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Fees Explained: How Much Is the 1.8% Illusion Costing You? | Canadian Investing · How Canadian Markets Work

• 0:00
  If you just discovered your portfolio is full
• 0:02
  of closet indexing, meaning you're paying these
• 0:06
  premium active management fees for something
• 0:08
  that essentially just mimics a basic index, you
• 0:11
  really need to hear how those management expense
• 0:13
  ratios and trading expense ratios are secretly
• 0:16
  compounding over time to actively erode your
• 0:19
  wealth. Yeah, it is the great silent wealth destroyer.
• 0:22
  I mean, because you never write a physical check
• 0:24
  for these costs, your brain just sort of assumes
• 0:25
  they don't really exist. Right. We are entirely
• 0:28
  wired to ignore percentages. But mathematically,
• 0:32
  these invisible deductions are very real and
• 0:35
  they are incredibly aggressive over a long time
• 0:37
  horizon. That is exactly the mission for this
• 0:40
  deep dive into the source material. Today we're
• 0:42
  completely deconstructing the true cost of investing
• 0:45
  for you. Our goal is to pull back the curtain
• 0:47
  on how these invisible fees actually operate
• 0:49
  behind the scenes. Which is so needed. Definitely.
• 0:53
  We're gonna look at the mathematical shock of
• 0:55
  compounding costs over a lifetime and we're gonna
• 0:58
  talk about how recent reporting rules are finally
• 1:01
  forcing the financial industry to expose these
• 1:05
  fees in raw, undeniable dollar amounts. Okay,
• 1:09
  let's unpack this. Sounds good. Because to understand
• 1:11
  how your wealth is being eroded, we first have
• 1:14
  to understand the exact mechanics of how this
• 1:16
  money is being extracted from your accounts in
• 1:18
  the first place. Like, what exactly are these
• 1:22
  fees that get deducted before you, the investor,
• 1:24
  ever even see your return? Well, we have to start
• 1:27
  with the headline number, right, which is the
• 1:28
  MER, or management expense ratio. This is the
• 1:31
  figure you'll see most prominently displayed
• 1:33
  on, you know, any fun fact sheet or prospectus.
• 1:36
  But the term management fee is slightly misleading
• 1:38
  because the MER is actually a bundle of costs.
• 1:40
  Oh, really? Yeah, absolutely. I mean, yes, it
• 1:43
  includes the management fee, which pays the portfolio
• 1:45
  manager and their team of analysts for actually
• 1:48
  running the fund. But it also covers a massive
• 1:50
  amount of operational plumbing. Right. Because
• 1:53
  a fund isn't just a guy picking stocks in a room.
• 1:55
  It's an entire corporate entity. Exactly. So
• 1:58
  when you pay that MER, you are paying for the
• 2:01
  fund's independent audits. You're paying the
• 2:04
  custodial fees to a third -party bank to hold
• 2:06
  the physical assets securely. Wow. You're paying
• 2:09
  for the legal team, the record keeping, the regulatory
• 2:12
  filings, and crucially, and people always forget
• 2:15
  this, it includes applicable taxes. Wait, taxes
• 2:18
  are baked in. Yes. Sales taxes like HST or GST,
• 2:23
  depending on your jurisdiction, they are baked
• 2:25
  right into this ratio. So it's not just a fee
• 2:28
  for the perceived genius picking the stocks.
• 2:30
  It's literally the overhead for the entire administrative
• 2:33
  and regulatory apparatus. Exactly. And here is
• 2:36
  the mechanical reality that I think catches people
• 2:38
  off guard. This MER is charged annually as a
• 2:43
  percentage of your total assets in the fund.
• 2:45
  Completely regardless of the fund's performance.
• 2:47
  Yes. The fund provider takes their percentage,
• 2:49
  whether they beat the market, match the market,
• 2:51
  or crash completely. And the way they take it
• 2:54
  is brilliant from a business perspective because
• 2:56
  it's totally frictionless. You never see a bill
• 2:58
  for this. Right. No invoice in the mail. Never.
• 3:01
  Yeah. The fee is deducted internally from the
• 3:04
  fund's total assets on a daily or monthly basis
• 3:07
  before the daily unit value. You know, the net
• 3:10
  asset value is even calculated. The return you
• 3:13
  see on your brokerage screen is already net of
• 3:15
  the fee? It's entirely invisible. Entirely. I
• 3:18
  want to use an analogy here, because the invisible
• 3:20
  deduction concept is wild when you really sit
• 3:23
  down and think about it. Go for it. It's like,
• 3:24
  OK, it's like you sign up for a premium subscription
• 3:27
  box service, say a monthly box of gourmet snacks.
• 3:32
  OK, I'm with you. But before the company tapes
• 3:34
  the box shut, and ships it to your house. They
• 3:37
  quietly slice off 2 % of the snacks for themselves.
• 3:40
  Right. You open the box, it looks full, and you
• 3:43
  don't really notice a few missing crackers. Yeah.
• 3:45
  But they take that slice every single month,
• 3:47
  and they take it even if the snacks inside went
• 3:49
  completely stale that month. And you never get
• 3:52
  an invoice that says, hey, we ate 2 % of your
• 3:54
  food. It just happens in the dark at the warehouse.
• 3:58
  That is exactly how it functions mechanically.
• 4:00
  You only ever evaluate what remains in the box.
• 4:03
  But the thing is, the emmurer isn't the only
• 4:06
  slice being taken before the box is taped shut.
• 4:08
  Oh, great. There's more. Unfortunately, yes.
• 4:11
  We also have to introduce the TU, which is the
• 4:13
  trading expense ratio. This sits completely separate
• 4:16
  from and on top of the emmurer. OK, so if the
• 4:19
  emmurer is covering the portfolio manager's salary,
• 4:23
  the audits, the legal, and the custody, What
• 4:26
  exactly does the tier cover that the Mer didn't
• 4:28
  already pay for? So the two covers the fund's
• 4:31
  own internal costs of buying and selling securities.
• 4:34
  Whenever a portfolio manager decides to sell
• 4:36
  a stock and buy a different one, that transaction
• 4:38
  is not free. There are institutional brokerage
• 4:41
  commissions. And more importantly, there are
• 4:44
  bid ask spreads. Let's pause on the bid ask spread
• 4:47
  for a second, because we hear that term a lot.
• 4:50
  But what does it actually mean in terms of draining
• 4:52
  the fund's cash? The bid ask spread is essentially
• 4:55
  the hidden markup of the market. The ask is the
• 4:58
  price a seller is willing to accept, and the
• 5:01
  bid is the price a buyer is willing to pay. And
• 5:03
  there's a gap there. There is almost always a
• 5:06
  gap between those two numbers kept by the market
• 5:09
  makers who facilitate the trade. Every single
• 5:12
  time a mutual fund manager executes a trade,
• 5:15
  they are crossing that spread. They are buying
• 5:18
  at the slightly higher asking price and selling
• 5:20
  at the slightly lower bidding price. Each time
• 5:23
  they do that, a tiny fraction of a percent of
• 5:26
  the fund's wealth is just lost to the market
• 5:28
  makers. So if you're in a high turnover fund,
• 5:30
  meaning the active manager is constantly trading
• 5:33
  in and out of positions trying to outsmart the
• 5:35
  market, that fund is going to bleed cash through
• 5:38
  bid ask spreads and commissions way faster than
• 5:42
  a fund that just buys in whole. Exactly. Which
• 5:44
  means their tier is going to be significantly
• 5:46
  higher. You nailed it. The friction of high -frequency
• 5:49
  trading acts as an additional drag on your returns,
• 5:53
  compounding the damage of the emmer. And speaking
• 5:55
  of structural drags, we really should briefly
• 5:57
  touch on load structures, particularly DSCs or
• 6:01
  deferred sales charges. I have heard horror stories
• 6:03
  about DSCs. That's a structure where you don't
• 6:07
  necessarily pay a fee to buy the fund, but you
• 6:10
  get heavily penalized if you try to take your
• 6:12
  own money out, right? Correct. You pay no front
• 6:14
  -end fee, so it looks appealing, but you are
• 6:17
  locked into a declining redemption schedule.
• 6:20
  If you try to sell the fund within, say, the
• 6:22
  first five to seven years, you are hit with a
• 6:25
  massive penalty fee that slowly declines each
• 6:27
  year. Wow. It is basically a mechanism to hold
• 6:30
  your capital hostage so the fund can guarantee
• 6:33
  they'll extract years of MERS from you. That
• 6:36
  feels incredibly predatory. And regulators agreed.
• 6:38
  It is very important to note that DSCs have recently
• 6:41
  been prohibited in Canada across all provinces.
• 6:44
  The industry literally can no longer sell them.
• 6:46
  That's a relief. It is. But however, if you hold
• 6:49
  older legacy funds purchased years ago, those
• 6:52
  original DSC schedules might still apply to you.
• 6:55
  You could still be economically locked in until
• 6:57
  that original clock runs out. Good to know. Well,
• 6:59
  this brings us to a massive pivot point because
• 7:02
  now that we know how these fees are quietly deducted,
• 7:05
  between the error, the TER, and those legacy
• 7:08
  lock -ins, we have to look at the mathematical
• 7:10
  consequences of those deductions. The math is
• 7:12
  where it gets real. Yeah. We are talking about
• 7:14
  a quiet leak that drips for decades. Let's run
• 7:18
  the numbers on the staggering math of missing
• 7:20
  wealth. All right. Let's assume you have a lump
• 7:23
  sum of $100 ,000 to invest. OK, 100 grand. And
• 7:27
  we'll put it over a 30 -year horizon. We'll also
• 7:29
  assume the underlying market provides a 7 % gross
• 7:32
  return annually. Seems reasonable. We are going
• 7:35
  to compare two identical market scenarios. In
• 7:39
  scenario one, you use Fund A. This is an actively
• 7:42
  managed fund that charges a 2 % fee. OK. In scenario
• 7:45
  two, you use Fund C, a passive index fund that
• 7:48
  charges a 0 .2 % fee. So we are looking at a
• 7:52
  1 .8 % difference. I really want to address the
• 7:54
  psychology of this right here. Because in everyday
• 7:56
  life, A 1 .8 % difference sounds like a total
• 8:00
  ranting error. Oh, absolutely. It's the difference
• 8:02
  between a 5 % sales tax and a 6 .8 % sales tax.
• 8:07
  You barely notice it when you're buying a cup
• 8:09
  of coffee. Your brain just rounds it off to basically
• 8:11
  the same. But in investing, it is financially
• 8:15
  devastating. Let's look at Funday. With its 2
• 8:18
  % fee, your 7 % gross return is reduced down
• 8:22
  to a 5 % net return. Right. If you compound your
• 8:25
  $100 ,000 at 5 % for 30 years, you end up with
• 8:29
  $432 ,194. Which, if you don't know any better,
• 8:34
  sounds pretty good. I mean, you turned 100 grand
• 8:36
  into over 400 grand. You quadrupled your money.
• 8:40
  It's so easy to look at that statement and feel
• 8:42
  like a total winner. It feels like a win until
• 8:44
  you look at Fund C. FUNCY charges just 0 .2%,
• 8:48
  meaning you keep a 6 .8 % net return. OK, and
• 8:51
  what does that compound to? If you compound that
• 8:53
  same 100 grand at 6 .8 % for 30 years, you end
• 8:56
  up with $719 ,677. Wait, let me just process
• 9:01
  that. $432 ,000 versus $719 ,000. The gap there
• 9:06
  is $287 ,483. Yes. A fee difference of just 1
• 9:13
  .8 % ends up eating almost 40 % of the final
• 9:16
  wealth. How does such a small percentage swallow
• 9:20
  so much money? What's fascinating here is the
• 9:23
  dual nature of the loss. When you pay a 2 % fee,
• 9:27
  you aren't just losing the 2 % of capital you
• 9:29
  paid the manager this year. You are permanently
• 9:32
  losing all the future compounding growth that
• 9:35
  the 2 % would have generated for you over the
• 9:37
  next 29 years. Every dollar taken out of your
• 9:40
  account today is a dollar that can no longer
• 9:42
  duplicate itself tomorrow. The fee compounds
• 9:45
  against you at the exact same exponential rate
• 9:48
  that your returns are trying to compound for
• 9:50
  you. Oh, wow. Okay, I actually need to update
• 9:53
  my snack box analogy from earlier because it's
• 9:55
  actually much worse than just missing crackers.
• 9:58
  Oh, yeah. How so? It's not just that they took
• 10:00
  2 % of my snacks. It's like I bought a box of
• 10:03
  agricultural seeds to plant a farm. And before
• 10:06
  they ship the box, they take 2 % of my seeds.
• 10:09
  Right. I didn't just lose the literal seeds.
• 10:12
  I permanently lost the entire crop of food. Those
• 10:16
  specific seeds would have grown, and the seeds
• 10:18
  those crops would have produced over the next
• 10:21
  30 harvests. That is a perfect visualization.
• 10:26
  The opportunity cost is exponential. That missing
• 10:29
  $287 ,000 isn't just the sum of the fees you
• 10:33
  paid. It is the ghost of the wealth that those
• 10:35
  fees could have become. That's haunting. And
• 10:37
  think about it. That missing wealth is nearly
• 10:39
  three times the size of your original $100 ,000
• 10:43
  investment. That is mathematical violence. But
• 10:46
  okay, let's be realistic for a sec. Most of you
• 10:48
  listening right now, don't just drop a $100 ,000
• 10:51
  lump sum into an account and walk away. to live
• 10:53
  on a mountain for 30 years. Most of us are monthly
• 10:56
  contributors. Let's run the numbers for someone
• 10:59
  diligently putting away $500 a month out of their
• 11:01
  paycheck for 30 years. Let's do it. If you contribute
• 11:05
  $500 a month for 30 years, your total out -of
• 11:08
  -pocket contribution is $180 ,000. OK, got it.
• 11:12
  If we apply the exact same 7 % gross return,
• 11:16
  let's look at the final results. At a 2 % fee,
• 11:20
  Your final balance is $416 ,129. And with the
• 11:26
  low fee. At a low 0 .2 % fee, your final balance
• 11:31
  is $586 ,452. The gap there is $170 ,322. I really
• 11:38
  want that to sink in for everyone listening.
• 11:40
  It's huge. The fee difference over 30 years cost
• 11:43
  you $170 ,000. That means the invisible fee essentially
• 11:47
  swallowed the equivalent of your entire lifetime
• 11:49
  of out -of -pocket contributions. Yes, it did.
• 11:52
  Every single $500 check you wrote for 30 years
• 11:55
  basically went to paying the fee difference.
• 11:57
  Precisely. You funded your own retirement and
• 12:01
  simultaneously you entirely funded someone else's.
• 12:04
  Okay, this brings up an incredibly urgent question
• 12:07
  with hundreds of thousands of dollars missing
• 12:10
  from the investor's pocket over a lifetime. where
• 12:14
  exactly is all that money going? Like, who is
• 12:17
  getting rich off my 2 %? Let's break down the
• 12:20
  management fee portion of the MER we talked about
• 12:23
  earlier. A very large part of this fee is frequently
• 12:26
  paid out as an ongoing trailing commission to
• 12:29
  the dealer firm whose advisor sold you the fund
• 12:32
  in the first place. A trailing commission. So
• 12:34
  it's basically an ongoing kickback for the initial
• 12:36
  sale. Well, the industry prefers the term trailing
• 12:39
  commission, but fundamentally, yes, it is paid
• 12:41
  annually to the advisory firm for as long as
• 12:43
  you hold the fund. Every single year you stay
• 12:46
  in the fund, a predetermined slice of your money
• 12:48
  flows back to the firm of the person who originally
• 12:50
  recommended it to you. I am seeing a massive
• 12:53
  structural conflict of interest here. How so?
• 12:55
  Well, if an advisor is looking at two funds,
• 12:59
  fund X and fund Y. Let's say they have incredibly
• 13:02
  similar mandates and historical performance.
• 13:04
  But Fund X pays the advisor a 1 % trailing commission
• 13:08
  and Fund Y only pays a 0 .2 % trailing commission.
• 13:15
  There's a mechanical financial incentive to put
• 13:18
  the client in Fund X because it literally pays
• 13:22
  the advisor's firm five times more money. every
• 13:25
  single year. Absolutely. This structural conflict
• 13:28
  of interest is an inherent reality of the integrated
• 13:31
  financial industry. The manufacturers of the
• 13:34
  funds need the advisors to distribute the funds,
• 13:37
  so they build in trailing commissions to incentivize
• 13:40
  the distribution channel. That's crazy. Now these
• 13:42
  conflicts are heavily regulated and they are
• 13:44
  legally disclosed in the prospectus documents,
• 13:46
  but disclosure doesn't magically eliminate the
• 13:49
  incentive. The incentive remains a mechanical
• 13:51
  reality. Advisors are human beings running businesses
• 13:54
  and humans respond to incentives. It feels like
• 13:57
  the system is rigged between the invisible mirrors,
• 14:00
  the trailing commissions, the bid ask spreads.
• 14:02
  I mean, it feels like you're just getting cheated
• 14:04
  at every turn by an industry designed to siphon
• 14:07
  your wealth. I am actually going to push back
• 14:09
  on the idea of being categorically cheated. Yeah,
• 14:11
  because we need to be intellectually honest about
• 14:13
  the mechanics of investing. These fees do pay
• 14:17
  for real, tangible services. Like what? Pooling
• 14:21
  your money with thousands of others, providing
• 14:23
  instant market diversification, handling complex
• 14:26
  tax administration, granting access to institutional
• 14:29
  assets. Those are highly valuable services that
• 14:32
  you cannot easily replicate on your own. Okay,
• 14:35
  fair. A fund charging 0 .2 % is delivering an
• 14:39
  enormous amount of value for a very low cost.
• 14:42
  Wait, I have to challenge you on that. Diversification...
• 14:44
  is practically free nowadays. True. I can open
• 14:47
  a discount brokerage app on my phone, buy a broad
• 14:50
  market index ETF for practically zero commission,
• 14:54
  and get global diversification for 0 .1 % MER.
• 14:59
  Why on earth should I pay a premium 2 % or 2
• 15:02
  .5 % fee just for the privilege of pooling my
• 15:05
  money with an advisor? You're exactly right,
• 15:07
  and that is a critical distinction. You shouldn't
• 15:09
  pay 2 % for basic market access or basic diversification.
• 15:12
  The issue is not that fees exist. The issue is
• 15:15
  what you actually receive for the premium fees
• 15:18
  you're paying. If you are paying 2 % or 2 .5%,
• 15:23
  the fee itself isn't a crime, provided you are
• 15:25
  extracting 2 % or 2 .5 % worth of value from
• 15:29
  the advisory relationship. So what does this
• 15:31
  all mean? It means we shouldn't just blindly
• 15:33
  hate fees, but we need to empower you, the listener,
• 15:37
  to demand actual value for the money being extracted
• 15:39
  from your wealth. Which makes sense. Which brings
• 15:41
  us to the psychology of transparency. If fees
• 15:45
  are an inevitable part of the financial system,
• 15:48
  how do we know if what we are paying is actually
• 15:50
  worth it? Because right now, percent signs don't
• 15:53
  trigger the pain receptors in the human brain.
• 15:55
  They really don't. 2 % doesn't feel like real
• 15:58
  money. And that psychological blind spot is exactly
• 16:01
  why CRM2 reporting was introduced. Right. The
• 16:03
  financial industry fought incredibly hard against
• 16:06
  this kind of transparency, but regulators pushed
• 16:08
  it through. First, we must establish that good
• 16:11
  financial advice can be incredibly life -alteringly
• 16:14
  valuable. I'll concede that. An advisor who talks
• 16:18
  you off the ledge and prevents you from panic
• 16:20
  selling your entire portfolio during a market
• 16:23
  crash like March 2020. Exactly. They have earned
• 16:26
  their 2 % fee for the next decade in a single
• 16:29
  afternoon. or an advisor who optimizes the tax
• 16:33
  locations of your corporate and personal assets
• 16:35
  so you keep tens of thousands more from the government,
• 16:38
  that is massive, tangible value. Precisely. The
• 16:42
  problem isn't paying for advice. The problem
• 16:44
  is paying advice level fees and receiving absolutely
• 16:48
  no advice. Yes. For decades, investors couldn't
• 16:51
  easily tell what they were paying because it
• 16:52
  was hidden in those abstract percentages. But
• 16:55
  under the CRM2 reporting rules in Canada, which
• 16:58
  stands for a client relationship model phase
• 17:01
  two, investors now receive an annual charges
• 17:03
  and compensation report. And what does that report
• 17:05
  actually show? This document forces the industry
• 17:08
  to show you exactly what your dealer firm received
• 17:11
  from your accounts, not in percentages, but in
• 17:14
  raw, specific dollar amounts. And dollars matter
• 17:17
  so much more than percentages. 2 % on a $500
• 17:20
  ,000 portfolio sounds small. It's just a 2. But
• 17:23
  2 % of $500 ,000 is $10 ,000 a year, every single
• 17:26
  year. Yep. I have to laugh, though, because these
• 17:29
  CRM2 statements look exactly like dense, legally
• 17:33
  mandated junk mail. They really do. They're printed
• 17:36
  in tiny black font, completely devoid of any
• 17:39
  graphic design, and they look exactly like the
• 17:42
  kind of compliance paperwork you were supposed
• 17:44
  to immediately throw into the recycling bin.
• 17:46
  If we connect this to the bigger picture, you
• 17:48
  have to wonder if the dry presentation is a feature,
• 17:51
  not a bug. That is entirely possible. But the
• 17:54
  goal of this regulation isn't to make you hate
• 17:56
  your advisor. It's to bring the compensation
• 17:59
  out of the shadows. Transparency allows for informed
• 18:02
  consent. at that dollar figure on page four of
• 18:06
  that boring document and run what I call the
• 18:09
  advice litmus test. Okay, lay out the litmus
• 18:11
  test for us. You look at that $10 ,000 figure
• 18:14
  on your CRM2 statement and you ask yourself a
• 18:16
  very simple question. What specific tangible
• 18:20
  services did I receive for this $10 ,000 this
• 18:22
  past year? And more importantly, If this fee
• 18:25
  wasn't invisibly deducted from my account, if
• 18:28
  my advisor sent me a physical invoice in the
• 18:31
  mail for $10 ,000 with a 30 -day payment term,
• 18:34
  would I willingly write a check out of my bank
• 18:36
  account to pay it? Oh, that is brilliant. Framing
• 18:39
  it as a physical invoice completely changes the
• 18:41
  dynamic. It does. If the advisor's only answer
• 18:44
  to, what did you do for me this year, is, well,
• 18:47
  I selected these mutual funds for you. then writing
• 18:50
  a $10 ,000 check is going to feel like an absolute
• 18:53
  ripoff. Right. That is a massive red flag that
• 18:56
  you are overpaying. Yeah. But if they offer comprehensive
• 18:59
  estate planning, tax coordination, cash flow
• 19:01
  modeling, and active behavioral coaching, you
• 19:04
  might gladly write that check because it's excellent
• 19:07
  value for a complicated financial life. Exactly.
• 19:10
  The litmus test forces clarity. And this transparency
• 19:13
  also allows you to have informed, pointed conversations
• 19:16
  about fund series. Here's something that confused
• 19:19
  me when I first started looking into this. I
• 19:21
  used to think that if I bought the Global Tech
• 19:23
  Fund, I just owned the Global Tech Fund. It was
• 19:26
  one product. But looking at the source materials,
• 19:29
  there's a whole alphabet soup. Series A, Series
• 19:32
  F, Series D of the exact same fund. Oh yeah,
• 19:36
  the alphabet soup. It's like buying a plane ticket.
• 19:38
  where coach and first class arise at the exact
• 19:41
  same destination, but one ticket costs double.
• 19:45
  Why did the industry create all these different
• 19:46
  series instead of just creating different funds?
• 19:49
  They created different series to accommodate
• 19:51
  the different distribution channels of the integrated
• 19:53
  financial industry. Okay, how so? The exact same
• 19:56
  mutual fund, holding the exact same underlying
• 19:59
  portfolio of stocks, exists in different classes
• 20:02
  because they bundle different fee structures.
• 20:05
  They are identical in what they invest in, but
• 20:07
  materially different in the administrative costs
• 20:10
  they charge. Give me a breakdown of how the alphabet
• 20:12
  soup works. Sure. Series A might be the traditional
• 20:15
  retail version. It includes the trailing commission
• 20:17
  paid to a traditional advisor, so the MER sits
• 20:20
  at, say, 2%. Got it. Series D might be designed
• 20:24
  for do -it -yourself investors buying through
• 20:26
  a discount brokerage. It strips out the bulk
• 20:29
  of the advisor trailer, bringing the MER down
• 20:32
  to 1%. Okay, much better. And Series F is designed
• 20:35
  for fee -based accounts, where you pay the advisor
• 20:37
  directly out of pocket for their advice, so the
• 20:40
  fund itself doesn't need to pay a trailer. Its
• 20:42
  MER might be 0 .8%. This raises a massive quotient
• 20:47
  regarding discount brokerages. Let's hear it.
• 20:49
  If I fire my advisor, and move my account to
• 20:53
  a DIY discount brokerage to manage it myself.
• 20:55
  Wouldn't the brokerage just automatically strip
• 20:57
  out the trailing commission since I'm no longer
• 20:59
  getting advice? You would think so, but no. No.
• 21:03
  The mechanical reality of the industry is that
• 21:05
  the discount brokerage has no financial incentive
• 21:08
  to proactively lower their own revenue. Wait,
• 21:11
  really? If you transfer your account in kind,
• 21:14
  you might remain sitting in the Series A version
• 21:17
  of the fund. You are now managing the money yourself.
• 21:20
  but you are still paying the 2 % fee that includes
• 21:23
  a trailing commission. And who is getting that
• 21:25
  commission? That commission is now just being
• 21:28
  quietly pocketed by the discount brokerage for
• 21:31
  advice they are legally not even allowed to give
• 21:33
  you. That is wild. It happens all the time. You
• 21:37
  have to actively initiate the switch to the cheaper
• 21:40
  series. So when people throw out their annual
• 21:43
  CRM2 statements without opening them because
• 21:46
  they look boring, they're literally throwing
• 21:49
  away the receipt for a $10 ,000 invisible purchase.
• 21:53
  Exactly. They're willingly blinding themselves
• 21:55
  to the true cost of their own wealth creation.
• 21:58
  That is the perfect way to summarize it. You
• 22:01
  simply cannot manage a structural cost. that
• 22:03
  you refuse to measure. OK, this has been an incredibly
• 22:06
  eye -opening deep dive. We've gone from the mechanics
• 22:09
  of invisible fees to the staggering math of lost
• 22:12
  compounding, all the way down to the structural
• 22:15
  conflicts of the industry. Let's summarize the
• 22:18
  absolute must -do actionable takeaways for you
• 22:20
  listening right now. Sounds good. We want you
• 22:22
  to do three things based on the source material
• 22:24
  we explored today. Number one, find your annual
• 22:27
  charges and compensation report, your CRM2 statement.
• 22:31
  Open it up. bypass the legalese, and look at
• 22:34
  the raw dollar figure you paid your firm last
• 22:37
  year. Yes. Number two, log into your portfolio
• 22:40
  and check exactly which series or class of funds
• 22:43
  you hold. Make absolutely sure you aren't paying
• 22:46
  series A fees with embedded trailing commissions
• 22:49
  if you are managing the money yourself. And number
• 22:52
  three, run the litmus test. Do the math on your
• 22:55
  own account balance. Look at the dollar amount
• 22:58
  you're paying annually, look at the tangible
• 23:00
  services you're actually receiving from your
• 23:02
  advisor, and decide honestly if the value justifies
• 23:05
  writing a physical check. If it does, fantastic,
• 23:07
  you have a great advisor. If it doesn't, it is
• 23:09
  time to have a very serious conversation about
• 23:11
  your wealth. And we want to leave you with a
• 23:13
  final, slightly provocative thought to mull over.
• 23:15
  We just spent this entire conversation dissecting
• 23:18
  MERS, terrors, trailing commissions, and dollar
• 23:21
  cost reporting. We did. But here's the wild part.
• 23:25
  The fees we just talked about are only the most
• 23:28
  visible of the invisible costs in your portfolio.
• 23:30
  That's right. While you are hyper -focused on
• 23:33
  the 1 % or 2 % management fee, there are other
• 23:37
  silent mechanics at play in the background. Like
• 23:39
  what? Well, currency conversion spreads when
• 23:42
  you buy foreign assets can easily strip away
• 23:45
  another 1 .5 % in a hidden dealer markup. Ouch.
• 23:50
  Bid ask spreads in thin markets extract a premium
• 23:53
  every single time you trade. And taxes, if your
• 23:56
  assets are located in the wrong types of accounts,
• 23:59
  are sitting right beside these fees, quietly
• 24:02
  eating another massive, staggering slice of your
• 24:05
  returns before you ever get to spend a dime.
• 24:08
  It makes you look at that subscription box entirely
• 24:10
  differently, doesn't it? It really does. They
• 24:12
  aren't just slicing off 2 % of your seeds for
• 24:14
  the management fee. There's another hand taking
• 24:16
  a slice for converting your currency, another
• 24:18
  hand taking a crumb to the trading spread, and
• 24:20
  the government taking a massive bite for taxes.
• 24:22
  It adds up fast. We challenge you to look at
• 24:24
  your portfolio with entirely new eyes. Track
• 24:28
  down every single entity taking a slice of your
• 24:30
  wealth before the box reaches your door. Thanks
• 24:32
  for joining us on this deep dive.