Charlie Ellis On Fees

I am always interested to hear what Charles Ellis has to say.  So when I saw that Investment News had an interview with him (and Mark Cortazzo), I had to hear what he had to say.  The interview focuses on fees, with a 1% (of assets) asset management fee identified as standard for the investment advisory business.  They go through a couple of exercises to try to make a point that advisor fees are actually higher than advertised: Charlie says compared to returns fees are 15%, Mark says due to stair steps the 1% on the last dollar actually turns into 1.67% on all dollars.

Some advisors have their business entirely structured as asset management.  It is at these firms that Ellis' and Cortazzo's comments are aimed.  Management fees of 1% (or more) are unsupportable when this is in the marketplace.  Frankly, the competition to for these firms ranges from Morningstar ($500 to $1500 per year or 1% on a $50,000 to $150,000 portfolio) to mutual fund companies (with asset allocation apps on their websites and  registered and fairly competent representatives available by phone at no extra charge).  Every month, my Charles Schwab account monitors my investments for quality (as defined by Schwab experts) and for allocation outside of some model that has been selected for me.

Where I see more advisors today is providing a very wide range of services on an ongoing basis with their clients.  They charge their clients an "asset management" fee, but portfolio oversight is a small part of the services provided.  It just happens that advisors and client have agreed that it is a fair and transparent way of compensating the advisor while avoiding the piecemeal nature of hourly or project billing.

What the interview reminds me is that the market is highly competitive, and there is no lack for commentators ready to assert that this fee or that charge is too high.  The remedy, of course, is an unassailable value proposition, and constant reminders of it with clients.