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NYT's Lieber: Start-Up Financial Advisory Firms Charge Lower Fees

Sunday, 24 Aug 2014 07:51 PM

By Dan Weil

While established brokerage firms often charge a 0.5 to 1 percent fee for managing your assets, even if it's just a portfolio of index funds, cheaper competitors are arising, says New York Times columnist Ron Lieber.

Companies like Betterment, FutureAdvisor and Wealthfront charge 0.15 to 0.5 percent, though you can't meet with them in person.

"There is no guarantee that all of this low-cost assistance will persist," Lieber writes.

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"But it remains true that good advice is too expensive, and not enough people have their money in the right kind of low-cost portfolios. We all ought to root for the innovation and resulting price war that seems to be unfolding before our eyes."

A 1 percent annual fee may not seem like much. But the rules of compounding dictate that over a long period of time you will have both paid a lot of money to your adviser and foresworn a lot that you would have made by investing that money.

Vanguard Group may be the king of low-fee investing. Investors are so enamored with its index funds that the firm's assets under management have soared to a record of almost $3 trillion, The Wall Street Journal reports.

A recommendation from investment legend Warren Buffett hasn't hurt. In his March annual letter to shareholders, the Berkshire Hathaway CEO wrote that most investors would benefit from following the instructions in his will.

Those instructions are to "put 10 percent of the cash in short-term government bonds and 90 percent in a very low-cost S&P 500 index fund. (I suggest Vanguard's.)," Buffett said.

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