Transparency for investors has long been recognized as a need by the investment community, but rarely practiced. Oftentimes large Wall Street firms have multiple layers of fees charged to the client, some are known by clients, many are not. Managed, (a/k/a Wrap accounts) carry a monthly fee to the advisor. It is popular now to hold Structured Products inside, the managed account. When the Structured product is first added, a commission to the advisor is paid, oftentimes not disclosed to the client. First time commissions can be as high as 2% of the amount invested! So not only is the client paying monthly management fee, they are paying the up-front commission. Many Wall Street firms practice the hide and seek approach to their clients.
Similarly, Managed Mutual fund accounts are very popular. The advisor (or the firm) selects specific mutual funds in a particular account. The daily NAV of the funds reflects their ongoing expenses. Depending upon the funds, charges can range from .75% to 3% per year. The next layer of fees is the account management fee which can range from .5% to 1.5% per year! The total charges to the assets can be from 1.25% to over 4.5% per year! In other words, you are spotting the market 4.5% every January 1st. No wonder investors often have the same amount of money after 10 years in the equity market.
Confusion can also be created in custodial statements. Other costs such as SEC fees are often not transparent in the monthly statement. They can be out of your sight as they can be built into the cost of the buy or sell. They may seem small in individual circumstances, but certainly add up over time. Investors need to be diligent in reviewing their custodial statements as well, the devil maybe in the details.
I believe total costs need to be laid out in detail for clients. No hidden fees, hidden commissions or any other source of income to the client. Being transparent is like being pregnant, either you are, or you are not. My suggestion is ask your advisor to sign a statement detailing all costs in your relationship. Otherwise it is only transparent to your Financial Advisor.