E*Trade commercial takes aim at fee-based advisers

Discount broker's 2%-too-much-to-pay claims could overstate the case

Feb 10, 2013 @ 12:01 am

By Dan Jamieson

+ Zoom
(E*Trade)

E*Trade Financial Corp., best known for its television commercials featuring a day-trading baby, has launched a marketing blitz targeting clients of fee-based advisers.

But while the flashy ad raises eyebrows — and concerns about fees that advisers charge — some warn that it may overstate the case and unnecessarily stoke investor anxiety.

“Fees are a hot-button issue now,” and E*Trade is taking advantage of that, said Richard Ferri, founder of Portfolio Solutions LLC. “A big reason money is flowing into ETFs and Vanguard [funds] is because the public is beginning to understand that fees really do matter.”

“My take [on the ad] is that investors should be concerned about costs,” said Dan Solin, an adviser at Buckingham Asset Management LLC and director of advocacy at The BAM Alliance. “High costs mean lower returns. Give [E*Trade] some credit” for raising the question, he added.

The E*Trade ad “is a new type of attack,” said Ric Edelman, founder of Edelman Financial Services LLC, who was surprised when he saw the spot.

Because discount firms typically go after full-service brokers and appeal to do-it-yourselfers, he said, “I viewed it as a credibility message -— that independent fee-based advisers are a force to be reckoned with” and a market worth pursuing.

PAYING TOO MUCH

In the TV spot, investors are warned about paying an advisory fee: “Let's say you pay "your guy' around 2% to manage your money. That's not much, except it's 2% every year. Does that make a difference? Search "cost of financial advisers.' Ouch! Over time, it really adds up.”

RELATED ITEM Watch the new E*Trade ad

With rapid-fire graphics and an edgy voiceover, the ad claims that E*Trade is the solution for costly fees: “Go to E*Trade and find out how much our advice costs. Spoiler alert: It's low. Really? Yes, really. E*Trade offers investment advice and guidance from dedicated professional financial consultants, with guidance on your terms, not ours.”

The 2% fee that E*Trade suggests that other advisers charge may be a nice round number for advertising purposes but could mislead people, according to some observers.

“Two percent strikes me as very high,” said Mr. Solin, who thinks that most advisers charge about 1.25% on the first $500,000 in assets.

And, he said, it's “going to be extremely costly” for investors if E*Trade encourages trading or buying in actively managed funds.

“Active funds and stock picking historically result in returns that are below average,” Mr. Solin said.

Mr. Ferri, however, thinks that 2% is about right for most advisers, considering fund expense ratios and a 1% advisory fee.

OTHER OFFERINGS

In addition to its $9.99-a-trade pricing for options and equity trades, E*Trade offers a managed portfolio of active funds and exchange-traded funds with a $25,000 minimum and fees ranging from 65 basis points to 90 basis points. The company also has a unified managed account with access to money managers for a $250,000 minimum, with fees starting at 1.25% and declining to 0.95%.

In the article “Do You Really Know the True Cost of Your Advisor?” Mr. Edelman tells investors that internal fund expenses, trading costs and advisory fees can total 3.57%.

Besides the TV commercial, E*Trade has a paid listing on certain Google searches that reads: “Financial Advisor Fees — Don't Give Away 2% Every Year ... Pay Less at E*Trade. See How.”

“I don't fault them” for that message, Mr. Edelman said. “A lot of advisers are charging high fees and not delivering sufficient value to justify those fees.”

What clients get for the money is of course the key question, Mr. Solin said.

“Is it a preselected portfolio or a [full] wealth management service?” he asked.

To say that paying advisory fees is bad across the board is misleading, Mr. Solin said.

“The commercial is “very creative, and great messaging,” said Dan Sondhelm, a partner at SunStar Strategic, a marketing consultant for financial firms. “I just wonder if the product matches the message.”

Mr. Edelman shares that concern.

“I wonder who the advisers are at E*Trade and how closely ... they build those [client] relationships,” he said.

E*Trade officials were not available for comment.

djamieson@investmentnews.com Twitter: @dvjamieson

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

Pershing's Crowley: The case for business transformation

Your practice is changing rapidly. What worked five years ago might not work for the next five years. Pershing's Jim Crowley has some solutions as your business evolves.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

10 funds with largest 3-year outflows

Even well-managed funds that have beaten the S&P 500’s 10.1% average annual gain have watched investors flee.

Wirehouse training programs are back

At one time, major brokerage houses ran large, expensive training programs for thousands of young brokers, and now it looks as if they are about to return to that model.

New military pension rules need financial advisers to step up and serve

Matching defined contribution plan expected to see more money, more need for sound advice.

Brian Block's $4 million bonus was tied to a key metric at ARCP

Prosecution rests case in fraud trial against CFO of American Realty Capital Properties.

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print