Mike Hennessy, CEO and founder of financial advisory firm Harbor Crest Wealth Advisors in Fort Lauderdale, Florida, spoke with CNBC for their December 2019 article "Why this strategy has been a boon to investors over the last decade."
Assets in “passive” choices — index mutual funds and exchange-traded funds, or ETFs — have quadrupled since 2010, while traditional mutual funds have watched more money flow out than come in since 2015, according to investment research firm Morningstar. Although the reasons for the shift are varied, lower cost has been a big driver and a boon for investors.
The lower fees on index-based funds have affected the financial advice business, as well, with many advisors using ETFs or index funds to build client portfolios at a lower cost. While the average charge from advisors hovers around 1% of assets they’re managing for you, that fee increasingly includes things beyond investment management, such as estate planning, tax strategies and retirement-income planning.
“The price still coalesces around 1%, but the level of service and involvement in a client’s life has expanded and will continue to expand,” said Mike Hennessy, CFA, CFP®. “Clients can get investments for [0.25% or 0.5%],” said Hennessy. “There’s simply no reason to pay someone 1% or 1.5% for that.”
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