How much are you paying to invest? The answer might surprise you, particularly if you invest with the brokerage arm of a major bank.
Are you paying 4x what you should to invest?!
A new study from Personal Capital compared the costs of you investing your money with banks and insurance companies vs with lower-cost providers like Fidelity or Scottrade.
Read more: Thinking about an annuity? Here’s why they stink!
The cost differences are unbelievable. I should note these costs are before whatever management fees you’re going to have to pay the bank or full commission stockbroker to handle money for you.
The most expensive one is Bank of America/Merrill Lynch. The expenses of doing business with them are 4x the cost of mutual fund or ETFs with the like of Fidelity, Scottrade or USAA. That’s your money going down the drain!
In addition, if you do business with a company like Bank of America/Merrill Lynch, there is no fiduciary duty to you there. In plain English, that means the broker is working for Bank of America/Merrill Lynch, not you. So they can sell you stuff that is not nearly the best choice for you. Because they do not have to do what’s in your best interest.
And on top of that, you have to pay them massive fees to manage the money for you!
Read more: Why a 702(j) does not make sense for your wallet!
Bank of America/Merrill Lynch are not the only ones up there in the stratosphere in terms of cost. Wells Fargo is 2x more expensive than the low-cost providers. Morgan Stanley charges more than double too.
Again, this is before advisory fees. This is just for underlying costs of what they sell you, on average!
This is going to be true with insurance companies as well, who will also charge you many times what you would pay with a low-cost discounter.
If you’re really into low cost investing, Schwab now offers ultra low-cost ETFs and individual advice for free. So the cost advantage they have if you want a more traditional advisory relationship is tiny compared to Bank of America, Wells Fargo, Morgan Stanley, et al.
So to recap:
Rule 1: You only want to do business with an organization that is your fiduciary. That means they put your interest first. Anyone else should be redlined.
Rule 2: What you pay to invest matters big time over the course of a working lifetime. It can determine when, and even if, you can retire.
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