Lower than the industry average
OCTO Capital is a fee-only advisor and receives no compensation other than from our clients. No commission or performance fees, no kickbacks from the fund companies, no excessive trading, or proprietary products.
Our fixed quarterly retainer fee is based approximately upon the total number of hours required to service a family’s accounts*. Typical fees run from $625 per quarter to $2,000 per quarter. If calculated on a percentage basis, our typical client pays between 0.10% and 1.00% annually on assets managed.
We view our services as those of expert consultants compensated for the approximate number of hours we spend on your accounts per year, not unlike the services provided by a C.P.A. C.P.A.’s and attorneys who do estate and probate planning do not charge a percentage on clients assets. We don’t believe financial advisors should either.
Our fixed quarterly retainer fee is based approximately upon the total number of hours required to service a family’s accounts*. Typical fees run from $625 per quarter to $2,000 per quarter. If calculated on a percentage basis, our typical client pays between 0.10% and 1.00% annually on assets managed.
We view our services as those of expert consultants compensated for the approximate number of hours we spend on your accounts per year, not unlike the services provided by a C.P.A. C.P.A.’s and attorneys who do estate and probate planning do not charge a percentage on clients assets. We don’t believe financial advisors should either.
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Cost Comparison |
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When asked, many investors have trouble recalling how much they are paying for investment advice. Yet, the fees are being swept from their accounts on a regular basis, diminishing their investment performance and reducing their wealth.
Investors take all the risk, not the advisory firm, but many advisory firms are taking home almost 25% of the investor’s wealth over time.
While we do require a certain minimum in revenue to manage each client relationship, we know from experience that it does not take twice as much effort to manage a $2 Mil. portfolio compared to a $1 Mil. portfolio. And, it definitely does not take four times more effort to manage a $4 Mil. portfolio compared to a $1 Mil. portfolio.
Here are the examples of what our advisory cost for ongoing financial planning and investment management may look like:
Investors take all the risk, not the advisory firm, but many advisory firms are taking home almost 25% of the investor’s wealth over time.
While we do require a certain minimum in revenue to manage each client relationship, we know from experience that it does not take twice as much effort to manage a $2 Mil. portfolio compared to a $1 Mil. portfolio. And, it definitely does not take four times more effort to manage a $4 Mil. portfolio compared to a $1 Mil. portfolio.
Here are the examples of what our advisory cost for ongoing financial planning and investment management may look like:
Assets Under Management |
Fixed Quarterly Retainer |
Equivalent in % on annual basis |
$500,000 |
$1,250 |
1.00% |
$1 Mil. |
$2,000 |
0.80% |
$2 Mil. |
$2,000 |
0.40% |
$3 Mil. |
$2,000 |
0.26% |
$4 Mil. |
$2,000 |
0.20% |
$5 Mil |
$2,000 |
0.16% |
$10 Mil. |
$2,000 |
0.08% |
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How Fees Impact Investors |
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Let's compare how different advisory fees might impact your portfolio. The hypothetical portfolio below produces a 7% annual rate of return.
As presented in the chart below, a $3 Mil. portfolio growing at 7% annually with a Flat Retainer Advisory fee of $8,000 will equal $20,643,998 in 30 years. The same portfolio growing at 7% and paying 1% annual advisory fee grows to $16,255,163. A loss of $4,388,835 or 21% of wealth was swept by the advisory firm charging 1% annually.
As presented in the chart below, a $3 Mil. portfolio growing at 7% annually with a Flat Retainer Advisory fee of $8,000 will equal $20,643,998 in 30 years. The same portfolio growing at 7% and paying 1% annual advisory fee grows to $16,255,163. A loss of $4,388,835 or 21% of wealth was swept by the advisory firm charging 1% annually.
It is plausible to assume that the investor paying a 1% fee can expect higher returns derived from superior investment management, he or she must receive at least 8% annually to offset the fee. But, evidence suggests that expecting a better performance after the fees is a very unlikely outcome.
In the article “How Markets Work” we cited a study that confirms our belief, active management outperformance is nothing more than what you would expect by chance. It is inconsistent.
“For example, a DFA study examined 10, 15- and 20-year periods ending on December 31, 2018. The study compares active equity mutual fund performance to their respective benchmarks. In the last 10 years, out of 3,097 active equity funds, 59% survived and only 21% outperformed their benchmark. In the last 15 years, out of 2,786 funds, 51% survived and only 18% outperformed their benchmark. In the last 20 years, out of 2,414 active equity funds, 42% survived and only 23% outperformed.
It can be tempting to try and pick the best performing managers, out of 23% mentioned above. Unfortunately, there is no proven strategy to identify the “winners” in advance. Reviewing managers past performance is an unlikely indicator of future outperformance. Another study examined returns from 2004 to 2018 and concluded that out of the 25% top performing active equity funds based on the previous 5 years, on average only 21% remained in the top category in the following 5 years. Again, suggesting that there is no consistency in outperformance and is likely nothing more than what would be expected by chance.”
The S&P Dow Jones Indices, SPIVA U.S Year-End 2017 report confirms, over the 15-year investment horizon, 92.3% of large-cap managers, 94.81% of mid-cap managers, and 95.73% of small-cap managers failed to outperform their benchmarks on a relative basis.
There is no reason to assume that paying a higher fee will give you better long-term performance, in fact, it's likely to do the opposite.
As we have discussed in other articles, properly allocated DFA portfolios are likely to deliver higher expected returns, this, combined with lower management costs, means a higher net return to investors.
Many of our clients are in the distribution phase of their life, assuming inflation adjusted 5% net long-term return on the 100% equity portfolio, 1% fee reduces the return by 20% and uncommon “all-in” 2% fee reduces the portfolio return by 40%. In the distribution phase clients hold moderate to conservative portfolios, where the allocation to equities is lower and is balanced by a bond allocation. The expectations for the returns on bonds are much lower. A moderate portfolio may produce 3.5% to 4% net return after adjustment for inflation. 1% fee will reduce the returns by 25% and 2% fee by 50%. (2)
High fees can make a significant impact on the success of the portfolio, especially during retirement when income is needed.
In the article “How Markets Work” we cited a study that confirms our belief, active management outperformance is nothing more than what you would expect by chance. It is inconsistent.
“For example, a DFA study examined 10, 15- and 20-year periods ending on December 31, 2018. The study compares active equity mutual fund performance to their respective benchmarks. In the last 10 years, out of 3,097 active equity funds, 59% survived and only 21% outperformed their benchmark. In the last 15 years, out of 2,786 funds, 51% survived and only 18% outperformed their benchmark. In the last 20 years, out of 2,414 active equity funds, 42% survived and only 23% outperformed.
It can be tempting to try and pick the best performing managers, out of 23% mentioned above. Unfortunately, there is no proven strategy to identify the “winners” in advance. Reviewing managers past performance is an unlikely indicator of future outperformance. Another study examined returns from 2004 to 2018 and concluded that out of the 25% top performing active equity funds based on the previous 5 years, on average only 21% remained in the top category in the following 5 years. Again, suggesting that there is no consistency in outperformance and is likely nothing more than what would be expected by chance.”
The S&P Dow Jones Indices, SPIVA U.S Year-End 2017 report confirms, over the 15-year investment horizon, 92.3% of large-cap managers, 94.81% of mid-cap managers, and 95.73% of small-cap managers failed to outperform their benchmarks on a relative basis.
There is no reason to assume that paying a higher fee will give you better long-term performance, in fact, it's likely to do the opposite.
As we have discussed in other articles, properly allocated DFA portfolios are likely to deliver higher expected returns, this, combined with lower management costs, means a higher net return to investors.
Many of our clients are in the distribution phase of their life, assuming inflation adjusted 5% net long-term return on the 100% equity portfolio, 1% fee reduces the return by 20% and uncommon “all-in” 2% fee reduces the portfolio return by 40%. In the distribution phase clients hold moderate to conservative portfolios, where the allocation to equities is lower and is balanced by a bond allocation. The expectations for the returns on bonds are much lower. A moderate portfolio may produce 3.5% to 4% net return after adjustment for inflation. 1% fee will reduce the returns by 25% and 2% fee by 50%. (2)
High fees can make a significant impact on the success of the portfolio, especially during retirement when income is needed.
Estimated returns and inflation rate are linear and are only that – estimates. It is unknown how the markets will perform in the future or what the actual inflation rate will be in the next 30 years.
*We made changes to our advisory fee schedule on 10-10-2020, as noted above. Current clients are grandfathered into their schedules. If the new schedule is more beneficial to the client, they can change to the new plan. If the account set-up is complicated, a one-time additional set-up fee of up to $250-$750 may be charged. We, in our sole discretion, may waive our minimum fee and/or charge a lesser investment advisory fee based upon certain criteria (e.g., historical relationship, type of assets, anticipated future earning capacity, anticipated future additional assets, dollar amounts of assets to be managed, related accounts, account composition, negotiations with you, etc.).
*We made changes to our advisory fee schedule on 10-10-2020, as noted above. Current clients are grandfathered into their schedules. If the new schedule is more beneficial to the client, they can change to the new plan. If the account set-up is complicated, a one-time additional set-up fee of up to $250-$750 may be charged. We, in our sole discretion, may waive our minimum fee and/or charge a lesser investment advisory fee based upon certain criteria (e.g., historical relationship, type of assets, anticipated future earning capacity, anticipated future additional assets, dollar amounts of assets to be managed, related accounts, account composition, negotiations with you, etc.).
