One of the most common pitfalls of everyday investors is slipping into a "set it and forget it" mentality.
You might sit down with your broker or financial advisor once a year – tops – to rejigger a few funds and get rid of the runts, but for for the most part you put your faith in their hands.
The bad news is that such blind faith could royally screw you over.
"It's not like you can try calling (brokerage firms) and ask them what they charge. They don't publish a fee schedule," Mike Sha, CEO of portfolio tracking site SigFig told Business Insider. "We've talked to people who work with brokers or advisors and they have no idea what the fee structure is in other firms."
With no other fees to compare your own to, you could wind up paying for far more than you should – especially if your broker's working on commission.
Among SigFig's users, more than 60 percent of investors working with high-fee brokerage firms are paying a staggering $25 per trade – with some as high as $400 per trade.
In fact, a new study by Woodbine Associate estimates broker fees could be sucking as much a $5 billion from mutual funds, pension funds and regular investors each year, according to the NYT.
"People are very familiar with straight commission fees," said Simon Roy, EVP Corporate Development of online wealth management site Jemstep . "But there are a lot of other fees which are much harder to unpack and more insidious."
Take front load or back load fees, for example: Imagine cutting a check to your broker for 5 percent for simply selling you a certain fund (front load). Or, imagine cutting them a check if you decide to exit a fund later (back load). These commission-based fees are the reason the broker model is so loathed by consumer advocates and ex-Wall Streeters like Money Talks News founder Stacey Johnson.
"There are 16,000 mutual funds in the U.S. and in many different share classes," Roy says. "If there's a fund you really want to get into that charges a 5 percent loading fee and then ongoing fees as well, there are probably 20, 30, or 40 other funds that don't."
Rescuing your investments
The hard part is figuring out which funds are working more in your broker's favor than yours.
You could take the indirect approach and do a little homework, which is easier than ever thanks to a crop of new tools online. SigFig, Jemstep, and FutureAdvisor can each show you exactly how your funds are performing and lay out how much you're paying in fees.
With that knowledge, it shouldn't be a problem calling up your broker or advisor and striking up a conversation about any red flags you might have noticed.
"There's no reason you shouldn't as an investor sit down with your broker and say, 'I want to talk about the services I'm getting from brokerage firm X and you," Roy says. "Tell them, 'Before you invest in a fund on my behalf, please contact me to explain why that fund is so superior that I should pay for the privilege of giving you my money."
If you put the onus back on them, chances are they won't put up a fight and risk losing a client.
Seeking financial advice can be a huge value to consumers, especially workers who may not have much experience in investing.
Opting for a fee-based advisor could be your best bet, as they are under fiduciary duty to work in your best interest and don't work on commission. Find one with the National Association of Personal Financial Advisors, which has a great search tool to track advisors in your area.
Says Roy: "At the end of the day, make sure your broker's or your advisor's interests are in line with your own."
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