Since January of this year, we have been working hard to reduce allocations around long-duration bonds. With the most recent fed decision to ease quantitative support, I have paused to consider the implications to my post-divorce wealth management clients and have spent considerable time these past two weeks to further diversify the portfolio. After all, the fed expects our economy to stand on its own - how will that affect your investments?
Protecting our client's money, increase yield and seek some growth is not an easy task in this current investing environment. We pride ourselves on being fee-only and offering our clients a flat fee. Lots of other financial advisors wonder why, and my response is always this:
There are three things that will eat away at our client's wealth: taxes, inflation and fees.
Those include advisory fees!
Recently, I have found some impressive investments. They seek to protect against inflation, rising interest rates, replace bond yield that is so hard to obtain and replace these days and increase portfolio diversification.
Because I am a FEE-ONLY investment advisor, I vow to not take commissions and trails from the investments I choose. I charge my client a flat rate each year for my objective investment advice. I am their fiduciary.
Investments all have fees. How do you think mutual fund companies make money? They charge different rates. Let's look at some examples:
- Class A Shares - front-end charge to you - 3% sometimes as high as 5% off your initial investment. The advisor collects that as commission and then collects a small amount each year called a trail (typically about .25%)
- Class B Shares - no front-end charge but if you sell, you will have a back-end charge assessed - that's nice.
- Class C Shares - level charge each year typically 1% paid to the advisor- not good if you plan on holding the investment for a long time.
- Institutional Class Shares - flat simple charge each year around .65%. My favorite because the advisor takes no commission or collects no trail.
To learn more about this topic, visit Investopedia.com, which does a great job of explaining share classes further. Learning about this is important because you are ultimately responsible for knowing what you pay for your investments and why.
Back to the original point of my blog. Why am I frustrated? I want to charge my clients their flat fee and invest in strategies that meet their risk profile and are suitable to their other investments without charging them excessive fees. For this reason, I love institutional shares.
In order to invest in some institutional shares, you need a minimum of $1 million dollars*. Yes, $1 million dollars. How does the prudent retail investor muster $1 million dollars for one fund?
I got to thinking. We need a fee revolution. We need consumers to demand answers and ask what they are paying and why. I feel confident that I will sort through this and find a way - either with these investments or other great investments.
Ask the hard questions:
- How do you get paid exactly?
- In how many ways are you compensated? Fees, share class fees, trails and commissions.
- How can I get my fees waived?
- How can we lower the minimum requirement so I can participate in a reasonably priced investments?
You deserve to know and it is your right as an investor.
For independent financial and investment advice, feel free to contact us. We offer a "second look" on your portfolio on an hourly fee basis. 866-526-7098; www.stradamanagement.com
My best, Jennifer
*The advisor can ask how to waive the class share fees. The consumer should ask about this!
**There are other great investments out there that don't cost as much and fund companies will work with advisors to reduce minimums. Exchange Traded Funds (ETF) are a great option as well.