Expert Advice

Stock Brokers May Not Be On Your Side

Who does your financial advisor work for? In this short clip, Rebalance‘s Burt Malkiel details the often misunderstood fee structure of big brokerage firms.

Burt Malkiel: If you go to a broker and the broker puts, the broker will tell you, “It’s okay. No commissions. We’re going to really take care of you, and we’ll have a so-called ‘wrap fee’ of 2 percentage points.”

Well, that comes off in addition to the expense ratio of what that broker buys you, or what that investment advisor buys you. So you get expenses plus expenses, and there’s very little left for the investor. So it’s just … what Rebalance does is exactly the kind of thing that I believe in.

And let me just mention one other thing about investment advisors. Not only will they charge these extra expenses, but they are conflicted. When they want to put a mutual fund into your retirement account, many of the high-expense mutual funds will pay that advisor some extra amount to sell you that mutual fund. So they tend to be conflicted, and they tend to put funds in your portfolio that they get the most income from.