Jayson Lowe breaks down how wealth advisors and investment firms make money through hidden fees and commissions. A 1% annual fee on a million-dollar portfolio costs you roughly $10,000 per year, and over decades that compounds into hundreds of thousands in lost earnings.
Why have you been told to put your money in the financial markets? Well, let's see how the investment industry gets paid. Now, you've been told to put your money in mutual funds, commodities, stocks and bonds. And you know, ultimately I'm not here to bash any financial products or put to say not to put your money there. I mean, ultimately it's your wealth journey. You can decide what is best appropriate to your circumstances. But I just want to highlight some things for you. Why have you been told to put your money in the financial markets? Well, there's a reason why they've asked you or they show you to put all your money with those financial markets. Well, let's see how the investment industry gets paid. Well, I just kind of did a real quick search. How do wealth advisors in Canada get paid? Robo Advisor will cost you 0.4 to 0.7% per year in advisory fees. Another one will charge you 1.1 to 2%. Another one will charge you 0.65 to 1.65. Another one will charge you 1.18 and so on and so forth. So you can kind of see the range is about one, one and a half percent. Let's say I wanted to share with you that they're going to take fees off of the assets or the amount of money that you've sent them to. Here, let's see how your wealth is being robbed by these fees. Well, let's take a look at that first. That I'm showing you no fees and earn uninterrupted. And with fees uninterrupted, $50,000. Now, both of them is still going to be 2%. However, I've added a 1.5% fee to the assets under management. Now, if we kind of go through this, you can see, well, whatever is earned, they're going to subtract the 1.5% fee from that. So if we take a look at it here again, the uninterrupted compounding $50,000 grows to 5,204, 55,746, 63, 44. So accumulation of 17,293. Well, how does that impact you in terms of the fees that being paid? Well, what if the choice that you made was to leave it with these investment advisors? You started with assets under management of $50,000. Well, with that $50,000, it's going to be 2%, but they're going to take their fees off of that money. And with that fees off that money, well, here's how much you end up taking 1263. 63. And let's look at the profit for the investment firm. So that 2% was what was made, but they've gotten 1.5%, whereas you got 0.5%. So together that's 2%. And together, if we take a look at this, that's 3807 for compared to 1263. And if we look at the percentage of how much money was earned, they've gotten a larger percentage of the money because they're calculating their income off of what you hold. And we just keep working through that, working through that. So if we take a look at the damage after 15 years, that's about $13,000 it come and you make only 3884. Very unusual circumstances, which kind of brings into a really curious thing as, wow, you know, they're making money off of what you've passed them and you get to make money off of what they earn for you. What I want to just also remind you of is don't forget that these advisory fees that they receive, that's just one part of the equation. They may also get paid on the products like mutual funds, ETFs, whatever they put that money in. So when they do that, that advisor earns a commission in the fund they put your money in, and then possibly there's a trailing commission for how long you keep the money with them in there. And then also that fund that they put the money in, that investment firm, maybe it's the same investment firm, also receives fees, like an MER fee. If we kind of look at it all together, something doesn't look right here. But what I just wanted to highlight for you is that when it comes to building your wealth, I think you get the point that you are permanently losing what you could be earning with your money to fees. You are giving your money, you're handing it to someone else who's paying a fee, who you are paying a fee to. It's not based on what they build, it's based on what you own.
