Noah Smith, Columnist

Americans' Savings Make Wealth Managers Rich

Advisers charge fees that are opaque or hidden, depriving investors of information needed to avoid excessive costs.

May 16, 2017 at 12:00 PM UTC

Noah Smith is a former Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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There was an interesting and slightly scary article in the Wall Street Journal recently, in which reporter Andrea Fuller tries to find out what fees she’s paying to the financial adviser who manages her money. At long last, after a torturous experience with the company, she finally manages to find out how much she’s paying -- 1.4 percent of assets every year, with 0.85 percentage point of that going to the advisers who manage her investments, and 0.55 percentage point to the funds they invest in.

To pay 1.4 percent a year is an absolutely enormous amount. As I demonstrated in a piece last year, even a tiny fee can devour a huge percentage of your life’s savings. Here is a simulation assuming a constant 7 percent yearly return and a 1.4 percent management fee like the one Fuller pays: