GREAT BARRINGTON >> Recent headlines make it clear that Wells Fargo was up to shady business. This was the least surprising news I've heard all year.

As someone who talks to a lot of people about finances, one lesson keeps coming up again and again: customers at big names like Merrill Lynch, JP Morgan, Ameriprise, Wells Fargo, and many others often are charged through the nose but get little in return.

I often meet with people who work with sales reps of one of these big name companies. When I ask them how much they're paying, they answer, "I don't know." When I ask them what their returns have been, they say, "I'm not sure."

I calmly tell them that I'll take a look through their statements and provide some suggestions about reducing their costs or adjusting their investments. But what I really want to do is start shaking them and shout, "How can you not know what you're paying?"

I have people come to me with portfolios assembled by brokers that contain 200 or more individual stocks. They may be generating trading costs, they're likely charging one percent or more as an advisory fee, and they may be charging both. Sometimes they've got mutual funds that may have charged as much as five percent as a sales charge. Rarely has the broker provided any rationale as to why the portfolio they've implemented is in the client's best interest. In this day and age, with ultra-low-cost index mutual funds and exchange traded funds available, it is a puzzle why investors would tolerate this.


All to often I encounter investors who don't know what is in their portfolio or what investment philosophy is being followed. They find expenses paid to be opaque, and have little idea as to whether the returns they are earning are on track to meet their goals.

The implications are so staggering it is often difficult to respond right away. My heart is beating out of my chest. I'm so mad at how badly they've been getting hammered by fees, while their representative is failing to explain exactly why this particular approach is any good.

Worst of all these guys pretend that they know what is going to happen in the market. If history has taught us one thing, it's that these chumps don't know how to beat the market. Maybe they've had a decent year or two, but fat chance that run of luck will continue. Some just lack the depth to understand statistical reasoning and the notion of luck versus skill. But others know better and are just plain dishonest.

Is it the client's fault that he doesn't know how much he's paying or what his returns have been? Not when information is intentionally hidden. Try digging through a 40-page statement with 200 stocks and 100 trades and discern what the return has been or fees that have been charged. It's next to impossible.

People will drive to their gas station to save six cents a gallon with their rewards card. They'll spend hours researching the best deal on a new dishwasher. They'll wait for months to buy a new car until its price falls by $1,000. Any yet, in the financial services industry, people regularly pay tens of thousands of dollars when a comparable service is readily available at a fraction of the cost.

This is an antiquated model that continues to thrive, but customers are starting to see through the shenanigans. Just because it's the industry standard to charge high fees and obscure reality doesn't mean that we have to put up with it. Amazon has changed shopping, Uber has changed taxis, the internet devastated travel agents, and refrigeration has ended the role of the milkman. Things can and will change in this industry, but it is happening slowly. I implore readers to not be one of the holdouts.

The market has been going up for six years, so investors are feeling good. But many have paid literally tens of thousands of dollars for a service that probably added little value. The industry talks about one percent or two percent like it's no big deal, but it's a huge deal. In a market that might return six percent or seven percent a year, a 1.5 percent total fee can erase a quarter of your investment gains. We're talking about hundreds of thousands of dollars in fees and lost investment earnings over a lifetime just so a guy who talks a good game can drive a Beamer and golf four days a week.

Please make it stop. Ask your advisor outright: How much do you charge? Do you make a commission on this product? How often do you trade? Can you show me my returns? How have you earned your $10,000 this year? Why do you think you can beat the market when no one else can, and if you can, why do you feel you have to make a living convincing me you can? Why aren't you working for a hedge fund that would pay you millions of dollars or managing your own fortune while sitting on your yacht in the Caribbean right now?

Watch 'em squirm.

Luke Delorme is the director of financial planning at American Investment Services (AIS) in Great Barrington. He can be reached at Past performance is no guarantee of future results. This information should not be considered personal investment advice.