InvestmentsMake sure you and your broker or advisor are aligned on investment account strategy and goals.

Each year the CPAs and team at Bach, James, Mansour & Company prepare tax returns for hundreds of clients. One thing we noticed this year is that some client investment accounts seem to have very high fees relative to the returns. Many of these fees are tied to transactions, meaning movement in and out of stocks and other investments that seem unusual given the age and net worth of those clients.

You should earn more than your broker

To be clear, the tax-related investment information we see doesn’t give us full insight into all account information. There may be perfectly good explanations for what we’re seeing, but high transaction volume combined with high fees, especially for older clients, still raises a red flag. Here are a few general examples:

  • Stockbroker made $18,000 vs. net investment account income of $4,000.
  • 1% charged for $1 million of assets with only a couple of transactions during the year.
  • Over 20 pages of stock transactions on a retired person’s investment account.
  • 80+ year-old person’s retirement account with high-tech stocks and energy partnerships.

Whether charging a flat management fee, transaction commissions, or a hybrid of both like a “wrap fee,” brokers and financial advisors make money by managing your money. That’s fair, but it’s also fair to understand the value that you’re receiving in return for the fees, just like you do with your lawn care, lawyers, and even CPAs.

  • Understand your fees. These are listed on your annual 1099 form from the broker or advisor, as well as in your statements. If you can’t locate them, check the back page.
  • Review your statements. Review transactions, just like you do with your credit card statements. Ask about anything you feel is unusual with transaction volume, gains, commissions, etc.
  • Confirm your investment strategy. If you’re retired, having a steady income stream from your investments may be more important that growing your portfolio. Have your broker/advisor confirm your strategy in writing.
  • Hold regular meetings. Sit down with your broker/advisor once or twice a year to review results. Your broker/advisor should be excited that you’ve taken an interest in your investments.
  • Consult a 3rd If you’re still not comfortable with your investments, have another broker/advisor or trusted friend review the accounts and give you a second opinion.

New fiduciary rules support retirement investors

In April, the US Department of Labor announced a new rule that requires retirement investment advisors “to put their client’s best interest first” while clearly disclosing all potential conflicts, such as hidden fees. The Department of Labor estimates that this action alone will lead to gains of over $40 billion for retirement investors over the next 10 years.

Financial advisors and stockbrokers offer a valuable service, taking the complication out of the decisions needed to manage our investments and savings. They want you to understand your strategy, results, and fees. If you don’t understand, just ask.

Neal Bach, CPA and Faye Sklar, CPA

Please note that Bach, James, Mansour & Company does not provide investment or legal advice. We can only highlight information that we see in your investment accounts.