Thursday, October 2, 1997
Fees, Glorious Fees
by
[email protected]
Independent financial advice. It sounds so re-assuring, so calming, so professional, who could resist the lure? It's the Wise thing to do, we are told, to circumvent the individual institutions and gain an unsullied opinion about what we should be doing with our cash.
Alas! When the truth is told, the only difference between independent advisors and advisors tied to a particular firm is the product range available for them to sell to you. It's kind of like the difference between buying clothes at the Ralph Lauren shop and buying them at Marshall Fields -- same clothes, same prices, same overheads, but at Fields you can buy Nautica and Greg Norman, too.
It took a recent brush with an independent to drive this home. Shopping for a long-term home for some cash, I let my bank run me through the advisor mill, and darned if I wasn't almost sucked in -- that is, until I read the small print of the mutual fund being recommended. You know, the bit where it explains just how much of your hard-earned lolly will be allocated to buying fund units? The bit where it explains how for the first 18 months, your independent advisor will be paid 40% of the money you are putting away?
Now, this is a pretty good deal for Mr Indy. With my level of saving, $1,000 a month, he's pulling in $7,200 for a few hours work! Not bad! But what's really staggering is the effect this has on a long term fund -- over the term of a 20-year policy, that $7,200 could have grown to $33,500 even at the meager 8% growth offered by the fund in question. Even more staggering, that same $7,200 could have made out with $161,000 using the most simple Beat The Dow process.
The moral? Consider the simple phrase, "What's in it for him?" And then dig like hell to find out exactly what's in it for him, and what it's going to cost you. Independently.
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