THOUGH SOME CRITICS GROUSE ABOUT THEM, MOST INVESTORS have long thought investment management fees can best be described in one three-letter word: low. In particular, fees are seen as so low, they are almost inconsequential when choosing an investment manager.

This view is a delusion. Seen for what they really are, fees for active management are high—much higher than even the critics have recognized.

When stated as a percentage of assets, average fees do look low—a little over 1 percent of assets for individuals1 and a little less than 1/2 of 1 percent for institutional investors. But this is not the right way to measure or describe fees. The investors already own their assets, so investment management fees should ...

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