The Mystery of Financial Fees
Journalist Ben Steveraman shared the following historical financial story:
About 140 years ago, a savvy Philadelphia retailer named
realized that his customers and salesmen were wasting lots of time haggling over prices, so he decided to try something creative, by putting clearly marked price tags on every item. Soon enough this innovation caught on, and almost every business followed his lead. The companies that didn’t, had good reason not to. They were making too much money from the ignorance of their consumers, and unfortunately for investors, financial products were among this group of notable exception.
“Half the money I spend on advertising is wasted; the trouble is, I don't know which half.” – John Wanamekr
It’s hard to evaluate anything where the price tag isn’t visible. Most investors can easily recall what they paid for a gallon of gas or a cup of coffee last week, but they don’t pay nearly enough attention to what financial fees they are paying. And yet, we know that even a small difference in price can make a major impact. For example, saving just 25 bps on a $10M portfolio can buy you several years worth of gas and coffee.
It’s difficult because there’s a huge asymmetry of information, with sellers having a much greater understanding of what they’re selling than the buyers of what they’re buying. This asymmetry creates an environment that is ripe for abuse, and we this every day it in the data.
This is why our team of investment specialists at Prime Quadrant are so deeply invested in educating our clients.
If you’re looking for some more resources you may be interested in some of Prime Quadrant’s great insights: