Fees Matter Investors are subject to numerous fees, many of which are hidden. An explanation of every fee an investor is subject to is beyond our scope here, but a few are worthy of discussion.Most high net worth investors are aware of two major fees. The first is the fee they pay their advisor (think management or advisory fees) and the second is the underlying fees of the investments their advisor places their money in (think fund expenses).Investment management or advisory fees have declined over the last decade, but still average around 1%. The average expense ratio for actively managed equity funds is around 1.3% and the average expense ratio for actively managed bond funds is about 1%. It is not uncommon for the advisory fee and the fund expense fees to add up to more than 3% per year. Fees of this magnitude present a considerable hurdle for investors and it only amplifies over time.To put this in perspective, the S&P 500 has averaged about 10% over the last 20 years. Aaa rated bonds have averaged about 7% over that same period. Investors who ignore fees can end up taking stock-like risks for bond-like returns.The graph below shows the impact fees can have over time.Plus, each time money is invested or un-invested also comes with a fixed cost, but is rather negligible for our purposes. For instance, paying a $25 transaction charge each time you buy or sell a stock, bond, or fund is trivial when you are investing (not trading) millions of dollars.The above discussion of fees does not incorporate trading costs inside of funds which average about 1.5% per year. Believe it or not, trading costs for mutual funds are not part of the funds stated expense ratio yet they often double the funds stated expense ratio. Mutual funds disclose their trading costs in a supplement to their prospectus called the “Statement of Additional Information” or SAI. Fund companies are not required to give investors the SAI, but must give it to any investor who requests it without charge. Even with a SAI in hand it can be difficult to tell what a particular fund’s trading costs are b/c many fund families report trading costs across the entire fund family rather than on a per fund basis. Plus, it can be hard to quantify the market impact of the trades made. These fees are just another hurdle for actively managed funds and another reason for investors to avoid such funds.The important point here is that investors should be wise to the fees they are paying and what they are getting in return for those fees.Our client’s advisory fee averages about 0.65% and the expense ratio of our portfolios averages about 0.30%. Click here to see our fee schedule. Click here for more details about mutual fund costs.