In our last post we introduced the concept of reducing the fat from your financial fees, including aggressively managing both disclosed and hidden costs of investing. We would be remiss if we did not also address the role of Pathway Financial Planning’s fees in our clients’ investment activities.
As much as I love my career, my family seems to have an annoying expectation that I bring home a paycheck in exchange for the hours I am away. As such, Pathway charges fees for helping our clients plan, build and maintain their investment portfolios according to these and other sound principles. We embody three qualities that we recommend you seek in any advisor relationship you might consider:
- We Are Fee-only. Seek a fee-only advisor, so he or she is being solely compensated by you, the client, with no outside incentives from other sources.
- Our Fees Are Transparent. Ensure you know what fees you’re paying. Registered Investment Advisor firms must disclose their compensation sources in their Form ADV, which you can look up on this Investment Advisor Search page. Look for a firm’s “Part 2 Brochure,” such as Pathway’s most recent brochure here. Item 5 covers a firm’s fees and compensation. Look for fees that are clear and reasonable. If you view ours, you’ll notice we’ve done our best to state things as plainly as possible.
- We Strive To Be Worth It. Seriously, if you aren’t confident that you’re getting your money’s worth out of an advisor relationship, consider a divorce. The ideal advisor should help you intellectually understand, emotionally embrace and practically apply a sound investment strategy. He or she should seem invaluable in your quest to achieve your and your family’s financial goals. If that doesn’t sound like what you’re currently experiencing, in the approximate words of Paul Simon, there must be 50 ways to leave your advisor.
Putting Together the Cost-Effective Pieces
For the purposes of this post, we’ve assumed that you are mostly using mutual funds to build your investment portfolio. Of course there are other ways to invest, such as purchasing individual securities, or buying more complex products such as hedge funds or private placements. These alternate forms of investing are not only subject to most of the costs described here, they often entail additional expenses that call for even more buyer-beware scrutiny.
Here is a summary of five simple things you can do to manage your investment costs and get on with the rest of your satisfying life much more quickly:
- Minimize trading – Both your own and your fund manager’s.
- Remain patient – Avoid reacting to short-term market news yourself, and seek a fund manager who can trade slowly and deliberately during market panics (which shields you from hidden increased trading costs incurred during market run-ups and run-downs).
- Compare costs – Take the time to know what operating expenses you’re paying by checking the fund’s expenses on Morningstar’s website and making apples-to-apples comparisons of those expenses to other, similarly structured funds worth considering.
- Skip the loads – Avoid funds with sales loads of any kind, including 12b-1 fees. Such fees do nothing to enhance your investment experience.
- Work with an informed advisor – Seek a relationship with an advisor who is as annoyed by unnecessary fees as you are, and can demonstrate the ways he or she helps you aggressively eliminate them.
To help you adopt a satisfying, reduced-fat-fee diet in 2014 and beyond, we’ll continue to tackle the subject of fees in upcoming posts. In the meantime, please be in touch if we can weigh in on your existing fees with personalized Pathway advice.