Do-it-yourself
investors win the race | | |
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Brokers would view this not as a penalty, but rather
more revenues for their firm (and job security for them).
Faithful readers of The Wall Street Journal know how
this works. For example, in recent months, A.G. Edwards announced
that it was giving away bonuses of up to $50,000 to advisers who
could lure high-net-worth brokers to that firm. The bonuses range
from $15,000 "for recruits who produce at least $300,000 a
year" on up to $50,000 for those "who produce at least
$800,000."
"Produce that much in what?" you may ask. Why, in annual
commissions and fees! Guess where that money comes from?
Last
month, Morgan Stanley announced it was restructuring its pay package to better
compensate its high producers, and it's targeting those who generate hundreds
of thousands of dollars in fees and commissions, while getting rid of the low
producers. According to the WSJ, 1,500 underperforming brokers and broker-trainees
were canned over the past two years. Bottom line: Brokers
have little incentive to save their customers fee money. You
don't get what you pay for
The studies underscore the importance for investors to educate themselves
about their investment options. If they must seek advice, they should
find a fiduciary -- someone who pledges to put their clients' interests
first -- and pay either an hourly fee for advice or perhaps an annual
retainer if more than just investment advice is needed.
I think it's a bad idea to relinquish your assets
to the care of a registered investment adviser, broker or even a
fee-based financial planner who charges an asset-based fee (generally
1 percent annually) plus possible commissions. Investors who do
this will likely pay between 2 percent and 3 percent of their assets
annually for this expertise, between the asset fee and the fund
fees, when they could do much better on their own.
If you're not confident about your
ability to choose funds for your investment plan, you can get good, cheap advice
by calling the fund supermarkets directly and getting guidance from their salaried
staff. Yeah, they may push their house funds, so be sure to ask a lot of questions
about the reasons behind their recommendations, as well as fund costs. I'd
rather get advice from a salaried employee who stands to get a bonus only if she
earns high ratings in customer satisfaction surveys, which is typically how these
sales reps get compensated. So when it comes to getting good
investment advice, don't go by the old adage that you get what you pay for. Rather,
go by the maxim, "less is more." Longtime financial
journalist Barbara Mlotek Whelehan earned a certificate of specialization in financial
planning. If you have a comment or suggestion about this column, write to Boomer
Bucks. | 
