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Finance: What is Compensation: Advisory Fee Limits? 2 Views

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What is Compensation: Advisory Fee Limits? Advisory fees are paid to financial professionals for managing client funds. In general, the market determines limits for the upper tier of fees, as digitization has forced funds and broker dealers to become much more competitive with each other in terms of charging fees. FINRA also has guidelines, but online trading has mostly relegated predatory brokerage fees to the past. Hedge fund fees are a different story, as they are dictated by demand.

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Transcript

00:00
Finance a la shmoop what are advisory fee limits? well they're basically a
00:08
price ceiling above which financial advisors can't go yeah I can't go they [Financial advisors in an elevator and hit price ceiling]
00:14
can't touch that ceiling you know like hammer time, can't touch this...
00:17
so when you invest in a mutual fund you pay two fees there's a commission
00:22
and there's an annual management fee usually based on the assets you have

00:26
with them under management like maybe it's one percent on the first hundred [Asset rises]
00:31
grand that you have and then half a percent above a million or whatever
00:35
but there is a third and insidious fee element in the world called advisory
00:41
fees like how do you choose which fund to buy well if you have a financial
00:46
advisor they'll walk you through the lists of mutual funds out there and [Ice cream flavors appear]
00:51
index funds and all other set of funds as well well they're like a gazillion of
00:55
them and then that advisor will charge you for their time in some form right
01:00
someone's got to pay for their beach house well if you start adding up all
01:03
the fees you're paying for arguably no better performance than had you just [Itemized list of fees appear]
01:08
logged onto schwab.com or fidelity.com and bought an index fund hmm
01:13
well then you're gonna start to pause here it starts to be a big number in
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those fees that eat meaningfully into your investment returns most buyers of [Pacman fees eating up money]
01:22
mutual funds are not financial gurus yeah not like that they're doctors and
01:28
lawyers and plumbing parts distributors and they really don't have a
01:31
sophisticated understanding of just how badly they could get taken by
01:35
unscrupulous financial advisors so the industry placed a series of structured
01:40
limits to keep the non gurus safe from the financial predators when it comes to
01:46
compensation and fee limits you know on advisory services and predators like [Tiger walking by]
01:53
this guy
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