Prospering with Mutual Funds
Prospering with Mutual Funds:
How anyone can “Afford” an Investment Advisor
Once a client and I were working out some casual matters, he mentioned in passing that “most people can’t afford an investment advisor.” While that wasn’t the time or place for me to discuss this, I realized that many people might have a similar misconception. Had conditions allowed, I would have pointed out the following to him.
There are only two ways an individual can invest in mutual funds: Selecting and investing themselves or using outside help. If they use outside help they’ll have a couple of choices again: A commissioned salesperson (broker, financial planner or Registered Representative) or a fee-based investment advisor. Most people don’t know the difference and often start with a broker who charges about some commission off the top to purchase a mutual fund. The fund is usually from a limited selection of fund families the broker has a relationship with. He, of course, would never recommend a no load fund or an exchange traded fund (ETF), since it is not in his best interest -- although it might be in yours.
Having a fee-based investment professional handling your portfolio will get you as close as possible to receiving advice that is based on nothing but the advisor’s best knowledge and evaluation of the market. They advise only what they consider top performing funds since sales commission is not a consideration and does not create any conflict of interest for them. But, how can you "afford" an advisor?
First off, the advisor's fee is usually in the range of 1% to 2.25% per year depending on portfolio size. This amount is billed in advance on a pro-rated basis and charged directly to your investment account. This creates an initial savings right off the bat.
Most fee-based advisors offer complete service as far as your portfolio is concerned. That means that they don’t simply “sell” you a mutual fund and disappear until you call again. Since investors evaluate advisors based on the performance of their portfolio, advisors are keenly interested in maximizing your bottom line. In the long run, your gain should outweigh their fee.
Many advisors utilize an investment discipline or methodology that keeps you not only invested during upswings in the market, but also in the appropriate funds for the current economic environment. For example, at one time, tech funds were hot. Now, generally, they're not. An advisor watching market trends could have been able to assist you in avoiding the bursting bubble. (In fact, my clients were advised to pull out of the market and into the safety of other avenues in October, 2000, just before the market plummeted. What they didn't lose because of this will more than cover my fees for the rest of their lives!)
The advisor never has access to your money because he is affiliated with a custodian who handles the money; the regular statements fulfill the proper legal reporting requirements. With this arrangement an advisor can actually save you money. How?
The advisor will use only no load funds. Because of his affiliation with a custodian (often a major Asset Management Company), he’ll have access to a large number of mutual funds, not just to one or two fund families. This allows him to pick the best available, which potentially means a higher return for his clients.
Keep in mind that markets fluctuate and starting with an advisor in the middle of a downturn will not likely yield high profits at first. However, over time, an advisor will most likely produce results better than what you would reasonably expect yourself to do, even with the advisor's modest fee.
Choosing the right advisor and watching how your portfolio performs with their advice will almost always prove that it doesn't cost you to have an investment advisor, it pays.
© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004
How anyone can “Afford” an Investment Advisor
Once a client and I were working out some casual matters, he mentioned in passing that “most people can’t afford an investment advisor.” While that wasn’t the time or place for me to discuss this, I realized that many people might have a similar misconception. Had conditions allowed, I would have pointed out the following to him.
There are only two ways an individual can invest in mutual funds: Selecting and investing themselves or using outside help. If they use outside help they’ll have a couple of choices again: A commissioned salesperson (broker, financial planner or Registered Representative) or a fee-based investment advisor. Most people don’t know the difference and often start with a broker who charges about some commission off the top to purchase a mutual fund. The fund is usually from a limited selection of fund families the broker has a relationship with. He, of course, would never recommend a no load fund or an exchange traded fund (ETF), since it is not in his best interest -- although it might be in yours.
Having a fee-based investment professional handling your portfolio will get you as close as possible to receiving advice that is based on nothing but the advisor’s best knowledge and evaluation of the market. They advise only what they consider top performing funds since sales commission is not a consideration and does not create any conflict of interest for them. But, how can you "afford" an advisor?
First off, the advisor's fee is usually in the range of 1% to 2.25% per year depending on portfolio size. This amount is billed in advance on a pro-rated basis and charged directly to your investment account. This creates an initial savings right off the bat.
Most fee-based advisors offer complete service as far as your portfolio is concerned. That means that they don’t simply “sell” you a mutual fund and disappear until you call again. Since investors evaluate advisors based on the performance of their portfolio, advisors are keenly interested in maximizing your bottom line. In the long run, your gain should outweigh their fee.
Many advisors utilize an investment discipline or methodology that keeps you not only invested during upswings in the market, but also in the appropriate funds for the current economic environment. For example, at one time, tech funds were hot. Now, generally, they're not. An advisor watching market trends could have been able to assist you in avoiding the bursting bubble. (In fact, my clients were advised to pull out of the market and into the safety of other avenues in October, 2000, just before the market plummeted. What they didn't lose because of this will more than cover my fees for the rest of their lives!)
The advisor never has access to your money because he is affiliated with a custodian who handles the money; the regular statements fulfill the proper legal reporting requirements. With this arrangement an advisor can actually save you money. How?
The advisor will use only no load funds. Because of his affiliation with a custodian (often a major Asset Management Company), he’ll have access to a large number of mutual funds, not just to one or two fund families. This allows him to pick the best available, which potentially means a higher return for his clients.
Keep in mind that markets fluctuate and starting with an advisor in the middle of a downturn will not likely yield high profits at first. However, over time, an advisor will most likely produce results better than what you would reasonably expect yourself to do, even with the advisor's modest fee.
Choosing the right advisor and watching how your portfolio performs with their advice will almost always prove that it doesn't cost you to have an investment advisor, it pays.
© N.M. Finserv ---- www.nmcomp.com/finserv
December 2004
posted by N.M. Finserv at
2:55 PM
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