, 1.18%.No, I it's, it's all relative to. Okay. Well, in 0.1, 8% of what, you know, howdoes that really work overall plan or just for the parts that you're investing.And is that in addition to the, the other service fees that you mentioned. Andin the, in the study, they actually found that almost 76% of plans actuallypaid hidden administrative fees.


So not fees that you would see or that are clearlytransparent. So I think, you know, my hope is that there's going to be somechange in the industry to help make this a lot more transparent of what are youpaying. So that way you can make a well-informed. Where you want to keep yourmoney. I mean, and that was going absolutely well.


And that was just one study. There was also, uh, there's thelatest edition of the 401k averages book. So this comes out every year. That'sa study into 401ks. They said that the average fee was 1.2%, so right in linewith the other study. So I think that, you know, when we're looking at twodifferent studies and, you know, hundreds of different plans, It really is.


You're able to get kind of that average of around 1.2 iswhat's expected. Uh, but then there was the, the one that I saw that reallystood out the center for American progress did a study. They showed that theysaid that the fee on average was 2.2, 2%. Which is quite a bit higher than theother two. I mean, percent higher than the other one that was done by the 401kaverages book.


I mean, that's a lot. Well, the area, I think the caveatthere is that it is that wasn't. So that was an older study and the, the rangewas. 0.2% all the way up to 5%. So, oh my gosh. Yeah. Could you imagine a 5%fee if you don't know what your fee is there for you think your fee is anywhereclose to 5%, you got to start to call us out.


You're start doing some digging, uh, really understand whatyou're paying because 5% does seem like a quite a bit. So, which is actually agood point. I mean, You say that if you think you're paying close to that, mostpeople don't know where to even begin to look for that. So how can you, how canyou find your fee?


I mean, the best way you got to go through your statement,you know, the, the thick, which is another thing they might actually becharging you for is actually sending out a statement. It's amazing. The thingsthat you're going to get a fee for, that you don't realize, but yeah. Lookingin your plan, documents, the summary, um, online.


If you have access to it online, you can get a descriptionof any transactions that have been charged. Usually the. Buried in there undersome wordy thing. Like, well, usually it should be somewhere buried in thewhat's called a summary plan description. There's the word he said. So you can,uh, you can look for it in there.


Uh, you mentioned the statement, uh, one of the things thatwe offer, if you are, if you want, we could do a free fee. And really helpunders help you understand what is it you're paying for all that for you? Yeah.And you know, if you want to get in contact with us, you can head to retireonce show.com and there'll be a link there to schedule that conversation.


So we'd be happy to walk you through just a analysis of whatis it that you're actually paying. So, okay. With the 401k. From there let's,let's move to a different direction. How about investment fees? Yeah, we could,we could do that. You know, I, we didn't want to walk through a summary plandescription that, that doesn't sound like fun.


I mean, not, not really now for our hundreds of millions oflisteners out there or viewers, we're going to our goals to beat the superbowl. We're looking at 113 million. We need to stay away from reading the plandescription summary. Okay. So, uh, so you said investment fees? I th yeah, Ithink that's a great place to start because there are some people who.


And invest in 401ks, but do invest in the market. And sothere's a range of investments that are out there. So what we're going to do iswe're going to talk about. Like I said, the common investments that we seeretirement focus, investors investing in. So, you know, stocks, mutual funds,ETF, things like that.


Annuities, we're going to touch on all of those. Um, thereare others, but like I said, we're going to focus on the ones that retirementfocus investors have, you know, more commonly invested in. So we'll start offstock. Obviously nowadays trading is free. Some places you might still becharged a commission, but to hold the stock, you're not paying anything to dothat.


Uh, you might have an account fee depending on where your,where you're actually holding that. But for the most part, you know, nowadaysare very minimal nowadays, zero or very minimal. The most common now that yousee are ETFs know. And so those are, those are all. If you're not familiar withwhat an ETF is, it's a passive management.


Typically it's a way to buy in index. So if you want to justbuy the S and P 500 or buy a certain sector like financials or energy ortechnology, you could do that through an ETF, which only you don't have to ownthe individuals. Exactly it could because they own individual stocks withinthat ETF.


Absolutely. So within an ETF, there's, what's known as anoperating expense ratio. So this is an internal expense of the fund. That'susually represented as a percentage. So you'll see them as high as three to 5%,but as low as 0.2. And so that is the fee that you pay the fund and you're notactually going to see that fee.


So it's taken out of the net asset value of the fund in whatyou see is the market value of it. So it's trading on exchange. ETFs are tradedlike a stock. So if you are investing somewhere and there is a transaction fee,that is something that someone might incur on top of that internal expenseratio on top of the investment.


Yeah, exactly. Because every ETF there's there's expensesthat go into it just to create the basket. Yes. There's not a manager like amutual fund, which we'll get into in a minute, but there are, there's a cost ofputting that funding. And so that's what the operating expense ratio takes careof and those do range.


So, you know, I've seen a lot big range there. Point zero,2% up to three to 5%. Yeah. And it's really the more niche you get with the.The more costs it's going to incur. So if you're investing in small cap orinternational, or, you know, some of these really high tech funds, you're goingto, there's going to be more cost associated with the S and P 500.


Exactly. A little more common. Exactly. And so, becausethere's more work and it's hard to get access to, you know, good research tobuy those, uh, you know, to buy the stocks underlying those individual ETS. Butusually you said that the fee comes off that already. Like it's not somethingwhere if somebody goes out and purchases the fee, they're going to say, okay,here's line item this fee.


Yep. Okay. So yeah, it's not a fee that you're going to see.It's not a line item. That's going to show up on your statement. It just comesout of the operating value of the fund. So it's very similar to mutual fundsand I think that's what we're going to talk about now. Mutual funds. Those are,this is when you're starting to get into active management.


So. Uh, that's where you're actually hiring a manager of thefund and they're going to buy and sell securities within that fund. So you'reusually going to pay them a fee. Exactly. And that fee is similar to theoperating expense ratio of a, of an ETF, but there's also other fees as well.So you've got a few different fees and this is where.


This is where things can get a little bit more complicatedwith fees. It's not as straightforward as ETFs or stocks. Um, because you'vegot expense ratios, you've got sales charges and loads and fees. You've got 12B, one fees. And so we're gonna, we're gonna have some fun diving into all ofthose information with fees.


So where should we start? So let's just start at thebeginning. Let's talk about expense ratios. Okay. So expense ratio. Think of itas the management fee, this is the cost to run the fund. You mentioned with theETF, for the cost to actually have somebody go out and purchase the fund.Exactly. So, yeah, there's a, so a manager comes together and they want to puttogether this we'll call it a large cap growth.


Fund. So they're going to want to buy large cap growthstocks, and they're going to buy and sell stocks within that mutual fund. Andthere, they want to make money. So they're going to charge a fee and that is anongoing fee in every mutual fund. Every mutual fund is going to have an expenseratio and that fee is deducted from the total assets of the fund before theshare price is determined.


So once again, this is not a line item fee that you're goingto see. And it just comes right off the top of that number. Right? So if, uh,if on your statement, the funded 10%, you know, gained 10% for that year, butthe expense ratio was one and a half percent. The fund actually did 11 and ahalf percent. You got the net proceeds of the 10.


So the investor will see what they actually got there. Theywill see the end result. They're not going to see it broken down. Exactly. Soyou won't see it broken down, but it is. It's important to understand thoseexpense ratios, because, you know, as we get into advisory fees down, you know,Yeah, it was a fees can start stacking on top of each other and that's wherethings can get a lot more expensive.


And so, yeah, and very convoluted. So, um, so that's that'sexpense ratio is it's important. One part of a mutual fund, one part of amutual fund. Okay. And what's the next, so then you've got sales charges orotherwise known as load fees, and those are based on share class. So you've gotfront-end. And those are, those are funds that charge you money to just buy thefont anywhere between that right up front.


Yep. So if you, if the sales charge is 5%, you put in athousand dollars, automatically 5% comes off now, you know, $50 comes out ofthat and only $950 goes to work for you. Okay. So you would see that you wouldsee that very transparent immediately, you know, think of a, think of a, say,uh, upfront sales charge.


It's like going to. So you go to Costco, you pay for yourmembership, but when you're there, all the goods are typically cheaper, asopposed to, you know, a no load fund where, you know, you're not paying thatupfront sales charge, but when you go, the goods are a little bit moreexpensive when you go to Safeway or Kroger, you know, whatever store you'reshopping at frontline is essentially like a membership fee.


Exactly. Because, because what happens is the expense.Absolutely because the, the expense ratio in a, an upfront sales load mutualfund is typically lower than what you find in a no-load fund. So, and theno-load fund is again, where you can shop at Sam's club or Costco withoutessentially a membership or so you can go to target if you will, or a placelike that.


Yeah. So with a no load fund, yes. You, you know, and we'llget into those in a minute, but, um, you know, let's, I'm sorry. Got it. Youconfused me there with the target, because I think you miss my analogy, butthat's okay because you don't pay a membership. I know. Hold on.


What do you mean? No, no, I'm just trying to think of likewhere to go. We'll go on the backend load funds. Okay. Okay. So the front endagain is kind of like your, your membership cost for being a member at Costcoor Sam's club. Exactly. And so, you know, think of it like that. You're payingthat. No matter if you're paying a front end sale.


That's coming right out of the top. You're going to see thatfee that first, before you even get to be part of the fund. Yep, absolutely.Okay. And then you do have, uh, the next type of sales charge is a backendload. So this is where there's a redemption fee. Typically it's, you know, inthe industry they've been known as B share mutual funds where you mean to sellthe fund.


Exactly. So think of a reverse sales charge. So you buy thefund. There's nothing to. There's no, there's no charge up front. So you put athousand dollars in the fund, a thousand dollars goes to work for you. However,there's a sales charge that happens if you actually sell the fund over a certainperiod of time.


So if you know, in the schedule of, you know, sales charges,you know, if you're one, you have to pay 5% year two for three, and you see howit goes down and. Usually a couple of years, five or six years when you go tosalad, when you go to sell. So if you hold the fund, you don't pay that salescharge. It's only if you, uh, if you sell the funds.


So that's just something to keep in mind, if it is aback-end load fund. And as we were talking about, there are no load funds or,you know, some of them are known as C share funds where you don't pay anythingto get in your expense ratio is a little bit higher than what you find. N a R aB share fund.


And again, that's the line that you probably don't seebecause that's going to come right off before you even get your, your actualnumber that the performance or what you're doing. Exactly. The, the expenseratio is not, that's the number you're not going to see. It's just going to bebaked into their performance there.


So a C share mutual fund. Those have no fee to get in, butif you sell within the first year, there's a one-year, uh, sales charge. So ifyou sell within 12 months, you have to pay one. If you, um, sell it after oneyear, that 1% no longer there. Now keep in mind with a C share. Typically theexpense ratio is a lot higher than those other shares.


So depending on how long you're going to own that specificfund, that's where you have to determine what share class you're going to buy.So you should have a good idea of how long you want to hold it prior to goingin. Exactly. Absolutely. And so those are, those are the big, fun, or big feesthat you're going to notice in mutual funds.


And if you're buying all of one fund family, you know, youcan actually buy front-end sales load mutual funds. Yeah. They'll actually giveyou a discount, the more that you buy or discounts you do like discounts. Andso if, uh, if you're basing all of your investments in one fund family, likeBlackRock or American funds, and you buy all of their fund family that say thatfront end sales charge will typically be a little bit lower.


So just keep in mind, always ask if you're investing inmutual funds, is there a sales charge? What's the low, you know, how much isactually going to work? Understanding what you're paying is very important. Andthis is true. Anything, even, like you said before in a 401k, you could stillhold some of these funds possibly.


And then you would have these additional fees on top of.401k fees. Nope. So, so typically funds inside of a 401k only have thoseexpense ratios. You know, they're very similar. They're very similar to the wayin ETF works in a 401k. There's not a, they might have mutual funds within a401k. I think that's a very common question we get is, you know, if I makechanges in my 401k, am I going to have a large sales charge?


Mo you know, the majority of 401k is, you know, there's no.There's no fees like a contingent deferred sales charge. If you get out, uh, ora, you know, a 5% upfront, you know, front end load on a mutual fund it withina 401k. Usually you have restrictions on how long you have to hold that fund.Then usually it's 30 to 45 days.


Every plan is different, but, uh, there's not these, youknow, large load fees that you'll see in a 401k. So the last fee within a 401k,that's the 1231 fee. That's something you might. And that is the, just theongoing service and marketing of the fund. So, um, that's on top of the expenseratio that you already mentioned exactly on top of the sales charge.


So these fees are all adding up here. Well, you know, mutualfunds, they were very popular for decades. They still are very popular, but asETFs have come out and investors have gotten a little bit more cost, you know,aware of, okay, what are fees? What are. What are we paying? And you startlooking at the underlying fees, they can add up really quick.


So, um, costs, you also vary based on the type of fund thatyou're investing in. So if you're investing in a stock fund, that's going to bea little bit more expensive than a, than a bond fund. If you're investing in a,you know, an international fund is going to be more expensive than a domestic.Small caps higher than large caps.


So you can see where there is going to be more costdepending on the type of fund you invest in. So make sure that it's almost likethe more exclusive. The higher, the cost we're exclusive. That's a good way toput it. She, she's trying to think of this as a high society club, you know,have an analogy for this here, is it because we're watching that inventing anda show, and now you're thinking that is absolutely what she wants.


She's thinking about the Anna Delvy foundation. If you ha,if you aware the show on Netflix and, uh, for some reason we, I like it. It'sgood. It does. And so now she's thinking of high society. When it comes tomutual fund fee. So an exclusive fee makes sense to me. Exactly. So, uh, sothose are ETFs and mutual funds.


Those are the most common investments within a 401k.Obviously there is some funds that how, or some 401k is that have a companystock. So, you know, there's usually pay a fee on that. EV you know, it dependson the actual 401k. Most times, it's not just, you're not just owning thestock. You're owning actually shares of a stock.


And so there might be a very small administrative cost ofthat, but, you know, once again, check that summary plan, description,understand what you're actually paying. So those are kind of the common feesthat we see on the investment side. And that's a long list of common fees, soknow what you're paying.


Exactly. So, you know, alright, so do you want to do that?Okay. Can we just take a break for fees for a second and then go into that?Okay. We've gone over fees for quite a bit now. And my head is spinning withall the fee talks. So I want to take a break to talk about an article that Iread that I thought was kind of interesting.


It was 40 things that baby boomers think are cool. Okay. Andit, it just stuck out to me because these are things that, I mean, I know ourparents do, we have lots of clients who, who still think are cool. Um, some ofthe things that stood out or cursive handwriting, I think is a lost art. Thisis where are we always talk about the fact that we feel a lot older than weare.


Like, I feel like I'm in my mid to late fifties. And thenmentally, I feel like now cursive is not something that I. I don't even thinkif I wrote something in cursive, I don't think anybody be able to read it. Idon't even think I would be able to read it. You know? Um, I'm curious. I knowthey still teach it in school, but I wonder how long that's going to carry onif it's more of a baby boomer thing.


Yeah, that's true. I w cause you, you remember in schoolyet. Yeah, all letters. The whole thing I remember, I remember in class, you'dhave it along the wall, up top as we're really aging ourselves. That's right.And now we're going to start talking about the Oregon trail soon. What else? Afew other things on the list that stood out, um, diamonds, which I don't thinkthat's exclusive to baby boomers.


I guess my point with this list is it's, it's interesting tome, the things that they say are cool to, to baby boomers, because there's somany on this list that I still think are cool. So you don't I guess. Yeah. Imean, I, I don't think diamonds are cool at all. I don't think you should. Hethinks they're awful, awful meatloaf, which is on the, I'm not a fan of, butwho doesn't love meatloaf and I'm not talking about the band, the actualloafers.


He does amazing. The loaf of meat is fantastic. And if youdon't now my forte. I'm not gonna lie. This is something that, you know, I've,I've thought about a contention in our marriage for a very long time. Evenbefore we got married, it was do I really want to do this? She doesn't like meordered meatloaf at a restaurant once and I thought he was joking.


I did. It was fantastic. And so, yeah, I think that is cool.So meatloaf is on there. Um, the food, not the band. Toast toast. I don'tunderstand. It's a, cost-effective delicious breakfast on the go. I remember inlike high school and even in college, when I had no money, I would just eatbutter toast, a little bit of cinnamon sugar, and that would be like eightpieces.


And that's a cereal, but it's red and it's. It's the wholething. Um, another thing on there was cop dramas. Now this is when I can't getbehind, but yes, my parents are obsessed with these, all of the shows that all,yes. All of them, all the law and orders, I think they're bringing back theoriginal law and order.


See what I mean? Who are they bringing that for? Just thebaby boomers, I guess. Um, and then one thing that was on there that I, this isso prevalent in any home that you go into with baby boomers. Patternedwallpaper. I can not get past this because I remember being young and going tofriends' houses. And it was like a sign of class almost.


If you had a room that had wallpaper. All right. Bathroomswith all the floral things like that. That is such a baby boomer thing. Grandma,we're talking, I'm talking to you and that floral pattern that you have insideof your bathroom. I think you're cool. You're still cool. My grandmother will,she has, she's taken a bike ride.


Nah, not a bicycle, an actual motorbike to Sturgis in her seventies.She's far cooler than we are far cooler than I am. Yes, absolutely. Patternedwallpaper in the bath. But she makes a mean meatloaf just for some balance.There are a lot. Last one will give us one more. We won't go through all 40,but give us one more flip through catalogs.


All right. I'm not gonna lie. Who does not love to sitthere? And with a flip there, can you remember the JC penny catalog? This mightbe. As eighties babies, but the flip through catalogs, JC Penney's and you'dfold down the page. Fantastic. And this wishlist, you would say, oh, we wouldsit around and like, pass it around, wind.


Just write your name on the things you want and star. It wasa whole thing who doesn't or I remember my grandmother, the Avon capital. Oh,yeah. I don't know why I would look to the Avon catalog, but I did all thetime. There's just, it's the knick-knack stuff. And now, I mean, are sharperimage sharp when I get that catalog in the mail like that with it, he's like,we need this, we need this.


No, we don't need a portable cooler. There's nothing insharper image that any human actually needs, but it's fantastic stuff. Yes. Iwant every item in that catalog, but I need zero. I need none of that. Yeah. Hegoes through each page and talks about it. I still flip the little corner and Icircle it with my name.


So that way she knows what to get me for Christmas. Yes. Thelist is quite long. Okay. So, all right. You know, I know everybody's joiningit for investment fees, so we got to get back to that and that's, you know, youcan, you can start calling me an old man later. Let's, uh, let's head back tofees. We've got a fun one, uh, annuity.


Okay. No, that is fun. No, that is, you know, we're talkingabout mortality charts, actuaries benefits. I bring out my NPR voice again.Hello. And let's talk about annuities is what I think of when I hear aboutannuities. So now annuities, those fees are annuities can be very expensive andvery complicated. So it is, it is very important to understand exactly.


All the fees that annuities have and you know, what you'repaying for that annuity. So I always say that, you know, I had a, I had aconversation the other day and the lady that I was speaking to, she asked me,she said, should I just take all of my money? Because I'm worried about themarket and put it into this annuity.


And I go, hold on. I tried to explain what a new duties arebecause she didn't fully understand. They're very, they are complicated. Theyare going to say it. They are complicated. So I like it. And I think of it.It's like you're buying a tank. Like as a car. Interesting analogy. Let's thinkabout if you're, you know, it's built for protection, you're not buying, youknow, you're not buying it for your regular errands.


You're not pulling up to somewhere on the streets and a tanklooking over at him saying I'm going to race you for pink slips that just notgoing to happen. Do that often anyway, all the time. I almost lost the cartwice, but yeah, so you're buying it for protection and it's going to attack,it's going to cost you a lot more and it's not going to go that fast.


So it's not. Yeah, it's going to, it's just not going togrow like you want you, people who buy annuities and they think they're buyingthem for growth are buying them typically for the wrong reason because of thefees that are associated with an annuity. So within an annuity, you've got anumber of different fees.


You've got commissions, administrative fees. Surrendercharges, mortality expenses, you know, and so those are, you know, there's anumber of different fees as well as investment fees within the annuity. Ifyou're buying a variable annuity that has investments in there. So you've gotall those different fees that add up and typically you see fees and annuitiesthat can range between two and a half up to 4% per year.


Depending on the investment strategy within the annuity andall the writers that are on there as well. And so it goes into purchasing itexactly. Or having it, it's just owning it. Yeah. So just holding it, not evenif you're going to go to sell it, like we talked about before with the mutualfund fees and things like that, like this is just to have it.


Yep. So you're paying, imagine paying three or 4% per yearfor an annuity. And then if you want to get out of it, you have to wait morefour or five years exact or even right. Or else you're going to be hit with asales charge on the way out. So I'm not saying annuities are bad, but they'rebuilt for one reason and one reason only.


And you have to make sure that that reason fits yourretirement plan. I, I always tell clients if you're really, you know, you see acommercial about an annuity, let's run your retirement analysis. You know,let's do it with the annuity and without, and let's just, let's run thenumbers, let those tell the story.


And so that way you can make a very informed decision onwhat that is. So what about these new, no fee annuities? Okay. Nothing is free.The sample at Costco isn't free. It's not free. It's built in my membershipthere. They're taking that little tiny bite. They're giving me even the newno-fee annuity has something.


Yes, there is no, there's no stated fee on the contract.Then you put your money in and it goes up. But whatever amount you get thatback, you know, there is a, there is no cost to it. What you're giving up,what's taken out the fee is actually taken out of the upside potential of the,of the annuity. So what you typically see is you put your money in, there's nofee to an annuity into this certain type of annuity, but it capture.


At say seven or 8% or, you know, meaning you're never goingto go above that, earn more than that, but you're not going to lose money. Soit's more of a defined rate of return or a defined investment, but you'recapping yourself on the upside. So the insurance company they're able to make,you know, whatever that difference is.


So you think about the opportunity cost is really the fee.And so I hear you be missing out on what you can be missing out on what theinsurance company is going to make by investing in, taking on that. So if thecap on the annuity is 7% and it's investing in the S and P 500 and the S and P500 went up 20, all the insurance company just made a very large spread becausethey're only giving you seven.


And you're never going to realize that or see that becauseyou've already been capped. Well, no, that is the cap that's already capped atthe seven or 8%. So you're never went over that. So you're not going to seethat 20 at all. You're going to see that. So, um, no fee doesn't necessarilymean better. Yeah.


It just doesn't. It's really, when it comes to the annuity,just forget the commercials. Forget the sales pitches. You've got to understandwhy you're buying it. Does it fit your specific fi you know, retirement? And Idon't even mean just your investment philosophy of, I don't want to lose moneyand we see a lot of annuities taken millions of dollars, especially duringvolatile markets like this, because it's easy to say, people think they'resafe.


I don't want to lose money. Where should I go buy anannuity? Okay. Well, don't make any rash decisions start planning. I ended out,like I said, with an annuity without an annuity, that's that is important. As,I mean, an excellent segue since we're continuing on with the fees portion of,of our podcast here, um, the cost of, of advice, like what, you're, what you'retalking about here.


I mean, there's, there are fees for what we do as well.Don't get us wrong. We're not sitting here saying, oh, come see us. There's nofees, but ours are a little more transparent. And by hours, I mean, Financialadvisors in general. So do you want to talk a little bit about what we charge?So there are a number of different ways that advisors charge for advice.


You've got financial planning fees, and that fee could bejust a standalone fee to that. They charge someone to build out a financial.Just a flat fee, just a flat fee. I'm going to charge you a couple thousanddollars, a couple of hundred dollars, whatever that rate is. And that's justfor a financial plan that includes, you know, typically doesn't include anyinvestment management.


That investment management would be a separate fee. Nowthere's very transparent. Yep. You're going to know that going in. You'll yeah.You'll know if your advisor's charging a financial plan. It'll be, it's atransaction, you're paying a fee and you're getting back a financial plan. It'salmost like a Miller trust.


Exactly. Then there's subscription fees. This is whereyou're doing. You're paying for financial planning. And so you're paying forthat plan. But instead of paying that couple thousand dollars, you pay, youknow, a hundred or $200 a month. And it's just a subscription fee, like a gym,right? Like that, you know, cable, if you still have that, you can cancel ifyou want to, but you're getting ongoing advice and planning and meaning yourfinancial plan would most likely be updated periodically or it wouldn't be aone-time plan.


Yep. It's not, it's not a, it's not a one-time transaction.There's typically more of a relationship. And you get access to a financialadvisor that you can call and say, here's what is going on in my life. Should Imake any changes to be on my investments or my savings and you'll have adedicated person there, but that also typically doesn't include the investmentmanagement fee as well.


So that's, you know, you typically would pay the financialplanning. Or the subscription fee and plan itself. Exactly. And the investmentmanagement fee is, is a separate. Then you also have, uh, assets undermanagement fee. This, you know, this is probably the most common, uh, way thatadvisors charge. I believe I saw a statistic that like 92% of advisors orsomething, it was really hard.


This is the way that they charge clients. And, uh, that ischarging a percent based on the assets that they manage. And typically thatinvolves everything that is the financial planning, the investment management,you know, ongoing advice. You wouldn't have separate fees for any of thatstuff. This would just be all one fee for the assets under management, but youwould also get all most likely all of the other things to be the financialplan, that those kinds of things.


Exactly. Now, one thing to keep in mind with. Advisor feesis that all those investment fees that we talked about before, so ETF operatingexpenses, mutual fund fees, you know, whether it's, you know, the internaloperating expense or, um, you know, sometimes the sales charge as well. Thosesometimes those are also on top of the advisory fee.


So it is important to understand what is it, if you'reworking with a financial advisor, what do they actually, well, what do theyinvest in? Oh, right. Because if you're a long list of the other fees that wealready covered, I think the most common thing that I've seen is I hear from,you know, a prospective client I'm paying 1%.


Okay. That's, you know, that's pretty standard, you know,one to one and a half percent. It's kind of standard in the industry. And so,okay. That's fine. And then I look at a statement. Okay. You're not, you'repaying the 1%, but you're also paying, you know, the aggregate or the averagefee of all these mutual funds is 1.2%.


So you're also paying one plus 1.2, because your advisor'sgot to get paid and the person running the mutual funds got to get their moneytoo. They're not doing this for free, so people don't work for free. So, yeah,that's the, um, that's one thing to keep in mind is that if you are workingwith an advisor and they're charging and assets that are managing.


Understanding the investments within that, you know, thatstrategy as well, because all those things compound. So that's how advisors getpaid. One thing that I always like to point out because I get this quite a bit.Um, I usually get this question once a month, um, from a perspective client of,is there a way that I can just pay you if my account does well, but not pay you?


If it goes to. So I, that's a fair question. And it is onethat we get often. It is, and it's known as a performance based fee and therewas a, there, the reality is that performance based fees, they, they're not thebest thing for the actual client. They're actually banned for most advisors. Sothe reality is, and I got this quote here from a really good article.


It says that near the reality is that. Performance fees havea very troubled past because Wiley performance based fee does incentivize the adviserto not be a closet indexer and own a substantially different portfolio than thebenchmark. One of the easiest ways to ways to do so is simply take on more riskand amplify the volatility of the portfolio.


After all, if the market rises substantially, they do on, asthey do on average, a high volatility portfolio will often provide asubstantial performance fee in a. And when the inevitable bear market occurs,the worst case scenario for the adviser is simply a year of zero fees. So it, Imean, break that down.


How does that, how does that translate? It incentivizes morerisk because if all you're compensated on is growth in the portfolio. If you'rea 80 year old conservative investor, or if your advisor is only making aperformance management fee, How much are they really going to make? If you're avery conservative investor, they're gonna want to take a lot more risk thanwhat you probably should be taking it at 80 years old.


So that's why it's banned for most FAS. Exactly. And, uh,but you do see it in hedge funds and you can, you know, the 40 act, uh, thatCongress created that did allow, you know, performance fees and for qualifiedclients. So that's why you see hedge funds that, uh, had funds and privateequity. Those type of investments have performance based.


But also to keep in mind, there are four hedge fund managersthat are in the top 50 wealthiest Americans in on Forbes, billionaires. I havenot seen one financial advisor billionaire on that list. That's just a, I planfor people's retirement. Now. It's, there's a reason why, you know, hedgefunds, they charge.


But they, and they, you know, the managers make a lot ofmoney and they're billionaires because you know, their performance-based feeallows them to take a lot more risks. So, um, that is just something to keep inmind with performance-based fees. I always like to go through that because it'sa common thing.


It's natural to think. Hey, I only want to make my money.If, if you are all around is I only want to pay my doctor. If whatever theyprescribed me actually works. That's a good way to look at it. But unfortunately,that's just not the case. The amount of times I've had a Teladoc appointmentlooking for some antibiotics and I ended up with nothing.


But I still have about a bill. I still had to pay that bill.It happens. So, um, the last thing that I want to touch on is Vanguard createda white paper where they actually broke down the value of advice. And reallythey, they looked at the alpha that an advisor can, you know, that actuallydelivers. And it was interesting the way they broke it down because.


They showed that asset allocation and the determination of atotal return portfolio versus income investing. It adds value, but it's toounique to actually quantify. So they actually gave that zero in additionalvalue that an advisor adds to help determine your asset allocation. Like Isaid, it's not saying it's not valuable.


They just didn't put enough information there to actuallysay how exactly now cost-effective implementation actually added 34 basispoints. So they're, they're quantifying this as, you know, how much can aadvisor relative, you know, realistically charge to instill that value to aclient. That's really what the basis of this was.


So they can actually, they say that cost-effectiveimplementation is 34 basis points, kind of going back to all the fees that wehad talked about, mutual fund fees, ETFs, all that kind of stuff. Um,rebalancing as 26 basis points. And mean, you want to be rebalancing, you don'twant to end up, like we've talked about on previous episodes where the 60, 40 model,and you don't know what you're in, or it might be in something stagnant.


Yeah. If you've, you know, like we, we mentioned it in ourfirst episode, I believe where if you're investing in a portfolio that was 60%stocks, 40% fixed income, and the market was up for two straight years. You'reprobably sitting around somewhere a 70% or if not more in stocks. And soactively rebalancing actually adds 26 basis.


Uh, behavioral coaching as 150 basis points catching you offa ledge, awful ledge. That's it. But that is, I think that is the most valuablething. That is the one thing that it's one thing I love doing because nobodylikes nobody likes downmarkets, but it's a part of investment. Nobody wants tolose money, but it's a, it's a part of investing over time.


The biggest detriment that I've seen to a retirementlifestyle portfolio, you name it is deviating from a long plan. A longterm planretirement, as we talked about in previous episodes can last 30, 40 years. Soby making a big change today based on current market movements, is it really,can you put a. A diminishing return on whatever that longterm retirement lookslike, jerk investing.


If you will kind of coaching away from that. And thenlastly, asset location. So how are your investing assets? Traditional 401kbrokerage accounts, Roths that adds up to 75 basis points. And then, uh,determining a spending strategy, the correct withdrawal strategy adds up to 110basis points. So 1.1% there.


So overall they said that an advisor could add about 3% innet returns. If they're providing all these different things. You know, ifsomeone's just providing you asset allocation advice and just saying, put yourmoney 60, 40 stocks and bonds and setting it, forgetting it, you know, that'snot going to add much value there.


So, you know, it's really the, the behavioral coaching, theplanning, all of that kind of stuff. That really is what has value. So it's thewhole relationship. Yeah, it is it, that is, that is, that is exactly what itis. So I am, I know it's the tired, I feel like that commercial. I'm just, youknow, those, those fee commercial, I'm just tired of fees.


Nobody likes me. Yeah. We got to talk about them. You got tounderstand them. It's, it's all about transparency. And I think that's, that'sthe Mo if you take anything away from this episode, understand what you, whatyou're paying, understand who you're paying and. I'm not saying that fees arebad. I'm not saying that, you know, that fees are good.


It's just a part evil. If you will. It's part, it's part oflife. It's part of investing and it's part of retirement planning, but it'sjust understanding and relative terms. What is that your, what are you actuallygetting and what are you investing in? So hopefully this episode is helpful. Wewent through a lot of stuff.


I know that a lot of information, the information wherecould people had if they, if they want to learn more about this stuff. So youcan head to the retirement. And we'll have everything linked there, all thearticles, all these numbers, all of the fees broken down into what they arejust in case you missed anything.


And all of these lengthy exploiting that is aretire once. show.com. Also, before you get out of here, hit that subscribebutton, wherever you're listening to this. If it's apple, Spotify, you name it,subscribe there. Tell your friends, share it. Let's build this paradise. Youcan watch us. Let's let's build this, you know, stock photo holding hands,retirement p

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC.– Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. –  Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. – Theorem Wealth Management is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC. This communication has not been reviewed for completeness or accuracy, does not necessarily reflect the views of Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and is not a recommendation or endorsement of any product, service, or issuer. Third party posts do not reflect the views of Theorem Wealth Management or Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and have not been reviewed for completeness and accuracy. All further communications from this representative must be sent from and received by johnathan@theoremwm.com. For additional information, please refer to one of the following consumer websites: www.FINRA.org, www.SIPC.org.

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