There’s a dirty little secret in the investment industry and it’s called "fees."

I constantly interact with investors from all walks of life and inevitably the topic turns to fees. Although they may know the daily price of the Starbucks coffee they buy down to the penny, when I ask them about the hundreds or thousands of dollars they are paying in fees and expenses, I get the proverbial deer in the headlights stare. Who can blame them when they are effectively forced to hire a lawyer to decipher the layers of costs buried in thick legal client documents? These fees and expenses include, but are not limited to, load fees, management fees, 12b-1 fees, trading commissions, soft dollars, surrender charges, administrative charges, bid-ask spreads, impact costs along with other kitchen sink charges (enough to make your head spin).

Are the fees worth the price? The short answer is NO. On average 75% of professional managers underperform the benchmarking strategy, which I call the "do-nothing" or passive indexing approach. Standard & Poor’s SPIVA division (S&P Indices Versus Active Funds) discovered the following over the five-year market cycle from 2004 to 2008:

• S&P 500 outperformed 71.9% of actively managed large cap funds.
• S&P MidCap 400 outperformed 79.1% of mid cap funds.
• S&P SmallCap 600 outperformed 85.5% of small cap funds.

Most individuals would be better served by purchasing a diversified basket of low-cost, tax efficient index funds or ETFs (Exchange Traded Funds). Unfortunately, the deafening noise and chest thumping from the ever-changing top 25% of investment managers muddies the waters for rational investment decision makers. Proprietary algorithms, can’t-lose strategies (a la Bernie Madoff), pretty pie charts, and a rosy story explaining a path of future outperformance are typically used as smoke and mirrors to confuse unsuspecting investors into unwanted decisions. For the day-trading addicts, financial intermediaries peddle their unique software in commercials with flashing light and hip music, touting the newest bells and whistles that will catapult the masses into riches.

What’s the solution? Well, if you have the time, discipline, and emotional make-up then you should call the manufacturers of low-cost index funds and ETFs like Vanguard Group, PowerShares or iShares and construct a diversified equity and fixed income portfolio. I recommend rebalancing client portfolios periodically subject to your objectives, constraints, risk tolerance and changing circumstances.

If you don’t have the time, discipline, or emotional make-up necessary to manage your investments, then interview a group of "fee-only" advisers who have no conflicts of interest and subscribe to a diversified, low-cost, tax efficient strategy (for disclosure purposes, Sidoxia Capital Management is a fee-only adviser).

Regardless of portfolio management choices, do yourself a favor and ask your broker/adviser or investment company what you are paying in fees/expenses. It’s your money and you deserve answers, despite the dirty little secret that pervades the industry.