Most people think a 1% fee is just a small piece of the pie.

Let’s see how it adds up:
Joe deposits $200,000 in his brokerage account at age 65.  The management fee is 1% of the annual account balance.  We are assuming that the account grows for 25 years at 5% and has no losing years, making a growth of $413,666 for a total of $613,666.

However, as Joe’s account grows, so do his fees.  From age 65 to age 90, Joe paid a total of $86,870 in fees, which reduced his portion of the growth to $526,796 instead of $613,666 !

             The fees accounted for 21% of his total growth.

                                    Joe had 100% of the Risk,
100% of the Effort and
79% of the Gain. 

That is not all that he lost.  There is an accounting principal called LOC (Lost Opportunity Cost).  If Joe did not have to pay the 1% fee of $86,870, it would have grown within his account.   The LOC on Joe’s 1% fee over the 25 years amounts to $150,475.  So, had Joe not paid the fees, recapturing the LOC, his real total account value would be $677,271. 

In reality his 1% fee cost him the
difference between $677,271 and $526.796,
so the real cost of the 1% fee is $150,475. 

You might ask:
“Where do I find these fees ?”
“How much am I paying in fees ?“

Advisor Fees
Expense Ratios
Wrap Fees
Soft Dollar Costs
Transaction Costs
Redemption Fees
Deferred Sales Charges 

According to Morningstar,  the “average fees” for Variable Annuities are between 2% to 4%.  Here’s a breakdown of Variable Annuity fees totaling 2.50%:

                       Mortality and Expense Charges:  1.25%
Administrative Charges:               0.28%
Expense Ratio Fees:                      0.97%

As you can see, fees for the Broker & the Company are a profit center.

Advantages of Reducing Fees:

Allows for Greater Gains during Good Years.
Protects Your Principal during Flat or Down Years.
You Earn More Money on the Money that Didn’t Go to Fees.

According to AARP,  8 out of 10 people do not know how much they are paying in fees.

        How do you find out how much you are losing in fees ?

We have software that will tell you how much you are paying in fees and what percentage of your growth fees represent.  We simply plug in information from your latest statement.  It will tell us what you paid in fees, what your rate of return has been since the inception of the contract without the fees, and after the fees are deducted.  Also, what the ratios are and what percentage of your growth went to fees. 

Get an extra pair of socks, as this will knock your socks off:

We recently reviewed a 6-year old Variable Annuity with a Rider that resulted in 71% of the earnings going to fees!

What are fees costing you? 

What is the true cost of paying someone
to manage your money?

Wouldn’t you like to know?

You give me 20 minutes and I’ll give you answers!

Call me at:

248-334-2380
or
Email:  Frank@fbakera.com

This is something we should have a conversation about!

Francis Baker