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

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

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