Review 6 days ago

Surgeon almost goes broke on a $665K salary thanks to 1 sneaky financial fee. Ramit Sethi sets things straight

Sticker shock and flighty fees.

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Jeff, 50, is a specialized surgeon. His wife Susan, 48, is a stay-at-home mom. Even though Jeff earns an enviable $665,000 a year, the couple — married 19 years — are still struggling to pay the bills.

The couple called into finance guru Ramit Sethi’s podcast, “I Will Teach You To Be Rich,” to get some help (1).

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After taxes, Jeff takes $426,000 a year, but he only started earning that much around the age of 40. As his income grew, the family’s discretionary spending ballooned.

Sethi pointed out that people can feel money anxiety and develop poor spending habits, whether they make $50,000 or $500,000 a year.

“If you feel bad about money at $50,000, you’re probably going to feel that way when you make 10 times your income,” he told the couple.

But it turns out flashing their cash wasn’t the only problem. Here’s the piece of the puzzle Jeff and Susan were missing.

Commission fees

Sethi first pointed to some of the psychological issues at play. For example, Susan grew up without a lot of money, and while she often deprives herself of small expenditures like pedicures, she also has a hard time saying no to her kids when it comes to big-ticket items.

But, according to Sethi, one of their biggest problems has to do with their financial advisor.

In a more recent YouTube video posted to Sethi’s channel, he states, “I would never pay a percentage of assets under management (2).”

Percentage-based fees grow as your wealth grows, which means you can end up paying an ever-increasing sum to your advisor.

But Sethi clarified he’s not against working with a professional, saying “I would, and have, happily paid a financial advisor to help me out, to take a second look at my asset allocation.”

Sethi advocates for fixed advisory fees — which are a safer way to keep more of your investment gains as your wealth grows.

As for Jeff, he has two brokerage accounts managed by an advisor charging a 1.24% fee.

“I generally feel as though most people are good and they’re not trying to rip us off,” Susan said.

But when she asked their financial advisor about his fee, “he told me, ‘oh, it’s roughly around 1%.’ I’ll never forget, he made this face like, oh, it’s not that much.”

Sethi says he knows that face.

“Most advisors make their money when your portfolio grows, which is why they love older people and wealthy people who specifically do not understand commission structures,” he said.

Read More: Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast

Find a flat fee advisor

If you’re looking for an advisor, but don’t know where to start, you could try Advisor.com.

All you have to do is answer a few basic questions about yourself and your financial goals, then Advisor.com will match you with up to three nearby advisors. And the best part? Because they’re fiduciaries, they're legally obligated to act in your best interests.

From here, you can book a free call with no obligation to hire to see if they’re the right fit for you. Just make sure to ask about any management fees if that’s something you’re worried about.

Understanding the math behind AUM

Jeff and Susan have $460,000 in two brokerage accounts. If they live to age 85 — for another 35 years — without making any further contributions to these accounts, and assuming a conservative 5% return, that 1.24% fee adds up to a whopping $863,170, according to Sethi.

Right now, the couple pays roughly $6,000 a year in fees — about $500 a month. But fast-forward 35 years — 420 months — and they’ll be paying 1.24% on a much larger portfolio, averaging around $2,054 a month, according to Sethi.

Instead of putting their money toward paying high fees, Jeff and Susan could put that money to work by investing in a low-cost ETF or index fund and get a similar return. In doing so, they could also pay much lower fees, says Sethi.

Invest in low-fee index funds

This is where robo-advisors can take some of the pressure off, especially ones that can be tailored to your risk tolerance.

For example, with Acorns, every purchase you make on a credit or debit card is automatically rounded up to the nearest dollar. From here, your spare change goes into a smart investment portfolio tuned to your investment style. That daily $4.25 coffee? It’s now a 75-cent investment in your future.

If you want to supercharge your investments, Acorns also allows you to make recurring monthly contributions. You’ll just pay a flat monthly subscription fee and a small ETF expense for investing in index funds. According to Charles Schwab, the average annual fee for an equity ETF is usually less than 0.25% (3).

Plus, if you set up a regular deposit of $5 or more, you can get a $20 bonus investment when you sign up with Acorns.

Diversify your portfolio

Another important consideration for Jeff and Susan will be their asset allocation. Ideally, they should be minimizing their fees paid to advisors and for investments. But they should also ensure they’re invested across an array of different asset classes.

For instance, they may also want to invest in alternative assets, such as real estate, to build out a diversified, risk-resistant portfolio. Commercial real estate, in particular, can offer a number of tax advantages for investors.

Tap into commercial real estate

But, historically, direct access to the $22.5 trillion commercial real estate sector has long been limited to a select group of elite investors — until now.

If diversifying into multifamily or industrial rentals appeals to you, you could consider investing with Lightstone DIRECT, a new investing platform from the Lightstone Group, one of the largest private real estate companies in the country with over 25,000 multifamily units in its portfolio.

Since they eliminate intermediaries — brokers and crowdfunding middlemen — accredited investors with a minimum investment of $100,000 can gain direct access to institutional-quality multifamily opportunities. This streamlined model can help reduce fees while enhancing transparency and control.

And with Lightstone DIRECT, you invest in single-asset multifamily deals alongside Lightstone — a true partner — as Lightstone puts at least 20% of its own capital into every offering. All of Lightstone’s investment opportunities undergo a rigorous, multi-stage review before being approved by Lightstone’s Principals, including Founder David Lichtenstein.

How it works is simple: Just sign up with your email, and you can schedule a call with a capital formation expert to assess your investment opportunities. From here, all you have to do is verify your details to begin investing.

Founded in 1986, Lightstone has a proven track record of delivering strong risk-adjusted returns across market cycles with a 27.6% historical net IRR and 2.54x historical net equity multiple on realized investments since 2004. All told, Lightstone has $12 billion in assets under management — including in industrial and commercial real estate.

As such, even if multifamily rentals don’t appeal to you, Lightstone could still serve you well as an investment vehicle for other real estate verticals.

Get started today with Lightstone DIRECT and invest alongside experienced professionals with skin in the game.

Consider investing in blue-chip art

Another alternative asset Jeff and Susan could look at adding to their portfolio? Art.

Here’s an example of why that investment could be a wise addition to their portfolio.

In 1999, the S&P 500 slumped, and it took 14 long years to fully recover.

Today? Goldman Sachs is forecasting 9% price returns from 2024 to 2034 (4). Meanwhile, Vanguard is tabling a more conservative estimate, projecting around 5.5% (5).

In fact, nearly everything feels priced near all-time highs — equities, gold, crypto, you name it.

That’s why billionaires have long carved out a slice of their portfolios in an asset class with low correlation to the market and strong rebound potential: post-war and contemporary art.

It may sound surprising, but more than 70,000 investors have followed suit since 2019 — through Masterworks. Now you can own fractional shares of works by Banksy, Basquiat, Picasso, and more.

Masterworks has sold 25 artworks so far, yielding net annualized returns like 14.6%, 17.6%, and 17.8%.

Moneywise readers can get priority access to diversify with art: Skip the waitlist here

Note that past performance is not indicative of future returns. Investing involves risk. See important Regulation A disclosures at Masterworks.com/cd

The good news: You can still get out

So what can you do if you’re working with a financial advisor who charges you a percentage of assets and you want out?

The fees Jeff and Susan have paid up until now are sunk costs. But the biggest step in this process is realizing you need to make a switch, says Sethi. The rest are just details — though it could make for an uncomfortable conversation, especially if you’ve been working with the same financial advisor for many years.

Sethi recommends explaining to your financial advisor — preferably over email — that you’ve decided to move your brokerage account because the fees you’re paying are not part of your financial goals. By transferring your brokerage account in-kind and moving assets as-is from one account to another, you can avoid “selling them and triggering a taxable event,” he said.

However, if you do want to keep working with an advisor, Sethi said, “you want to pay a flat fee, never a percentage.”

According to the Wall Street Journal, some advisory fees can even be negotiable. They recommend, “If you’re considering working with a particular advisor, ask if they’re willing to adjust their fees (6).”