This is a legacy web site and some information may be out-of-date. For more recent information and postings, see www.tonynovak.com/cpa.

QuickBooks Certified ProAdvisorFreshBooks certified accountant
Tony Novak  800-609-0683
a passionate advocate for small business success

advice quoted in The Wall Street Journal and Money Magazine

Transparency in financial service charges

by Tony Novak, CPA, MBA, MT
, revised 11/28/2011

The new buzzword in the financial service industry is “transparency”. This term refers to the principle that all aspects of financial transactions, especially charges and commissions, should be plainly visible to customers or the public.

The underlying belief is that transparency in fees and charges helps consumers make better financial decisions. There are market study indications to both  support and oppose this premise but most consumer advocates believe that the benefits of increased fee disclosure outweighs the drawbacks.

Historically the financial industry has hidden charges from the public and even from their own employees. The prevailing logic has been that when net results are accurately reported to customers, it was not necessary to disclose all of the firm’s intermediate and internal financial transactions. Lately the logic is turned upside down. Financial firms are now under pressure to disclose all charges and ancillary transactions. Last year the mutual fund industry was attacked by federal and state regulators. Now the insurance industry is under attack for these same issues. There is some speculation that banks and mortgage companies may be next on the regulators’ list of targets.

It is not at all clear whether transparency in reporting actually helps consumers. Certainly it makes consumers feel more comfortable, but the added comfort comes at an additional cost to financial companies.

 Cost disclosure will ultimately add to the price of mutual funds, insurance policies, stock trades and other financial transactions. Some firms like Ameritrade have already decided to commit to fully transparent transactions even if that means they will no longer remain as a low cost leader within their industry. Ameritrade is a discount broker that charges about $11 per investment trade where some other competing firms have recently dropped their charges to about $8 per trade. Ameritrade is betting that consumers will feel more confident with the added level of reporting and disclosure and ignore the $3 difference in price.

The highest level of transparency for a financial company is to have an open books policy, where any interested party has access to the company’s financial records. Few companies have been able to achieve or sustain this level of transparency, but is still held as an aspiration for some of the most idealistic firms.

For example, Freedom Benefits Association was originally organized in 1997 under articles that called for an open books policy. While this was an admirable goal, we learned that it was often not possible to ascertain the details of individual transactions at a cost that made sense to members. We found, for example, that it was impossible for us to determine the charges built into an insurance policy for up to 15 months after the starting date of a policy. As a result, Freedom Benefits discloses financial information on an aggregate basis rather than for each transaction.

Status: available for reprint

This article is available for republication in its entirety without charge after obtaining the express written permission of the author.

Please e-mail a request to the author that includes the name of the requestor (individual and corporate) and the intended destination of publication.


Opinions expressed are the solely those of the author and do not represent the position of any other person, company or entity mentioned in the article. Information is from sources believed to be reliable but cannot be guaranteed. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Tony Novak operates as an independent adviser under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator" but is not a representative, agent, broker, producer or navigator for any securities broker dealer firm, federal or state health insurance marketplace or qualified health plan carrier. He has no financial position in any stocks mentioned. Novak does work as an accountant, agent, adviser, writer, consultant, marketer, reviewer, endorser, producer, lead generator or referrer to other companies including the companies listed in the articles on this web site.

  onlineadviser@live.com   |  (800) 609-0683  |  Cell/Text: 856-723-0294  |  www.wealthmanagement.us.com