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Effective wealth management involves not only maximizing returns but also minimizing fees. High fees can erode your investment gains over time, so it’s essential to adopt strategies that help reduce these costs. In this blog post, we will explore five practical tips to help you lower fees on your wealth management and enhance your financial success.
Consolidating all your investment accounts with a single firm can offer significant advantages in reducing fees. Many wealth management firms operate on an assets under management (AUM) model, where fees are calculated as a percentage of your total assets. These fees often have tiered structures, meaning that the more you have invested with one advisor, the lower your overall percentage fee will be. By consolidating your assets, you can reach higher tiers and potentially enjoy reduced fees, allowing you to retain more of your investment returns.
Here is an example of an AUM advisory fee structure:
| Assets Under Management | Advisory Fee |
| $0 – $500,000 | 1.40% |
| $500,001 – $1,000,000 | 1.00% |
| $1,000,001 – $3,000,000 | 0.80% |
| $3,000,001 – $10,000,000 | 0.60% |
| $10,000,001 – $20,000,000 | 0.50% |
| $20,000,001 – $50,000,000 | 0.40% |
| $50,000,000+ | 0.30% |
For example, if an individual has three $500k balance accounts spread across 3 firms with this identical fee structure, they will pay 1.4% on each account.
If the full $1.5M is held with one team instead, the advisory fee is 1.07%.
So while some may think it makes sense to spread assets out for diversification purposes, which is valid, it generally gets in the way of efficiency and cost savings, which we expand more on here in this video- https://vimeo.com/662746138?share=copy
Soft costs are expenses associated with managing an investment fund, such as transaction fees, trading costs, and research expenses. These costs are charged directly by the fund provider and are present no matter what unless you are investing in individual stocks / equities. In general, actively managed mutual funds carry higher soft costs when compared to passive / indexed based funds. By adopting a passive investment strategy and investing in index-based ETFs (Exchange-Traded Funds), you can generally significantly reduce soft costs. ETFs typically have lower expense ratios compared to actively managed funds, as they aim to replicate the performance of a specific index rather than constantly buying and selling securities with the expense of a portfolio manager. This approach can help you keep your investment expenses in check. The industry averages a .65% soft cost to clients, and based on some historical statistics, most passive funds outperform active funds in the majority of categories. At EWA we have an approach that is usually 60% lower cost than industry averages.
When selecting a wealth management team, consider those that sponsor a “wrap program.” In a wrap program, all commissions and trading costs are absorbed by the firm rather than passed on to you as an investor. The firm covers miscellaneous costs associated with managing your investments, and you pay only a flat percentage advisory fee. This fee structure enhances transparency, as you have a clear understanding of what you’re paying for and can avoid hidden expenses. At some firms the wrap program fee may be higher than a non-wrap program fee but not at EWA.
A wealth management team should offer more than just investment advice; they should provide comprehensive financial planning, portfolio management, risk management planning, and more. This approach helps ensures that you are not burdened by constant concerns about additional charges or hourly fees for each service provided. By consolidating all these services into a single, transparent fee, you can help increase peace of mind, knowing that your advisor is fully committed to guiding you through your entire financial journey without constantly nickel-and-diming you along the way. This holistic approach not only simplifies your wealth management process but also helps enables you to focus on your financial goals with confidence, reassured that a dedicated advisor is helping to take care of your financial well-being. By avoiding the hassle of individual service charges, you can help reduce costs while maintaining a streamlined approach to wealth management, allowing you to remain better focused on achieving your financial objectives.
Registered Investment Advisors (RIAs) often have established relationships with custodians, which can lead to negotiated lower share costs for their clients. Custodians are financial institutions responsible for holding and safeguarding your investment assets. RIAs, being fiduciaries, have a duty to act in your best interest and seek the most cost-effective solutions. By working with an RIA, you can likely benefit from their expertise in negotiating favorable share costs, further reducing your investment expenses.
Conclusion:
Lowering fees on your wealth management is essential for optimizing your investment returns. By following these five tips – consolidating your assets, adopting passive investment strategies, utilizing wrap programs, working with comprehensive advisors, and partnering with an RIA – you can take proactive steps to help minimize fees and enhance your financial success. Remember, every percentage point saved on fees can make a significant difference in your long-term wealth accumulation.
HERE is an educational video about how EWA keeps portfolio soft costs down for our clients.
In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.
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Important Disclosures:
Securities and advisory services offered through EWA LLC dba Equilibrium Wealth Advisors (a SEC Registered Investment Advisor).
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
In 15 minutes we can get to know you – your situation, goals and needs – then connect you with an advisor committed to helping you pursue true wealth.
EWA, LLC dba Equilibrium Wealth Advisors, is an SEC-registered investment advisory firm providing investment advisory and financial planning services to clients.
Investments in securities and insurance products are not insured by any state or federal agency.
To view EWA’s public disclosure, registration, Form ADV and Part 2B’s, click here.
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*See reference 1 and reference 2 for more information about the above-mentioned statistic.
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In 15 minutes we can get to know you – your situation, goals and needs – then connect you with an advisor committed to helping you pursue true wealth.