Is your financial advisor overcharging you? Here are ways to protect yourself

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  • The Securities and Exchange Commission published a risk warning on November 10 explaining how financial advisors sometimes over-bill clients for their services.
  • Investors may be unaware. This is harmful because that money would otherwise be invested in the market.
  • Experts said there are steps investors can take, such as verifying the accuracy of fees on the account statement, getting a detailed breakdown from their advisor at least once a year, or perhaps visiting an advisor with a simpler fee structure. .

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Some financial advisors may over-billing for their services. Fortunately, there are steps a customer can take to protect themselves.

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A recent Securities and Exchange Commission investigation of advisors’ fees found several errors, resulting in overpaying clients.

According to the SEC, in some instances, advisors charged a fee different from what was prescribed based on their contractual rate, double-billed clients or incorrect account value. Warning, published 10 November.

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In addition, the agency found that some advisors disclosed false or deceptive charges to investors. Sometimes they didn’t have revelations at all.

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According to the SEC, receiving excessive fees or receiving inaccurate fee information is particularly harmful to clients of financial advisors “because each dollar an investor pays in fees and expenses is a dollar not invested for the investor’s benefit.” Is.”

This is not to say that all, or even most, advisors make fee errors. (The SEC Alert is based on data from examinations from 130 advisory firms.) And the errors may not be fraud; They can only be accidental.

“There has been deliberate fraud and there are mistakes,” said Andrew Stoltman, a Chicago-based attorney who represents consumers in fraud cases. “Both can be corrected by verifying [account] statement, and not just taking the advisor’s word.”

Account Details

Clients should at least see their annual statements from financial advisors. Make sure the fees and charges listed in the statement are initially quoted by the advisor, Stoltman said.

Monthly or quarterly, it’s a good idea to check for more regular details, he said.

It may sound simple — but many customers don’t take these precautions, Stoltman said.

However, estimating a financial statement is not always easy. Financial advisors have many different fee structures, depending on the firm, some more complex than others.

For example, in the traditional way the advisor bill is a flat percentage (perhaps 1%) of the value of the client’s investment account. (An advisor managing $1 million for a client will receive $10,000 per year.) Advisors often charge fees directly to the client’s account; The customer does not write a check.

However, advisors may use other, more involved methods such as “tiered” or “breakpoint” billing, whereby advisors charge different fees at different client asset levels.

Verification on financial statements can be difficult for the average investor. Stoltman said it may not be easy to ascertain the correct information as the account statement can sometimes run 30 pages long.

“It’s hard to say there’s an easy, comprehensive solution,” said financial services attorney Dylan Bruce of the Consumer Federation of America, an advocacy group. “Because from firm to firm, there are a lot of differences.”

challenge your advisor

He said that for cracking down on difficult-to-understand account statements, the best starting point is to ask your advisor at least once a year for a detailed explanation of the fees on your account statement.

“If in that process you’re not getting perfected [rundown] How much are you being charged, why are you being charged, and what could be the long-term and short-term effects on the account—and if [the advisor] “I’m not willing to go into that discussion with you in enough detail to make you feel comfortable and fully informed — that’s probably a red flag about your investment advisor,” Bruce said.

Similarly, clients can request a detailed fee breakdown in letter or spreadsheet form directly from the investment advisor, Stoltman said.

“It’s a valid request,” Stoltman said. “If they don’t follow it, it’s a huge issue.”

There are other avenues that investors can take as well.

For example, investors may seek out advisors with a less complex fee structure.

Some firms have adopted hourly rates and monthly subscriptions for their services, giving greater certainty over the dollars involved. (Of course, this may not work out well for all investors, especially those who want their advisors to keep managing their investments.)

Investors can also request that advisors charge them directly for their services, rather than deducting fees from their accounts behind the scenes. This certainly can’t stop advisors from charging erroneous fees — but it can make investors more aware and knowledgeable about how much they’re paying.


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