Well, it is a pretty simple explanation actually. Since our investments and savings typically gain value through interest or stock gains, it is very easy for financial services companies to skim a few pennies of every dollar in a way that we never really notice it. It has become the norm, that is “how business is done” and we have to accept it. We are so consumed with the all-important number of account value – did I make money or lose money and how much? That is understandable. After all, to grow our assets is the primary goal of investing. However, by being so focused on our returns, we become guinea pigs for marketing machines that play on our greed and fantasy. While you fantasize about that new house or how you can retire early, financial services executives are buying yachts and retiring earlier than you on your dollar! While you are too busy working your tail off to send your kids to college and too tired to take the time to understand how investing works, financial companies are charging you hidden fees while they use your money to make loans to other people for additional fees. Amazing business, isn’t it?

There is a hot political debate going on in Washington dealing with an issue called “Full Disclosure.” Basically, it is meant to keep banks and fund managers honest by requiring them to disclose information about their fees to investors. These financial companies fight tooth and nail, spending millions of dollars lobbying against such laws, because they know a marketing tactic that consumers are victims of every single day – “What you don’t know won’t hurt you.” And what you don’t know is how much you are paying for a service that usually comes with no guaranteed results. That means you pay them if you make money, and you also pay them if you lose money. Got that straight right – they don’t just earn when your assets grow – they earn either which way. Regarding Full Disclosure, where and how that takes place is almost comical. Listen to this one: on page 50 of a 50-page fund prospectus, which is a pamphlet that explains how the fund manager handles your money, there is a chart of expense ratios that explain what percentage of your assets the fund manager gets paid. Now let’s be honest. Have you ever read a prospectus from cover to cover? What percentage of people gets past Page 3 of a 50-page prospectus, if they even open it in the first place? Try less than 5%. Assuming that you did get that far, how is one supposed to go about translating complicated tables into an answer to the simple question, “How much am I paying for this service?” Can someone please give me a direct answer, a dollar amount for how much I paid this past quarter to the service provider, how much I paid this year so far, how much I paid since I opened this account. Hey, wait a minute…what about our account statements? Why don’t they just report this basic information there, like on our phone bills, in a statement? Surely financial services companies have the information. Well, don’t hold your breathe for the day when that happens. It would be far too damaging to an industry that is already on the rocks after the past few years of disappointing investment returns.

Here is a quick case study that may get the point across. Put yourself in the position of this investor. Let’s suppose that you earned 13.5% in one year on a $100,000 investment, say back in the high-flying dot-com era. Great news, but you probably never stopped to think about how much money the fund management company and your broker were paid because you were too busy salivating over the $13,500 you just gained and planning the next big killing! Had you known that the firm was paid out $1,725 from your funds, you still may not have flinched because, hey you still achieved a promising gain, right? But what if your account lost 10% the following year…would you still be comfortable with your account balance now at $113,500 knowing that you just paid $1,350 in fees to a broker?

Not off the hook so quickly. So soon we forget. Do not be so quick to trust your precious and hard-earned assets with just any advisor or fund manager. Here are some straightforward questions that we suggest you ask your advisor and get the answers in simple written form.

• How much have you and your firm gotten paid from my account since inception?

• What has my average expense ratio been over the past three years?

• What are the current expense ratio of all of the funds that I now hold?

As far as 529 plans go, how their fees compare to general mutual funds typically depends on whether or not they are sold through an advisor. Some 529 plans offer funds for as little as 25 basis points, which means .25% of your account balance, while others charge as much as 200 basis points or 2% of your account balance. Either way, be wary of funds with high fees that promise great returns. History shows that funds with lower expense ratios significantly outperform similar funds with higher expenses. 401kid’s website (www.401kid.com) has a breakdown of all 529 plans and provides objective ratings based on relevant criteria, such as contribution ranges, plan expenses, and tax benefits. Click here to see which 529 plan best suits your family.