Riley Article at Golocal.prov

Riley: Investment Fee Abuse in Rhode Island Public & Private Investments

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Tuesday, December 06, 2016

Michael G. Riley, GoLocalProv MINDSETTER™

Michael Riley warns on investment fees -- in both the public AND private sectors in Rhode Island.

Readers of this column know I have been relentless about the composition of the State Pension Fund Portfolio and its fees. As Ted Seidle has pointed out in several articles, the Magaziner/Raimondo fund is filled with very high fee investments, some cost RI over 2% annually. Rhode Island taxpayers and retirees have every right to complain about fees because it’s their money or their promises that are being worsened by exorbitant fees. 

D es this kind of high fee abuse occur in the private sector?

Oh, yeah it happens. In fact, it is quite common. Recently Barron’s wrote about the thousands of elderly investors being ripped off in various ways not only by scammers but also family and friends. Barron’s called it an epidemic.

Many Rhode Islanders think that by hiring professional money managers, like the big banks who would never charge their clients too much, are insulated from abuse in portfolio advice and management fees.You might be  very surprised.

The average investor and High Net Worth investor pays between 1% and 2% of the value of their account to their adviser so they can select appropriate funds for clients and, in addition, the funds selected by your advisor will also charge management fees. Those fees range from .50 % to 1.4% AUM (Assets Under Management). Altogether, the total fee cost to the client is between 1.5% to 3.4%. That is  just the “average cost” of individuals using an advisor to professionally manage your investments. Larger accounts can and do negotiate lower fees.

Be very careful and hire someone you trust

Upon closer inspection, I’ve found that fee abuses are rampant and tend to appear or occur upon the death of a family member when one spouse inherits a portfolio for example. We have also seen fee abuse that lasts for years and goes unnoticed. We have Rhode Island clients who formerly had their money managed by wealth management firms affiliated with well-known Big Banks and Brokers. 

We reviewed the accounts and found the following abuses in Providence Rhode Island:

  • Beware “programs" that charge extra fees. We found oneBank in Providence that charges an advisory fee of 2.5% to be split with a “wealth advisor”. In addition to the 2.5% advisor fee, the investor pays a fund fee of 1% to the mutual funds that are also managed by the bank. That’s 3.5%!!!  
  • From a bank “Class P shares held through the xxxx Select Advisors Program are subject to a maximum Program fee of 2.50%, which, if included, would have reduced performance. Class P shares held through other advisory programs also may be subject to a program fee, which, if included, would have reduced performance. Please refer to each Fund's prospectus for further information on the eligibility to purchase Class P shares.” November 2016
  • You should demand disclosure of your “year to date fees." Amazingly, in one case, It took us days to figure out the fees on an investor statement. Ask your advisor how much did he get paid in fees last year from your account? Ask him where he can find that in the statement. If he can’t then fire him. 
  • Lost Stock certificates-  sometimes clients find out that their spouse owns stock certificates and kept them in a safety deposit box or in a safe or an individual has money due from a lost and inactive account that subsequently went to the State.  Beware some services are hired by the company (example IBM) who issued the shares or even hired by some States to find the proper owner. That’s all well and good, but they will charge you up to 30% to sell your shares or to properly register them. So, you should just ask your broker or Advisor to do the research for you. 
  • In Rhode Island, there are remedies and RI investors should thoroughly review this page.

We can all agree that investors in the private sector are usually protected by a broker or Adviser Fiduciary, but not always.  I recommend you immediately review your account statements today, if you cannot tell how much you are being charged, just ask your broker or advisor and then get it in writing. If you need more info, ask us or any other Registered Investment Adviser.  

Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity,and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC.