The more things change, the more they stay the same.

An old rule of thumb in the brokerage business, for instance, is that "YTB" ("yield-to-broker") should be about 2 percent a year on client money. The figure comes from the days of full commission brokerage.

Today, things are different.

The fastest growing area of financial services today is wrap accounts. The customer pays a percentage fee that includes all brokerage commissions, selection of funds or private managers, and regular reports.

In this arrangement the ancient conflict of interest between the broker/advisor/consultant and customer is gone because the broker's pay is no longer based on commissions. Instead, it is based on assets under management.

One thing remains the same, however. The total cost is about 2 percent a year, particularly for accounts under $300,000. Most of the accounts come from people who are retiring. They rollover their 401(k) and other qualified accounts to an advisor.

This leads me to a rude question.

What is the lifetime cost of money management? What's the difference between zero cost management and 75 or 200 basis points?

To get the answer I contacted Brooks Hamilton, a Dallas benefits attorney who shares my interest in mathematical model building. A few weeks earlier, before publishing a column on the high cost of money management, I had asked him to check my figures. His models, developed separately, crunched to the same conclusions.

"Then what would it cost over a lifetime?" I asked.

A few days later we met over lunch at Popolos, a North Dallas restaurant.

"This blew me away", he said. He handed me three 11 by 17 work sheets and related summaries. A few minutes later I knew why he was surprised.

Mr. Hamilton assumed a 30-year old worker with an annual salary of $40,000 who received 4 percent annual raises and saved 6 percent of his income with a typical 50 percent employer match. He further assumed a gross return of 11 percent both before and after retirement. He assumed the worker retired at age 67. Total contributions (worker plus employer) to the 401(k) plan were $309,504. The worker earned $170,730 during his last year of work.

The lifetime differences were staggering.

The worker who magically enjoyed a lifetime with no investment expenses accumulated $2,347,277. He could withdraw $285,720 a year from his investments for 31 years before exhausting them at age 99. Since the joint expectancy of a couple is around 24 years, this worker would leave an estate.

The worker who paid 200 basis points in expenses a year accumulated only $1,503,799 and could draw $180,389 a year in income for 19 years, running out of money at age 87. In other words, the worker with a lifetime of high management expenses had less retirement income and died broke.

The in-between worker with lifetime management expenses of 75 basis points a year retired with $1,981,084. He received an income of $239,795 a year for 24 years. The three plans are summarized in the table below.
The Lifetime Cost of Money Management
0 cost management 75 basis points 200 basis points
Accumulation @ 67 $2,347,277 $1,981,084 $1,503,799
Retirement Income (amount x years) $285,720 x 31 years $239,795 x 24 years $180,389 x 19 years
Total benefit (Income less original contributions) $8,857,320 $5,755,080 $3,427,353
Index 100 63.7 36.5
Effective "Tax"* 0% 36.3% 63.5%
Source: Brooks Hamilton & Associates ("Tax" = percent reduction from index=100)
If we did the same analysis and used a lower gross return--- which many financial planners would consider imperative--- the burden of management fees would appear even higher.

When my column on the real cost of money management appeared several weeks ago members of the brokerage community responded with attacks. They sent hate mail accusing me of believing they were "crooks and thugs."

Emotional responses miss the point.

Your money can be managed by a Mensa member with perfect Sunday School attendance--- but if he charges 200 basis points to manage your money, the lifetime cost is higher than our highest Federal tax rate. It will cost you millions of dollars and years of income.

The issue isn't character. It is the impact of expense.