Most investors know to ask one basic question before working with an advisor: “What do you charge?”
It is a good question. But it is not always the whole question.
An advisor may have a clear fee schedule. They may charge a percentage of assets, a flat fee, or an hourly planning fee. That transparency matters. But even when the advisor’s fee is clear, there may be other costs embedded in the investment products, platforms, or cash programs connected to the account.
Some of these costs are relatively easy to identify. Certain mutual funds may charge sales loads, which are commissions paid when an investor buys or sells the fund. Others may include 12b-1 fees, which are ongoing expenses that can be used for distribution, marketing, or compensating intermediaries.
In plain English, the fund may not only be paying for investment management. It may also be helping fund the sales and distribution system that brought the investment to the client.
Other arrangements can be harder to see.
For example, a fund company may pay a major investment platform, custodian, broker-dealer, or retirement plan provider to make its funds available, easier to access, or cheaper to trade. These payments may be described as revenue sharing, platform fees, shareholder servicing fees, or administrative support.
The investor may never see a separate line item on their statement. But money can still be moving behind the scenes.
“No transaction fee” mutual funds are one example. To the investor, no transaction fee sounds simple: free to buy. But in some cases, the fund company may compensate the platform for making that fund available without charging the investor an upfront trading fee. The cost may instead show up through a higher ongoing expense ratio.
In other words, the investor may not pay at the front door, but they may still be paying over time.
Cash sweep programs can raise similar issues. When uninvested cash sits in an account, the firm may earn revenue from where that cash is placed, how much interest is paid to the investor, or the spread between what the cash earns and what the investor receives.
None of this automatically means something improper is happening. Platforms, custodians, recordkeepers, and advisors provide real services, and those services cost money. The problem arises when investors do not understand who is being paid, how they are being paid, and whether those incentives affect the options presented to them.
That is why transparency has to go beyond the advisory fee.
A good advisor should be able to explain not only what they charge, but also the funds being used, the share classes selected, the cash options in the account, and why each recommendation makes sense.
At Hanover, we believe investors deserve that kind of clarity.
Because the fees you do not notice can still shape the advice you receive, and the right advisor should help you see the full picture.