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Fees Are the Message

People want information that's separate from the products and services they buy.

Dan Danford, 05/02/2007

"The medium is the message." In the 1960s, these now-famous words from Dr. Marshall McLuhan offered the first glimpse into a vibrant and fast-paced new world. Decades ago, when he first uttered them, most of us had no inkling about cable TV, or 24-hour news, or even CNBC. Truly, he peered through a personal window into the future.

(McLuhan's future-predicting credentials are first rate. He also popularized the term "global village" long before Tom Friedman eloquently described the world's flatness.)

I'll not pretend to be either as smart or visionary (or quotable) as McLuhan. But I will attempt to update McLuhan's thought as it pertains to our profession.

"Fees are the message."

Just as each communications medium carries its own unique character (think for a moment about Bob Woodruff, or Bob Woodward, or--even--Howard Stern), so does each investment industry fee scheme. Determine exactly how investment fees are collected, and you'll know an awful lot about the person, firm, or industry segment earning them.

For the present time, this phenomenon is especially true for those of us in the industry. Were I to mention a few notable names, your professionally trained eye probably goes to a certain type of business, and a certain type of client. Charles Schwab. George Soros. Goldman Sachs. Vanguard. Primerica.

Consumers are warily developing that same eye. I've long said to myself that if people knew as much about fees as I do, they'd all choose a fee-only advisor. Thus far, most of them don't, and many of them haven't.

But that day is surely coming. From a consumer's standpoint, abundant information is both a blessing and a curse. Pick any product you want--from rubber bands (1.95 million Google hits) to rubber tires (1.25 million Google hits)--and you can just research the heck out of it. Really. You can easily find out how it's made, what it costs, and who uses it. You can discover the good points, and bad, and how often people have filed complaints with regulators. There are very few secrets, and their shelf life is measured in minutes, not months.

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