Skip navigation

Ticket charges and fund expense ratios... you pay, or client pay?

or Register to post new content in the forum



  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Jan 23, 2012 12:38 am

For you fee-based RIAs, big question on how your business is set up. Do you pay ticket charges and fund expense fees, or does the client pay them?

This questions assumes that if you do eat the fees, your fee is somewhat higher to compensate. e.g. 1.25% all-inclusive or 1.00% + tickets + expense ratio.

I'm torn on this "wrap program conflict of interest" vs. nickle-and-dime psyche dilemna. I feel like clients will like the idea of a single, all-inclusive fee, but I'm hearing this presents a COI in terms of advisers picking only lowest-cost funds and under-trading. Also, I guess it means you officially run a wrap program and are subject to extra scrutiny/regs.

So then if you have the client pay, and charge them a lower fee, it eliminates this COI... but psychologically, can they handle paying 3 different fees without feeling nickled-and-dimed?

Assume it costs the client the same either way. Assume clients are 500k+ NW

For those of us in early planning stages, this is a big decision. I'm all about good ethics and no COIs. I think that's why many of us go indy in the first place. What say those of you who have already made this decision?

Jan 23, 2012 1:48 pm

I don't undertstand the supposed conflict.

The client is paying me a % to manage their money.  That's what I do.  If we need to re-balance or change investments, we do.

Regarding lowest cost... study after study has shown that over the long run, the lowest cost works best for the client.

I see no conflict.  No client has ever asked either.


Jan 25, 2012 4:48 am

Sorry for any confusion.

I remember reading here that if you eat tickets and expense ratios, your fee constitutes a "wrap program" and therefore is subject to extra scrutiny by regulators. Am I fortunately mistaken?

I'm all about low costs.

Anyone weigh in here?

Jan 27, 2012 1:56 am

Celcius are you an advisor yet? Your question in confusing because advisors do not pay expense ratios that I know of.
Most indys that I know of allow for both. You have a platform that is all inclusive or one where someone pays ticket charges. And most on ticket charges have agreements with a lot of MF companies where there is no ticket charge if you use one of their funds.
I just disclose all fees to the client/prospect (even fund expenses). I tell them this is how I work. They can either work with me and how I do business or not. Most advisors do not show all the fees a client is being charged (mutual fund expense ratios). So I first educate them about what they have and are currently paying, and then show them what I do, and what I charge.
Met with a prospect the other day, showed him my ETF models and the weighted expense ratios of my current allocation. I told him that I also charge x% for my management fee and that encompasses trading and account fees. Or if he wants, i can use our other platform where he payes transaction fees as well my fee (which is lower because he is covering the cost of the transactions). That is up to him, but I will do the same thing either way. He signed over his $600k worth of accounts and said he liked knowing what is was going to pay from the start so wanted the one fee.

Jan 27, 2012 5:00 pm

Hacksaw is spot on.  The biggest myth out there is that a client is "only" paying 1%.

That may be what they see.... but there are many more charges buried.  Whether they're disclosed or not is up to the morals of the advisor.