Tuesday, May 27, 2008

Edelman Financial’s Fees

Edelman Financial is an investment management firm run by Ric Edelman who has authored several books. I have reviewed two of these books: “Building Wealth” and “The Lies About Money”.

From one book to the other, Edelman went from being a fan of the mutual fund industry to a passionate critic. He explains in great detail all the costs associated with typical mutual funds and how investors don’t get anywhere near their money’s worth.

Until now, I hadn’t looked at Edelman Financial’s fees. Thanks to an anonymous reader who sent a link to the fee schedule, we can take a look. Here are the yearly fees based on total assets:

First $150,000: 2.00%
Next $250,000: 1.65%
Next $350,000: 1.25%
Next $250,000: 1.00%
Next $2 million: 0.75%
Next $7 million: 0.60%
Next $15 million: 0.50%

As it turns out, this does not include fund expense ratios and other charges which add about 0.4% per year.

None of these percentages look particularly big, but they add up. Over 25 years of investing, how much would an investor pay in fees? Let’s assume that the thresholds for the different percentages rise with inflation, and that the investments make 5% above inflation before fees.

Then a starting portfolio of $100,000 would pay 45% of assets to Edelman Financial in fees over 25 years! Even a richer investor who starts with $1 million would end up paying 33% in fees over 25 years. This is a huge price to pay to not have to choose your own index ETFs.

Edelman Financial makes the case here that the industry average fees are much higher, and this is true. But, if the typical financial advisor chooses investments that cost you 10 times the cost of an index ETF strategy, are you content to choose Edelman Financial just because it charges only 5 times the index ETF cost?

2 comments:

  1. my Edelman advisor has sat on his hands and watched MY money dwindle with each passing month. Guess what??? He still get his. I call that stealing! He certainly has not earned it!

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  2. Anonymous: What little I was able to learn about Edelman's fees indicated that they were too steep for my taste. However, just about everyone who does the smart thing and invests long-term money in stocks has lost money lately. I understand your frustration. You might want to consider learning as much as you can about investing. Whether you choose to invest your money on your own or invest with an advisor, an understanding of investing will help you make sensible choices and sleep well at night.

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