Reviewing an asset management account agreement for a relative, I tried to catch the ways fees are extracted from the investor. We rightly focus on ERs and loads but I spotted a couple other methods that were, let's say, less than obvious.
First was the prominently disclosed asset management fee of 0.9% per year. This was in big bold print, very obvious.
But beyond that was some fine print that stated some of the investments may be in load funds. Some of that front-end load "may" be rebated to the advisor. Then was some additional fine print that said some funds "may" have 12b-1 fees... and some of that fee "may" be rebated to the advisor.
Finally, there was the section about the cash sweep feature. It pointed out funds would be swept to a bank money market fund and they would automatically divide up funds across multiple banks if necessary to ensure no single bank had a balance in excess of the FDIC insurance limit. And in that part of the fine print, it noted the banks rebate some of the interest earned to the advisor, up to 200 basis points. Currently the investor would be getting 0.05% APR on sweep funds.
If you are investing without the advisor you would still pay the 12b-1 and load, I suppose you could argue these clauses don't actually increase the amount the investor is paying. But they are certainly increasing the amount the advisor is getting, and who could be surprised if load funds turn out to be the advisor's choice.
There are also transaction fees on everything, and it wasn't clear to me if the advisor gets any of those.
Have you noticed other ways that paid advisors increase their fees beyond the management fee?