How Wall Street Gets Rich Off Savers

To borrow a joke from the movie “Shrek,” money management is like a parfait -- it has a lot of layers. There’s the person who recommends investments for you -- a financial adviser, a wealth manager, a pension-fund manager or a private banker. Then there are the managers of the funds they invest in, or which you invest in on their recommendation. Finally, there are brokers, dealers, exchanges and other intermediaries that handle the actual trading of the assets the fund managers buy. Each layer takes a cut from your wealth -- sometimes in the form of a commission or flat fee, but sometimes in the form of a percent of your savings.

There are even more layers buried deep within the asset-management parfait. One such layer is investment consultants. Firms such as Aon Hewitt, Mercer and Cambridge Associates provide investment services to retirement-plan managers who, together, manage tens of trillions of dollars of wealth. The consultants help the money managers pick assets and mutual funds, model the risk and reward of these investments, track performance and so on.