Why Fees Matter More Than You Think

The full impact of fees

High fees and layered compensation can quietly erode your investment returns over time. Choosing low-cost, transparent investments and understanding how your advisor is compensated helps ensure your money is working for you, not for extra fees or hidden incentives.

One of the first things I do when a new client joins Camriel Advisors is run their existing investments through my portfolio analysis software. Almost every time, I find the same pattern: above-average fees, with average or below-average performance.

Fees are easy to overlook because they’re often buried in the fine print. But over time, they quietly erode returns in a way that’s hard to recover from.

Let’s say you’re paying a financial advisor a 1% annual fee. That can be reasonable for personalized, ongoing planning and portfolio management. But if that advisor then invests you in a fund that charges another 1.3% in internal expenses, you’re effectively paying 2.3% per year for that investment.

That may not sound like much, but the difference adds up fast.

How Fees Eat Into Returns Over Time

Imagine two investors each start with $500,000 and earn 7% before fees.

• Investor A pays 1.1% in total fees (a typical advisor fee plus low-cost ETFs).

• Investor B pays 2.3% (an advisor fee plus a high-cost fund-of-funds).

After 20 years:

• Investor A ends up with roughly $1.7 million.

• Investor B ends up with about $1.3 million.

That’s a $400,000 difference - money that could have stayed in your account, compounding toward your goals.

The reason this gap gets so wide is that fees aren’t a one-time charge. They’re taken out every year, which means you’re not just losing that year’s fee. You’re also losing all the future growth on the money that left your account. Each year, there’s a little less working for you, and over time, that small drag compounds in the wrong direction.

When Advisors Outsource Their Work

I recently reviewed a mutual fund that a client held. The fund charged a 1.3% management fee, which is extremely high by today’s standards. When I looked under the hood, the fund was entirely invested in low-cost ETFs, the same ones available to any investor for roughly 0.1%.

For context, the average management fee paid to a financial planner is around 1%. This typically includes personalized financial planning along with investment management, including fund selection. Many financial planners hand-select a basket of low-cost stock and bond ETFs tailored to a client’s risk tolerance. If the advisor is selecting funds with an average fee of 0.1% and charging 1% for financial planning and investment management, the all-in cost to the client is around 1.1%.

In this situation, the fund manager was charging more than ten times the cost of the underlying investments just to repackage them, without providing any of the additional services a financial planner normally provides. On top of that, the client’s financial advisor was charging another 1%. In total, the client was paying 2.3% per year - one layer to the advisor and another to the fund manager who was handling the core asset allocation work.

That is a staggering amount of money to pay each year for a portfolio that could easily be replicated at a fraction of the cost. If your advisor is outsourcing investment management to another manager while layering on additional fees, you are essentially paying two professionals to do one job.

If you are paying for advice, that fee should go toward you: personalized guidance, thoughtful planning, and helping you stay on track, not to a hidden second advisor quietly taking their share.

The Hidden Conflict of Interest

Here’s the other issue that often goes unnoticed: many of these high-cost funds are recommended by fee-based advisors who also receive commissions.

That means they may earn a percentage from selling you a specific product, even while charging you an ongoing advisory fee. The result is a layered system where your advisor gets paid twice, and you bear the cost. This creates a situation where recommendations may be influenced by compensation rather than solely by your financial goals.

That’s why it’s important to understand how your advisor is compensated and how your investments are selected. Advisors who focus on low-cost, transparent investments help ensure that your fees are going toward your financial plan and long-term growth, not toward layered commissions behind the scenes.

The Case for Low-Cost ETFs

This is why I almost exclusively use low-cost ETFs for my clients. They’re diversified, transparent, and inexpensive. Using these tools allows me to keep more of your money compounding toward your goals - not disappearing into layers of unnecessary fees and conflicts.

Paying for professional advice absolutely makes sense when that advice adds value: helping you stay disciplined, make informed decisions, and align your investments with your broader financial plan. But you shouldn’t be paying multiple people to do the same job, or to be sold something dressed up as advice.

Before you invest, take a closer look at what you’re really paying, and make sure those fees and incentives are working for you, not against you.