How Do Marotta’s Fees Compare To The Average Fee-Only Advisor’s Fees?

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Andy Wang of Runnymede Capital Management has an interesting article they refreshed on their website in 2016 entitled “How Much To Pay a Fee-Only Advisor? A Look At Average Annual Fees” in which he concludes:

If you are paying a total annual fee of 1.25% or less, you are in relatively good shape.

Now, his own company, Runnymede, lists their fee as 1.25% in their 2018 ADV filed with the Securities and Exchange Commission, so he his a bit biased to pick this number, but the article is nevertheless interesting.

As Wang points out, “Fee-based or commission-based advisors generally do not have a “duty to disclose” their method of compensation so it can be confusing for clients who may not fully understand when their advisor is working for commissions.

Many commission-based advisors will argue that their services are “free” because they do not charge a percentage of assets under management, even though their total revenue from commissions far exceeds normal asset-under-management fees. Here is Where to Find the Hidden Fees of Commission-Based Firms.

Wang sites a 2016 InvestementNews Financial Performance Study which lists average advisor fees based on the size of assets under management and suggests also comparing the average fund’s expense ratio of 0.68% to demonstrate the load of fees for which the client is responsible.

I decided to compare these average fees with our fees.

Currently, we offer two service levels. We have our “Do-It-Yourself” service level which charges 0.4% of assets under management and has no minimum account balance, but only a minimal number of included basic services. Then, we also offer our “Comprehensive” service level which includes all our services and charges 1.0% or less according to our Fee Schedule with a minimum annual fee that makes it cost effective for a minimum account balance of at least one million.

Here are those fees compared to the 2016 study:

Average Advisor Savings from Marotta Marotta Wealth Management Service Level
Average Portfolio’s Fund Expenses 0.68% (0.44%) 0.24% All Levels
Account Size Average Advisor Savings from Marotta Marotta Wealth Management Service Level
$100,000 1.30% (0.90%) 0.40% “Do-It-Yourself”
$250,000 1.23% (0.83%) 0.40% “Do-It-Yourself”
$500,000 1.11% (0.71%) 0.40% “Do-It-Yourself”
$1,000,000 1.01% (0.01%) 1.00% “Comprehensive”
$5,000,000 0.91% (0.11%) 0.80% “Comprehensive”
$10,000,000 0.75% (0.05%) 0.70% “Comprehensive”
$25,000,000 0.59% (0.01%) 0.58% “Comprehensive”

 

As you can see from the chart, fees at Marotta are significantly lower than the average. Our average all stock portfolio has an expense ratio of about 0.24%. For any mix that includes bonds the average expense ratio is lower. This saves our clients about 0.44% over the average even before comparing our fees.

For a $500,000 portfolio on our “Do-It-Yourself” service level, our fees plus the fund’s expense ratios is a total cost of 0.64% whereas the average advisor has a total cost of 1.79%. That’s a savings of 1.15% by using Marotta over the average.

For a $1 million portfolio, even though our “Comprehensive” service level fees are similar to those of the average advisor, our fund’s expense ratio is so much cheaper than those of the average advisor that there is still a savings of 0.45% by using Marotta over the average.

At Marotta, we have also tried to keep our fees as low as possible for our clients. We believe that excellence and low cost can go together. On our “Comprehensive” service level includes all of our basic, bonus and premium services for a mere 1%. Meanwhile, many other firms charge 1.25% just for investment management and have an additional charge for financial planning services beyond that.

At Marotta we believe that integrated and personal advice is fundamental to the financial planning process. If you are a “Comprehensive” service level client, the number and variety of services which you can delegate to us is extensive. And with our Do-It-Yourself Service level, we aim to educate participants how to do as many of these as possible and, if they run into trouble, they can still delegate to us a bonus services for an additional planning fee.

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)