Do we all suffer from fee-itis?

In the age of social media, simple ideas spread fast!

Clickbait headlines, bold declarations, and easily digestible “truths” travel quickly.

Nuance? Not so much. Nuance is slow, careful, and often overlooked—but it is almost always more accurate and effective.

I see this all the time in my financial advisory practice. My nationwide set of physician clients are intelligent, thoughtful people—but when it comes to paying for professional expertise, where I'm privy to their thought processes - something I call Fee-itis often shows up.

Fee-itis is the tendency to excessively focus on fees (instead of both fees and benefits at the same time), mitigating fees at all costs, or assume that spending less always equals being smarter.

This is sort of like "saving" money on oil by never putting any oil in your car.

But perhaps even a better analogy to the present fee-itis phenomenon thay I've observed is the vaccine hesitancy we've been seeing as of late. They are similar because they are both driven by viral easily digestible concepts, go against long held experience and knowledge, and potentially will be more harmful to the people who are seduced by the ideas by those who they probably shouldn't be listening to in the first place.

There is also a very similar benefit ratio between vaccine providers and professional service providers (and in saying this I'm talking about related fields in personal finance like tax prep/strategy, legal document advice and preparation, insurance) but it also true for investment advice because the principal in the same.

Like vaccine hesitancy, Fee-itis can be harmful.

Here’s the analogy: a vaccine company makes money off the vaccine — maybe they earn a tiny percentage of their total revenue from your specific dose. You pay your fee, and the company benefits a little from your money. It doesn't change their life or their world really but they do benefit a little from your personal business.

In contrast, the potential impact to you or getting innoculated from a terrible disease can be enormous: avoiding the vaccine may leave you exposed to disease, while getting it can be life-changing.

In the same way, paying a professional for their expertise — whether a financial advisor, tax preparer, lawyer, or insurance provider — is only a tiny bit about “enriching them.”

If they are a good lawyer, a good tax preparer, a good insurance agent, a good fiduciary financial advisor the odds are good that they earn fees from many customers who are happy to pay them and if they've been good at their job for a while they probably now also have a decent amount of savings and assets too that also generate income for them.

This is also true for doctors if you think about it too.

Experts in all fields tend to do well, and while your payments somewhat increase their quality of life by a tiny amount, the bigger beneficiary of the relationship is typically going to be you because they can typically generate more value for you than you can for them.

But of course, with any of these people including the doctor - working with them does involve some upfront investment on a lark and a prayer so to speak but you have to make some investment in life and if you focus your investments on things where the outcome matters to you that can be a good way to do.

Of course, nobody can invest in everything and it is certainly okay not to invest in expertise where you are indifferent about what the outcomes will be for you. Using a medical analogy if you don't care about your lifespan or your healthspan it is certainly logical to never go to the doctor. But if you do care about those things, basic checkups can make a big difference in the quality and length of your life and that is usually an investment worth making if you care about the quality and length of your life.

Now what I don't mean to say is that you should pay for more the exact same thing. It is good to be efficient with your resources and there is no benefit to paying $2 for an exactly identical product that you can buy for $1 elsewhere. But more often than not the $2 product and $1 product are actually different in some material way, because over time the market has a way of eliminating price differences for products of exactly identical quality.

Fee-itis: The Clickbait of Personal Finance

We’ve all seen it: “When you pay fees you are just being ripped off!” "They just want your money". Or the more extreme and idiotic view "you are in a life and death struggle with xyz set of professionals"

That's like saying the vaccine maker just wants your money. On some level of coure they want to be paid for a product that took time to develop, cost them some money, and involved some risk.

Do you want to be paid for practicing medicine? Of course you do and there is nothing wrong with that.

We're all adults here - people don't work for free - but people who have options simply don't typically set out to harm people.

I know lots of insurance agents, lots of lawyers, lots of tax preparers, and obviously lots of doctors. And the one thing they have in common - they get up each day and try to help people and they try to use their expertise for your benefit.

It is dumb to assume that any industry would last for so long if it added no value and that people with far more money than you (i.e. the biggest corporations) willingly pay for each of these services and they are a scam. That is as dumb as calling vaccines a scam.

Does every action any professional takes always work - of course it doesn't. Well meaning lawyers, doctors, tax preparers can all make mistakes but nobody is in a life or death struggle with anyone else.

In fact the truth is just the opposite in many ways.

Society sets up structures where some people (doctors, lawyers, accountants, investment advisors, tax preparers) both have to pass a competency exam and are held to held to much higher standards in their advice than people who don't carry these licenses.

So for people who choose to not carry these licenses - what is their argument for why you should listen to someone who hasn't had to pass a competency test and hasn't had to be held to a reasonable standard - their argument is a distraction - a simple red herring - this group of people who are held to high standard and had to prove ther knowledge of this subject matter are in a life and death struggle with you.

If you've noticed the parallel to non-doctors who hate on vaccines - you aren't mistaken - it is the same principle at play and while you are entitled to your own view - I'm going to give more credence to people who went ahead and got a license and had to prove their competence and have to hold themselves to a higher standard, compared to those who won't themselves to a higher legal standard and just shout from the sidelines.

The viral concept is simple, emotionally charged, and spreads easily. But it’s almost always incomplete. Paying a professional money to borrow their expertise is neither harmful nor dumb.

In fact it is what most of the major corporations do in America, and they have access to the most sophisticated advice because they can pay for it and it is well documented in Thomas Stanley's book the Millionaire Next Door that people who end up financially successfully routinely value and pay for professional advice and those who end up less successfull tend to skimp on professional advice.

To be clear - Thomas Stanley was a marketing professor at Georgia State who studied people who became wealthy - he wasn't from the financial industry and didn't have a product to sale to the public. I view his research to be objective and fair and highly reliable. In fact, when I started working at a major brokerage firm my highly successful boss handed me that book in the first week and said "these are our clients (the millionaire next door types) and they do what they say in this book - that's what works."

I hope this helps with your mindset and helps battle back fee-itis if you sometimes get bouts of it too. Like a vaccine, the impact of your fee on the professional expertise provider is truly small - your fee if it is normal for the industry is unlikely to have all material impact on their financial well-being. The impact of their expertise on you can be life-changing.

But just to illustrate what I've seen in my practice here are some real-world examples of fee-itis that I've seen with my own clients when evaluating professional advisors and products.

With each of these things I provide the click bait thing we all hear (usually for unlicensed people or non-experts), the actual nuance I see and sort of my nuanced take on how to think about this stuff after 15+ years advising physicians onto comfortable retirements.

Investment Products

Clickbait: “You should never pay more than X% in expense ratios — anything higher and you are being ripped off!"

Nuanced reality: Some investment products are expensive to provide. International stock funds, leveraged closed-end funds, or illiquid real estate funds naturally have higher costs.

Nuanced Take Away: Comparing expense ratios only makes sense for functionally identical products — for example an identical S&P 500 fund at 0.02% versus 2% fees. In this case you should almost always consider choosing the cheaper option. Lower fees doesn't always mean better outcomes when comparing two products that aren't identical. For example, stock mutual funds have almost always been a little but more expensive than Treasury bills bought at the auction or bank deposits in terms of fees. If you take Ibbotson's Stock, Bonds, Bills and Cash - a long held scorecard of how assets do from 2010-2021 $1 in Treasury Bills which is a free investment would turn into $1.06,

(of course inflation over this period of time meant you'd need to have $1.19 in 2021 to buy the same amount of goods that $1 in 2010 - so T-bills actually lost money). Small company stocks which likely had a cost to buy if you bought them through a mutual fund or ETF turned that $1.00 in 2010 into $2.61 by 2011. So the nuance you can pay more fees on investment products and come out better off as a result or you can pay less fees (by T-bills or keep your money in the bank in a zero fee savings account) and come out worse off.

But comparing vastly different products solely on fee ignores critical differences in productivity and difficulty in administering the investments. There is a decent amount of turnover in small capitalization mutual funds as new companies are born and old ones die in the creative desruction of our capitalist system. When one company starts to falter and another one has a promising idea, the mutual fund or ETF may have to make a transaction which costs money. When you buy a T-bill or keep a bank deposit - you don't really have to do any transactions.

Comparing non-identical investments on the basis of fees alone or primarily on the basis of fees is one of the most common fee-itis type mistake I see. So for example, they may prefer a US based fund because the fees or lower and avoid an international stock fund because the fees are higher. But the international stock fund may actually do better in some environments because the asset prices are cheaper, because the dollar is falling in value relative to other currencies that the fund's companies earn money in and these more powerful differences may overwhelm the savings in fees. Seeing the world this way requires a nuanced view, similar to the nuanced by actually accurate view that a vaccine will help most people but actually harm some people and so the vaccine can't be seen as exclusively good or bad - but it is both at the same time. You should compare fees but only amongst two exactly or effectively identical financial products that truly invest in substantially similar underlying holdings (ie. two US large cap funds, two developed market international funds, two intermediate term government bond funds) -- if you compare non-like things you are wasting your time and misapplying the concept that fees actually matter.

Legal Advice

Clickbait: “Why pay a lawyer $350/hr when you can get a Nolo document for $90? or even better I can get it free on ChatGPT

”Nuanced reality: The law is black and white — either a licensed attorney drafted the document for you and signed as the attorney of record, or you are representing yourself.

Many services market “attorney-prepared” documents, but if the attorney didn’t personally sign them, they bear no legal responsibility. When you don't have an attorney of record - you are representing yourself and you are your own lawyer under the law.

Wait what? How can that be? They said an attorney prepared these docs (through a document preparation service). Not an attorney that would stand behind them and be accountable for them. The attorney prepared the documents as a layman - same as if your neighbor prepared them - anyone can write a document and you can submit it - but only a licensed attorney who agreed to do the document for you is actually standing behing their work. Everything else is backed but nothing but the big blue sky.

Will a document preparation service work? Maybe - but if it doesn't are you cool bearing the risk of the document failing. If that is unacceptable to you then I'd encourage you to just go to a lawyer to get your docs done if you can afford it and invest in that relationship. Going through a system where competence was tested to get the license (via the bar exam) and there is personal accountability is better than going outside the legal system where there is no accountability if the document fail.

Nuanced Takeaway: Many states have county law libraries where legal forms creater the government are offered for free or sold for a really low cost. Here is an example of California's Sacramento County Law Library documents: https://saclaw.org/learn/find-a-form/

If I was really trying to save money I would personally consider using these forms if I thought they worked.

If I was concerned that they might not work or they wouldn't fit my needs I would just invest in paying a real lawyer.

What about using ChatGPT or AI as my lawyer? AI is great at a lot of things like proofreading, communicating, listening to people's feelings. AI is strong at very introductory concepts so it might be quite good at supplementing education over time.

But one thing AI is definitiely not is an expert. It is able to imitate the form of something without actually nailing the substance. For a non-expert if the form looks right they assume the substance will be right too (because a non-expert doesn't know what the substance should look like). But an expert can tell the flaws and a large amount of AI work is fundamentally flawed in its substance and despite news interviews that AI is taking over law, finance, taxes etc - I've seen very little evidence of this and so far what I've seen has largely been to the contrary.

Perhaps the first breakthroughs in AI will be in the sciences - like physics or chemistry because the relationships between molecules are more constant than the relationships between people - but as an expert I would not recommend overlying relying on AI and if you do you should understand that if you choose to go outside the system society sets up with people who had to take a competency exam and had to be responsible - and choose to use a source that doesn't have those things - no responsibility for the answer - no genuine proof of competency - the law and the courts are unlikely to look at your situation sympathetically.

For areas where not much is involved or there will be no conflicts I can at least understand why people might take short cuts but for areas where the consequences of being wrong could be high or there could be an adverse party - I recommend not getting fee-itis and just paying to borrow someone's professional expertise.

Tax Preparation and Strategy

Clickbait idea: “Why pay a tax expert $300 or $500 when you can get a prep service for $80?”

Nuanced reality: For someone with a W-2 job, no investments, and standard deductions, yes, low-cost preparation may be fine. There are often free or darn near free tax prep services like freetaxusa that some people use.

Here is their website in case you are interested: https://www.freetaxusa.com/?utm_source=google&utm_medium=cpc&mtm_group=Generic&utm_campaign=States(CPA)&utm_content=state-tax-multiple-states&utm_term=filing+taxes+in+multiple+states&utm_id=c&gad_source=1&gad_campaignid=38130728&gbraid=0AAAAAD_sqiJuBrXHRG_cer8qOdyJl3vZj&gclid=EAIaIQobChMI65WR_eXUkAMVnShECB2Zki-2EAAYASAAEgJOC_D_BwE

But for higher-income clients, those with investments, IRAs, or business income, a good tax preparer who actually knows the tax code or cares about your return the benefits can exceed the cost.

See if you are paying a firm $80 or $60 to do your taxes, and a person is doing it - after overhead costs maybe they are paying that tax preparer $20 and hour. That's not a lot to know the tax code.

That kind of tax prepaer is going to focus on being fast and geting through the return ASAP. And if almost all of your taxes have already been withheld from your paycheck that can be fine.

But I cannot tell you how many times I've seen $2,000 error on tax returns because my own clients wanted to pay $80 instead of $300 to get their taxes down. These errors almost seem routine and like the norm.

Nuanced Takeway: If you just have a W2 job and a bank account and nothing else in your financial picture (no distributions from an HSA, no IRAs where you are moving things around or doing Roth conversions) than a low cost tax prepaerer might be a good fit. But if you do IRA conversions, have a taxable investment account, are self employed or moonlight, get K1s or partnership returns, rent out some real estate usually it is better to invest in a decent tax preparer. For many people that cost is just $300-$500 a year unless your taxes get really complicated.

Financial Advisors

Clickbait: “Did you know if you didn't pay your financial advisor you would have $300,000 more dollars over time”

This seems shocking, I know.

But the logic is basic and this is a classic case of logical misdirection and deception, in my view.

This is like saying if you hadn't gone to medical school - and invested that $300,000 at 7% real by the time you were 60 you would have almost $5 million dollars! Med School must be such a scam! (this is click bait not real)

In the real world you can't separate inputs from outputs - you have to look at them together.

A client doesn't automatically get an output because they avoid the input nor does the client get the benefit of avoiding the mistakes they would have made in the end analysis (the output) if they didn't invest in the input the advisory fee.

Doctors do fine for themselves in life. Usually they end with about 10x the net worth of the average American - that is the output of going to medical school, getting a special skill that pays well and practicing for a long time.

But of course medical school is an investment that costs money and by the same analysis used in the click baity argument about financial advice if you didn't go to med school and just invested what it cost what it costs to go to med school you'd have $5 million by 62. But the flaw in the argument is that you needed the input to get the output. Nobody was going to give you $300k at 22 just because you didn't go to med school. In fact you usually needed to go to med school to get the special skill that paid well enough so that you could save more than others so that you could end with 10x the net worth of the average American. So the inputs and outputs were connected - just like with financial advice - you can't separate them or you are going to butcher the analysis and lead to a very inaccurate conclusion in my view.

Nuanced reality: I want to be clear in saying this first. People should hire a financial advisor if they want to and don't hire one if they don't want one. I, like most finanical advisors, have zero interest in convincing someone who doesn't want to hire a financiala advisor to hire one - we only are interested in talking who've already decided that they want a financial advisor.

With that said in my experience, I'm usually the first or second financial advisor the clients have ever had - even if they come to me in their 50s.

And I typically see clients who have already left $30,000 to $500,000 on the table due to simple mistakes: not optimizing accounts, mismanaging cash, missing tax-advantaged options, or choosing suboptimal investments. There is no way to get this money back and I don't mention it to clients because it would just make them feel bad and wouldn't accomplish anything but this is what I standardly see. Now in fairness my clients usually have $1m to $5m or more when they come to me in their 50s so these numbers have to be kept in this context but people who don't work with financial advisors, and aren't like finance gurus, tend to leave massive amounts of money that they already left on the table for years or decades before they start getting professional advice from what I see in my job.

I want to be clear if you are one of these people you shouldn't feel bad. People tend to get financial advisors when they feel an acute need to (perhaps because of an upcoming transition in their life that they want to get right) but there is no doubt in my mind that most people who aren't working with a professional and later work with one, spent many years or maybe even decades using a suboptimal approach in many ways.

Just like some patients might have high blood pressure or diabetes without knowing it and these challenges might be actually somewhat easy to mitigate if they were getting regular checkups - you can't roll back time but you can often correct any issues and make them better going forward.

Many people promoting the “fees are evil” mindset either assume everyone is highly sophisticated or overestimate their own understanding.

And I'll be honest with you and I was able to see this in brokerage firms where I could see the actual outcomes of self directed investors If 100 people who are not professionals claim to be financial experts - when you see the results in brokerage firms - maybe 10 out of 100 are true experts and 90 out of 100 who profess to be true experts are just overconfident. And I see this in a lot of fields, taxes, insurance, legal etc. It is in human nature, I think to be overconfident and when you know a little to feel like you know everything. Unfortunatley a lot of people with the loudest voices are not really giving helpful advice - I find going to licensed experts to be a more consistent and reliable way of getting good advice.

Markets, Expertise, and Why Fees Exist

Here’s another lens: think about service providers and labor markets. Every professional has to be recruited into their role.

Let’s say you’re a physician. Some hospitals pay well, treat employees fairly, and attract top talent. Others are low-paying, high-turnover environments — often private equity-owned groups. They may have bottom-of-the-barrel staff and can’t provide premium outcomes. If you want quality, expect to pay normal market rates, or a premium for truly top-tier service. Of course, these places do have some good people and even some of my clients have started at private equity owned groups - but when they could they got out and went to other places that treated them better and paid them better.

This principle applies everywhere: law, finance, tax, insurance, medicine. If you think providers are “lucky” to work with you, remember: your fee is a drop in the ocean for them. You are the primary beneficiary of their expertise, just like a person is the primary beneficiary from a vaccine and the drug company benefits a little bit (the profit of selling one dose - but the patient benefits a lot).

If you pay rock-bottom prices, you’re unlikely to get high-quality service. If you pay a fair market rate, in my experience you tend to get competent, decent service, most of the time. And if you pay a premium to a service provider (then the concierge doc making $800 an hour) you can legitimately expect to be treated as special - but that is because you are paying an above average rate for the advice - if you were paying normal market rate you would probably be treated like everyone else.

And if you are paying below market rate you may get lower quality service or some corner cutting in some way or you may get someone good, but then face a lot of turnover in your advisors because like being in a bad job - eventually good people move on.

The Tortoise and the Hare of Financial Decisions

Clickbait ideas are the hare: they move fast, go viral, and promise simple answers, but rarely deliver long-term results. Nuance is the tortoise: slower, more careful, and ultimately more effective.

• Viral idea: “All fees are bad - if you pay fees you are a sucker or are being ripped off.”

• Nuanced truth: “Corporations and millionaires (as surveyed by Thomas Stanley) have a radically different view than the viral idea. They pay for expertise all the time and see value in it. Do they shop around - I'm sure they do - but they pay up to leverage other people's expertise to benefit themselves and they do so happily. And in Stanley's book there were those who didn't pay for expertise who might have been the people who say you are being ripped off or had a chronic case of fee-itis and what Stanley's research showed is that those people objectively had less money - regardless of income - calling into question the wisdom of their judgement on that issue.

So this comes back full circle to the vaccines. Vaccines harm some people, there is no doubt about it just as not everyone who pays fees gets what they hope for. Sometimes clients don't get the outcome they were hoping for. Sometimes the advisor doesn't live up to expectations - luckily unlike with vaccine complications the results of advisor mistakes is usually not as damaging - but it can hurt. It is important to acknowledge that not everyone wins when getting professional advice although, like taking vaccines, I would say most people are actually better off from getting if they care about their outcomes.

But on balance it can be shown that vaccines on the whole have improved people's lives and that is why it may be beneficial to take them (I'm not a doctor so don't listen to my medical advice - I don't know anything - but this is the view I hear most professed by doctors).

Just as excessive vaccine hesitancy can be sort of a mind virus - especially for vaccines that have been around for a long time - fee-itis can also be a bit of a mind virus too that it can benefit a person to combat if they are sensing it come up. I've noticed it has been coming up more across the board spurred on by extremely bad click baity type advice largely from people who a) didn't bother to get a license to prove they are competent and know the subject matter well and b) didn't subject themselves to the higher standards that people with a license have to hold themselves too.

I've noticed with vaccine hesitancy - especially for vaccines that have been around for a long time - most of the hestiancy seems to come from the same type of people a) those who didn't bother to take the USMLE exam to prove they are competent about medicine and b) those who don't subject themselves to the higher standard you are held to when you have a medical license that your beliefs, while they may be wrong, must have a basis in what a reasonable physician might believe.

If I were a physician today and I saw a lot of fee-itis around my I would at least question whether fee-itis is truly in their best interest in their opinion given all the empirical evidence to the contrary as laid out in Thomas Stanley's books the Millionaire Next Door or Vanguard's excellent (but possibly biased) research on the subject.

Of course everyone has to make their own decisions in life. For my own clients the advice I provide is if you don't care about the outcome and you wouldn't be bothered if the bad thing happened to you then it is fine not to seek professional advice if you don't want to. But if you do care about the outcome - it is useful to bat back our initial instincts of fee-its and just understand that the market is two sided and we have recruit people to worry about our problems and lend us their expertise. If we want to recruit trully competent, caring people, who leverage their expertise for our benefit - we should expect to market rate for their field (and I tell clients what this) and that increases our chance of having a good outcome.

About the Author: Daniel Harris has spent the last 15 years providing financial advice to physicians and their families. He works virtually with physicians all throughout the US. He is a graduate of Stanford University and the UC Berkeley School of Law. You can learn more about Daniel Harris here.

If you are interested in working with a fiduciary financial advisor at D.R. Harris & Co. can you can fill out the following form.

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