Five Investment Management Expenses That May Be Costing You Millions

Fund mangers claim to find market inefficiencies that offer opportunities to "beat the market"… True or not, the cost of trying to exploit these is likely to exceed the benefits of doing so. Following are excerpts from an eye-opening study, published in the Journal of the American Institute of Certified Public Accountants (January, 2000), which documents these substantial costs you may be paying.

The SEC requires mutual fund prospectuses to provide expense information generally limited to the fund's operating expense ratio and any 12b-1 charges (essentially marketing expenses the fund passes on to investors). Unfortunately, these expenses are just some of the costs investment managers impose on investors.

Funds actually incur five additional types of annual expenses:

• Operating expenses and distribution fees
• Market impact costs
  
• The cost of cash
• Taxes
  
• Trading expenses

As the Journal article details, each of these expense categories can create overhead of 1% subtracted from returns. That's 5% or more out of the investor's pocket every year!

Frequently the cost savings from reducing these fees exceeds our total retainer which includes all comprehensive advisory services