This may not be news to industry insiders, but it often surprises many people: there are *many* hands in the pot that holds your money—often more than you'd prefer. This is true for all your investment accounts, whether it's an IRA, 401(k), DB plan, Roth IRA, 403(b), 457(b), inherited funds, annuities, or even the money in a savings account at your local credit union.
"Many hands get warm around the fire that is your money." - Me
This topic isn't frequently discussed within the industry because wealth management often carries an aura of "turn a blind eye when something seems off." In fact, much of the business is built on a concept called "suitability." In simple terms, this means that investment products only need to *kind of* fit your needs and wants. The analogy I like to use is:
Imagine you have a nearly complete 1,000-piece puzzle, and you're left with a piece that doesn’t quite fit in the last slot. But if you force it in, it looks good from a distance, even though deep down you know something went wrong along the way.
That’s suitability.
If you're reading this, you've almost certainly heard the term fiduciary. If not, fiduciary duty refers to the obligation to act in the best interests of the client. Some advisors are held to the suitability standard, some to the fiduciary standard, and others can choose which standard to follow at their discretion.
Confusing and concerning, right?
I understand—that's part of the reason I left the corporate world of financial advising to start my own fiduciary firm. I couldn't stand the gray areas in advice and investment recommendations. It seemed like too many people were getting paid while too few were doing the actual work for the client. Even at 23 years old, sitting in my office cubicle, I felt something off about convincing people, mainly older people, that I was the one making investment choices in their account.
Now, nearly a decade later, here we are. I'm writing this to help you ask the right questions to your advisor or planner so you can uncover who exactly has their hands in the pot of your money.
First Question:
Do you make the specific investment trades, allocations, and choices within my account?
This might sound like a silly question. You'd assume that the person making recommendations would also be the one making these decisions, right? Wrong—almost always wrong. Often, the advisor acts as a manager of managers. They select a firm, often referred to as a TAMP (Turnkey Asset Management Program), that specifically handles the trades in your account. It’s called "turnkey" because it's incredibly easy for your advisor to use and sell, though you may never know that. The advisor might tell you they have a professional investment team in their home office. After meeting with you, they determine a risk tolerance score that guides the investment team in selecting your investments.
At first glance, this doesn’t sound too bad. "Oh, this advisor has a whole investment team working for them; this must be the real deal." But that's not the full picture.
Here’s how a typical fee breakdown might look:
- Advisor fee:1.17% (industry average)
- TAMP fee: 0.3-1%
- Fund fees (ETFs, mutual funds, etc.):0.15-1.5%
On a million-dollar account, using the average figures, you’re looking at 2.6% per year—roughly $26,000 annually. Of that, $11,700 goes to an advisor who didn’t actually advise anything—they just placed you in a cookie-cutter portfolio managed by analysts at a firm thousands of miles away, who neither know you nor care to. And all that took the advisor about 35 minutes, earning them an ongoing income for as long as you remain a client.
The most frustrating part? Advisors are supposed to meet with their clients at least once a year to review their accounts, and most do. However, in my experience, 99% of advisors don't look at the account all year until about 30 minutes before the annual meeting.
Second Question:
(If you are in an investment/insurance product) What am I giving up to get these guarantees? What are the fees—all of them, not just the upfront costs but ongoing expenses? What exactly is it protecting me from?
Most investment products—REITs, private equity, annuities—come with many caveats: surrender periods, hidden fees, stipulations, etc. It’s crucial to get all this information in writing from your advisor:
- What are the M&E (mortality and expense) fees?
- What are the rider fees?
- What kind of surrender period are we looking at (the amount of time you do not have access to your money)?
- When are the redemption periods, and at what cost per share?
The most important question you should ask is: Why am I giving up the right to access my money? Usually, it’s because the insurance company or firm promises something like, “Give us your $500k for five years, and we’ll guarantee you 5% income, even if you stay beyond those five years.”
This might be fine if that’s what you want—if you’re scared of the market or don’t have many years left. But for most people, these products might be suitable but are rarely, if ever, in their best interest. I have never seen one of these products meet the fiduciary standard. These products are sold, not bought—they're pitched to clients who are often reacting out of fear, like concerns over market crashes or geopolitical events.
Here’s the truth: Most market downturns rebound to new highs within 18 months. And those locked into these products may be stuck because they’ve surrendered their right to access their money.
So, why would you choose a product that locks up your principal for years, has internal fees, and promises to protect you from a catastrophe that lasts less than 18 months?
Also, keep in mind that many annuities with these protection promises don’t actually guarantee anything in the event of certain catastrophes—they often have war and natural disaster clauses that void their contract obligations. Just something to consider.
To Summarize:
Ask the questions. Find out who is warming their hands at the fire of your finances.
If you have a financial advisor, make sure you know who is actually making the decisions in your account. The reality is you could go directly to these money managers yourself, cut out the 1.17% the advisor charges, and work directly with the decision-makers. Over a lifetime, that 1.17% could amount to hundreds of thousands of dollars.
Alternatively, you can work with a financial firm that does everything in-house, without extra hands in the pot.
This is why I left the corporate world five years ago to start my own firm. I realized we could do it better, for less, and with full transparency. In the corporate environment, I felt more like a salesman gathering client assets for the firm rather than a wealth manager helping clients achieve their goals.
Although we would LOVE to work with you at 77 Financial Group, you don’t have to work with us—you can work with any RIA or fiduciary advisor. Just be sure to clarify: Are you a fiduciary, or do you simply act in a fiduciary capacity? What are your supervision policies? Do you know what my account is doing every day? Every week? Every month? Or just when we speak once a year?
Ask these questions and you will have a much more heightened level of understanding when it comes to your investment accounts.
By
James A Walters, CRPC