He knew he was paying something. He just wasn’t sure what.

Why he never asked in the first place is beyond me; frankly, it was beyond him too. I’m not sure what brought it up, but he finally asked the question: “How much am I paying on my investment accounts?”

This particular client had about $300,000 in a few separate, managed portfolios. It consisted of mostly mutual funds and ETFs. It turns out he was paying roughly $5,500 per year in advisory fees; not sure if he was more upset or embarrassed.

Either way he knew that he would be paying something. But, wanting to confirm, he asked his advisor: “Are there any other hidden fees that I should be aware of?” The advisor responded: “No, there are no additional fees.” That’s when he entered my office.

As I mentioned, the client had three separate accounts, two which the advisor was charging 1.5%. The other account, which was a managed ETF portfolio, was being charged 2%. He asked me the same question. Without looking, my initial thought was: “If you have mutual funds or ETFs, there is going to be some sort of internal expense.” But, I wanted to be careful because you don’t know until you know.

When he handed over his first statement it didn’t take long to learn that he, in fact, was paying more than the 1.5% that the advisor was charging. It was a mutual fund platform that I was very familiar with since it was one that was used in my previous brokerage firm quite commonly amongst the advisors there.

We have a few different mutual fund screening software programs that we use and I pulled up one to show him what the internal expense of the mutual fund was. The internal management fee of the fund was 2.04%. At first the client was silent but he kept thinking what the advisor told him. He then, with somewhat positive reassurance, said, “Well, at least it’s only about a half a percent more than what I thought. That’s not so bad.”

I explained to him the 2.04% was in addition to the 1.5% that he was paying the advisor for a total fee of 3.54% just on this one account. You would have thought that I punched his first born square in the mouth.

I wish I could say that this was an isolated incident, that this only happens on seldom occasions, but unfortunately it doesn’t. It happens quite often. Time and time again we come across investors that are paying exorbitant fees in their portfolios. And even worse, that they’re often paying 2% to 3% more.

Fees can sometimes feel, well, outrageous. But the question is, why? They feel outrageous when they aren’t appropriate for the service you need or when you don’t know about the fees in the first place.

Benjamin Brandt, CFP®, RICP®, at dives into the first point: “Rather than focusing on the fee amount, I would first question the structure of the fee. The clients should want the advisor’s incentives to align with their own. As an example, if a client is looking for advice on short-term goals (debt management, business appraisal, life insurance), a one-time fee would be more appropriate than an ongoing fee. If, on the other hand, a client needed an ongoing retirement income plan, a recurring plan-based fee might be more appropriate. Once the appropriate fee-style is determined, cost comparisons can be made. Oh, and anytime an advisor says their products don’t have fees . . . run!

Grant Bledsoe, CFA, President of Three Oaks Capital Management at points out a great way to help get at the truth about fees: “I had someone ask me recently, ‘Are there any fees I’ll incur in my account that you don’t invoice me for directly?’ I think this is a good way to phrase the question, since it encompasses loads, commissions, expense ratios, 12b-1 fees, and anything else that comes out of the account.”

Unfortunately, many people are blissfully unaware of the fees they are paying in their investment accounts. A survey commissioned by Rebalance IRA showed that out of their sample of full-time employed baby boomers, 46 percent believed that they do not pay any fees whatsoever in their retirement accounts. Moreover, those who believe their fees are less than 0.5 percent total 19 percent. Yikes.

Some financial advisors steer their clients toward “suitable” investments, but not necessarily the “best” investments. A new rule emerging from the Labor Department, the “fiduciary rule,” is aiming to ensure financial advisors must act in the best interest of their clients.

Financial advisors should already be transparent about the costs associated with their services, including the internal costs of the investments themselves. Investors have a right to understand how and what they’re paying. While this is common sense, investors are best advised to research before investing.

So that begs the question, “How much are you paying on your investment accounts?”