[bolu]

Sigh... so true. I only wish the economics were different. If, like Fidelity, you extract a ton in fees it allows you to swamp the airwaves with marketing dollars. And the folks who just keep their heads down and do their jobs, well, don't have as much money to run ads. And in this market, unfortunately, because few people understand it deeply ad dollars can move the needle. Unfortunate, to say the least.

This is not even considering the who commissioned-advisor problem.

[patio11]

On the Predictably Irrational blog there was an example of how clients recommended Fidelity and Vanguard evenly picked Fidelity on the basis of 25k bonus airline miles (cash value $250) so that they could pay $2~20k extra a year in management fees. I wanted to cry... And figure out how to offer airline miles.

[bolu]

It's because the fees charged don't appear as a line item on your statement. It's probably the only thing most American families spend more than a $1000 a year on (I did the math), for which they get no documentation... not even a receipt.

Can you imagine how different the world would be (and how much less Fidelity would make) if you had to pay fees out of pocket? A single piece of simple legislation that disallows silently deducting fees from your assets would be all it takes.

My co-founder and I sometimes sit at dinner thinking that if we do nothing else for the world but make fees (both expense ratio and more subtle ones like turnover-induced tax hit) more tangible, then we'll have succeeded.

[InclinedPlane]

Good point.

However, there are two even bigger line items that American families spend more than $1000 a year on without any documentation or receipt.

Payroll taxes: the amount you see on your paystubs for social security and medicare taxes is actually only half the amount that you pay. The other half is hidden from your eyes under the guise of an "employer contribution" which is a bit of accounting terminology which roughly translates to: straight up bullshit. Employers have no choice but to pay the taxes, on their side it is a cost of maintaining you as an employee, it is thus logically a part of your earnings that you never see on any documentation (imagine if all of your taxes were hidden from you similarly). Self-employed workers have to pay the full 15.3%.

And, medical insurance dues. Again employers hide about 2/3 of medical insurance costs from employees by pretending that an "employer contribution" to employee health insurance payments isn't a part of the employee's salary. Clearly it is and it's shameful that people don't appreciate how much they are truly paying for their health insurance plans. The reason this practice exists is due to wage controls put in place during WWII, in order for companies to attract good employees they had to figure out ways of offering compensation that didn't appear on IRS documentation, so employer paid health insurance became popular.

An American family with insurance through their employer earning the median US income (~50k) pays $3800 in payroll taxes and about $2000 in health insurance contributions every year ($178k over a 30 year career) without ever seeing a line item, a summary, or any scrap of documentation.