Personal Capital, an online advisory firm, just released a report showing how much money investors lose paying fees to financial institutions, and why they would benefit from the Department of Labor's proposed fiduciary rule for financial advisors.
An average $500,000 investment account held for 30 years, for example, would pay roughly $500,000 to $1 million in fees, depending on the institution, according to the report.
Personal Capital based the study on the accounts of more than 150,000 customers that use its service, which includes a free financial software service as well as a separate fee-based advisory service. The data came directly from clients' accounts at 11 financial institutions; it was not self-reported by investors. Personal Capital calculated the average advisor fees and the average mutual fund and ETF expense ratios for each of the 11 brokerages.
TD Ameritrade had the highest average advisory fee, at 1.53%. USAA had the lowest, at 0.82%. The average was 1.20%.
With regard to expense ratios of mutual funds and ETFs, Ameriprise had the highest average, at 0.99%; TD Ameritrade had the lowest, at 0.49%. The average was 0.70%.
Once both sets of fees were added together, Merrill Lynch led the pack with an average fee of 1.98%; USAA placed last, with a total average fee of 1.06%.
"The results are pretty stunning, ranging from just over 1% to almost 2% on people's retirement income, and that can have devastating results, overall, " says Bill Harris, co-founder and CEO of Personal Capital. "Underfunded retirement is probably the largest un-talked about financial crisis that this country faces."
The report illustrates these conclusions by comparing a sample $500,000 account held for over 30 years among 11 different financial institutions. A client with such an account at Merrill Lynch client would pay $936,000 in fees over those 30 years; a USAA client would pay $502,000.
