| 9 Lowell Street, Beverly, Massachusetts, 0915-3652 - Phone 978.922.9961 - Fax 978.922-9961 Conflict Free Financial Planning, Investment Counseling & Financial Education |
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| Fees |
Fees
Excessive fees represent a drag on investment returns and every effort should be made to minimize their effect
on your results. Even a small increase in fees can have a substantial impact on long term performance. A
$500,000 portfolio that pays only one half of one percent of excess fees over twenty years will see its returns
reduced by over $52,000. This represents over 10% of the original investment. Given this substantial impact on
results it is important to keep fees and expenses to a minimum.
It is important to have some perspective when evaluating the price of any product or service. If you are seeking
financial advice there are two types of advisors to consider. Commission based advisors are compensated by
commissions on the products they sell you. Working with a commission based advisor exposes you to a conflict
of interest. You always must ask yourself whether the product is being recommended because it is in your best
interest or because it generates a commission for the advisor. The arrangement is similar to seeing a doctor
who only got paid when he recommended expensive prescription drugs, medical tests or hospital procedures.
Do you think there would be more prescriptions, tests and hospital procedures ordered than necessary? Would
you like to be cared for by such a doctor? Sometimes chicken soup and bed rest is the best treatment but the
doctor wouldn’t get paid! Registered investment advisors, your second choice, are compensated by fees paid by
the client and receive no compensation based on the sale of products. They have no incentive to churn your
account.
On March 16, 2006 the Boston Globe published an article by syndicated columnist Scott Burns titled, Who is
your financial advisor working for, anyway? The article noted that there were nearly 250,000 people calling
themselves financial advisors. These advisors came from six different distribution channels. The article goes on
to identify the various distribution channels and the number of advisors working in each of them. Consider the
following quotes from the article.
A registered investment advisor is the only person in this group who has a sworn fiduciary duty to put your
interest first. The others provide what is deemed “suitable” investments.
What does that mean for most of us? It means that about 95% of all the people who are called “financial advisor”
are working on commission.
It’s good to understand that most of this army of financial advisors is organized to extract about 2 percentage
points a year, often more, from your money.
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| 9 Lowell Street, Beverly, Massachusetts, 01915-3652 - Phone 978.922.9961 - Fax 978.922.9961 Conflict Free Financial Planning, Investment Counseling & Financial Education Adam Smith David Ricardo |
| Copyright © 2009 Thomas J. Costantini, Monserrat Advisory Services, LLC, All Rights Reserved. |