Can you really get free and objective investment advice, when you pay investment sales loads?
Excessive investment expenses are one of the most significant barriers to your family’s lifelong financial security.
Excessive investment costs are a plague on your personal financial planning. While financial services industry sales people tell you that you need to pay more to get more, the correct answer is the opposite. If you pay less, you are likely to get more.
Through intense competition, the investment industry pursues individuals who have money to invest. Industry sales representatives will try very hard to induce you to purchase their investment products and services. The terms “advice,” “counsel,” “recommendation,” “trust,” “relationship,” etc. are used constantly during this sales process.
Most individual investors have a great need for competent and objective investment advice. At the same time, they are suspicious and do not want to pay directly for advice of uncertain value. The industry has found a way to deal with these contractions. The industry directly compensates its brokers and many “independent” advisors who act as sales agents. Commissioned brokers and commissioned advisors promote their “advisory” services as being free and objective – the best of both worlds. They tell you that you are getting good advice without having to pay anything for this good advice. (See: The investment industry is not your investment partner)
In theory, only when you decide to act upon this allegedly good and objective advice will there be any cost. You will pay a supposedly reasonable sales load charge, when you purchase a recommended investment. Sales load charges take several forms: front-end loads, back-end loads, and/or higher expense ratios, including various combinations. (See: Understanding Mutual Fund Classes, NASD, January 14, 2003)
Ultimately, individual investors are the source of sales load-based investment advisor compensation, but the money flows indirectly. Concerning front-end sales loads, these fees are taken out of your initial investment. Load charge are routed through firms in the industry, and some but not all of your load charge will be paid to the broker or advisor who works directly with you. A substantial portion of sales loads are retained by industry firms to cover their costs and make a profit. (See: Financial planner and investment advisor compensation paid by third parties)
Furthermore, the industry will be gracious enough to offer you a supposed choice in this matter, when you buy mutual fund shares. You can choose between A, B, and C share classes. In doing so, industry sales representatives may suggest that you get to choose what is “best” for yourself. In this faux decision process, which The Skilled Investor has dubbed the “ABC Share Class Shuffle,” individual investors choose a share class. In the ABC Share Class Shuffle you really just choose one form sales fee over another. As long as you buy, the sponsoring firm and the sales rep do not care which choice you make. The A, B, and C share classes are priced to be roughly equivalent from the perspective of the firm, and the firm will, in turn, compensate your broker or advisor for making the sale. Many funds offer additional share classes with no load and lower annual expenses for direct consumer purchases, but your advisor not tell you, if such classes exist.
Sales loads have evolved over time to be one of the major forms of compensation for financial services industry sales personnel. However, investment sales loads are anything but free to the consumer. Investment sales loads do not and cannot improve your investment performance. Instead, investment sales loads could do significant and continuous harm your lifelong financial interests. If you measure the full lifecycle costs of the investment sales loads that you pay, you will find that these investment sales fees can be a huge and increasing drain on your lifetime assets.
The only way to avoid sales loads and other industry investment marketing charges is to proactively search for investments that you can buy either directly or through very low cost discount financial services outlets. Any investment sales person who approaches you will sell you investments that are far more costly. Not only will you pay unnecessary purchase charges when you buy investments with sales loads, your not-so-objective advisor very likely will induce you to buy inferior long-term investments due to their higher ongoing costs. Free advice is one of the most expensive “free lunches” that you will find in personal finance.
Personal Financial Planning
- The Investment Returns You Lose to Investment Sales Loads (VeriPlan automatically tracks returns lost to investment sales loads
Many justifications for investment sales load charges might be offered by financial advisors during the sales process, but once a front-end load is charged, your diminished portfolio will 'forget' about the load charge for the rest of your life.
Loads become 'phantom' assets, which are rarely spoken of [...])
- Can you really beat the stock market? (
You are not likely to beat the stock market, despite all the cheer leading from the securities industry and the financial media.
When you try to beat the public securities markets, unfortunately you are more likely to trail the market’s return, because of extra costs, taxes, and investment mistakes.
The idea that investors can beat the market [...])
- How Expensive is Investment Advisor Compensation Paid via Sales Loads? (Even if you actually are getting good financial advice, paying your investment advisor via a sales load charge is just one of several potential compensation methods.
A sales load might be the method that you prefer to compensate your broker or advisor. If your advisor is truly competent and ethical, he may be able to manage [...])
- Have You Given Enough to the Financial Services Industry? (
Why don't we hear about the real financial sector scandals, which are exorbitant fees and costs that cause a continuous wealth transfer from individuals to the financial services industry?
This article follows a recent article entitled "The Financial Services Industry is Still the Largest S&P 500 Sector - Even after the Collapse of its Stock Value." [...])
- The Heavy Burden of Recurring Investment Expenses and Fees (
The heavy burden of recurring investment fees (Part 1 of 2)
Recurring investment costs can significantly impact the long-term value of your retained investment portfolio assets.
Recurring fees, such as asset management fees, 12b-1 marketing fees, and advisory/asset custody fees are charged periodically, as a percent of your investment assets. The relative cost-efficiency of your investment portfolio [...])
- The Value and Opportunity Cost of Your Personal Investment Management Time (
Your time is valuable, and it should be included in calculations about your investment returns.
Whether you add or subtract value from your assets when you spend time on investment activities should also be evaluated. Some investors spend significant time on the wrong strategies. Instead of adding value, their efforts reduce their investment portfolio performance and [...])
- What is a Well-Diversified Investment Portfolio? (A well-diversified portfolio contains a very large number of individual stocks and/or bonds that are selected without bias toward particular economic segments.
A fully diversified portfolio will approximate the global publicly traded securities markets.
The question about diversification most frequently asked by individual investors is “how many stocks or bonds do I need to be well-diversified?” While [...])
- Learning about personal finance and investing (Learning about personal finance and investing
The investment strategy that I always suggest is a “completely passive, globally diversified, always invested, never switch to beat the market” investment strategy. This kind of investment strategy is a very low maintenance investment strategy. From many respects, you set it, and you forget it. Except for:
the need to pay [...])
- Avoid Very Large Actively Managed Mutual Funds (
Avoid very large actively managed mutual funds
Big actively managed mutual fund portfolio positions and higher percentage ownership of any company’s bonds or common stock are not good things for actively managed mutual funds. Nor, are these big positions and high percentages good for you.
Large portfolio size constrains how efficiently an actively managed mutual fund can [...])
- California Investment S & P 500 Index Direct (SPFIX) pulls in a +8 Fund Authority Score (
The Standard & Poors 500 stock index is the most common equity index fund benchmark in the U.S. The S and P 500 tracks about 75% of publicly traded U.S. equity market asset value. The dominant issue in choosing among passively managed index mutual funds and ETF funds benchmarked against the S & P 500 [...])
- Use Scientifically Based Financial Planning Strategies (VeriPlan is designed to help you pursue scientifically based financial planning strategies
VeriPlan offers you unprecedented direct control to perform your own automated personal financial planning. VeriPlan's functionality also implements the principles of scientific finance. VeriPlan's internal documentation and its links to information on the web help you to understand scientifically based personal financial planning and [...])
- Develop Your Own Personal Financial Planning Skills – Step 1 of 10 Financial Planning Steps in the Right Direction (You are completely responsible for your financial and investment success or failure. Delegating investment decisions to industry advisers largely on naive faith and hope without adequate personal knowledge, attention, and control can be very risky to your personal and family welfare. The only practical solution is for you to increase your personal investment knowledge and [...])
- Choose Sufficiently Mature Mutual Funds and ETFs (Choose sufficiently mature mutual funds and ETFs
Investing in more mature equity and bond mutual funds and exhanged-traded funds (ETFs) allows you to evaluate the historical consistency of a fund's record.
On average, the future portfolio returns of more mature funds are probably no more predictable than for very young funds with a similar style or strategy. [...])
- What Works Financial Newsletter – October 2011 (
October 2011 Newsletter
Identity Theft Protection and Prevention
As a threat to your financial security, you should take the potential for identity theft very seriously. Identity theft sometimes entails a loss of your money. However, whether or not you lose money, identity theft usually takes a very large amount of your time to rectify. To prevent an [...])
- Choose objective and competent financial advisers and investment counselors – Step 10 of 10 Financial Planning Steps in the Right Direction (CLICK HERE TO READ THE SKILLED INVESTOR's OTHER ARTICLES ABOUT THESE "10 FINANCIAL PLANNING STEPS IN THE RIGHT DIRECTION
Pick financial and investment advisers solely to obtain objective and high quality advice. Specific financial and investment advice is potentially of high quality, if it is carefully customized to your particular needs and is given by an [...])