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)
A customer comment from the sidebar: "VeriPlan is a big help. I'm in my mid 50's and have been a diligent saver and passable investor for many years. I am going through a work transition from salaried corporate employee to independent consultant, and my aging parents are needing financial help. Financial planning is particularly important to me and my family now. Thanks for making your product available. I've recommended it to a number of folks and will continue to do so." J.H. in Portland, OR
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A customer comment from the sidebar: "VeriPlan has been a very flexible home financial planning tool. It took me a few hours on a weekend to understand what VeriPlan could do and to enter our financial data. Our family financial affairs were scattered all over, and we lacked a comprehensive picture of what the future might hold for us. I wanted a clear understanding of our projected lifetime and retirement income, expenses, taxes, debts, real estate, financial assets, college investments, retirement investments, and everything else all together." S. L. in Altadena, CA
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A customer comment from the sidebar: "You have done a great job of including the necessary instructions in VeriPlan, located close to where the modeling is happening. The thing I like about the VeriPlan User Guide is that it adds substantial additional commentary that I personally find very valuable. I was hunting for a capable and reasonably priced financial planning package, and VeriPlan is an awesome tool. The more I play around with it, the more valuable I find it. Your free user guide was what made me decide to get VeriPlan." C. A. in North Royalton, OH
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A customer comment from the sidebar: "One of the stories that VeriPlan tells me is how much of my money could be lost to excessive investment costs. I just switched to some lower cost funds in my 401k. I loved updating VeriPlan with the new cost values just to see the red bar on the Total Assets chart get significantly thinner - quite a shocking difference." M. W. in Tulsa, OK
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A customer comment from the sidebar: "I am extremely impressed with the depth of information that VeriPlan asks for and provides. VeriPlan seems much more detailed than one would expect for the very reasonable price. Although I am not a financial professional, I consider myself more financially educated than the most people of my age (62). I find that VeriPlan's depth to be just what we need for our retirement planning. I am glad I purchased it. Thanks." J. W. in Gainsville, FL
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A customer comment from the sidebar: "I have been very happy with this software. I will put VeriPlan to work to help optimize our IRA to Roth conversions, while avoiding the IRMAA penalties if we can. We are in an opportunistic window for the next several years. I have been appalled by the lack of professional knowledge available with respect to the tax burden that will fall upon us when RMDs take effect. Most of the information I have found suggests that it isn't a problem. Luckily, this software will be of great benefit to chart our course." J. S. in Louisville, KY
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A customer comment from the sidebar: "I am a recently retired engineer, and I created a cash flow Excel spreadsheet for 25 years of retirement. So, I fully appreciate the data and potential variances that must be accounted for. Yet, mine is so very simple compared to VeriPlan. I love VeriPlan's concept of total control over inputs and parameters. Veriplan's objectives are very much like mine, but it has many, many more input and control options, and the price is spot on." L. G. in Southbridge, VA
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A customer comment from the sidebar: "I've been using VeriPlan for a few weeks now, and it is everything I was looking for plus a whole lot more of what I didn't even know I needed. By simply switching VeriPlan to a state that does not have a state income tax, I can see how much I could save on traditional IRA distributions in retirement by moving to a state without income taxes. It is a real education in personal finance, and I think just about everyone would benefit from using this tool." T. H. in Silicon Valley CA
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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.
A customer comment from the sidebar: "VeriPlan's financial projection graphics simply lay out what the future might hold for my family. Also, VeriPlan is a very fast and automated financial investment calculator that allows me to change anything and to test alternate investment decisions rapidly. Its integrated documentation explains clearly how it works, and it also includes a wealth of well-researched personal finance and investment information that has been very helpful." T. F. in Muncie, IN
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A customer comment from the sidebar: "I do most of my own financial modeling, and I like the way VeriPlan generates “what if” scenarios that I like to compare, such as possibly buying a rental property, selling my house and renting, moving social security retirement age payment timing, and pulling out IRA money after taxes. Plus, I like VeriPlan for its automated projection of detailed investment costs. Thanks for making a great product." K. W. in Naperville, IL
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A customer comment from the sidebar: "I am 10 years out from retirement, and I needed to start thinking more seriously about having enough to retire on. I'm following the suggestions of you and others in opting for more hands-on retirement planning. I am also using lower cost index investing. There are too many wealth management companies out there, all ready to charge an arm and leg for what should be straightforward financial planning work." G. B. in Smith Mountain Lake, VA
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A customer comment from the sidebar: "Larry, Hello again! I've continued to work with VeriPlan, and the more I work with it the more I'm amazed at how much it does. It's an incredible decision support tool for my financial planning. Since I have already built a model of my lifetime finances, it is easy to test new ideas as they come to me. Thanks again." M. W. R. in Austin, TX
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A customer comment from the sidebar: "I first learned about the zero federal taxes on long term capital gains when under the 25% marginal income tax rate from working with VeriPlan a number of years ago. I’m no longer working but not yet receiving RMD’s or social security so my ordinary income is relatively low. So I’ve been taking full advantage of zero federal capital gains taxes by selling off my high expense ratio mutual funds which have a lot of capital gains built in since I’ve held them a long time and then I reinvest them in index mutual funds which don’t generate as much capital gains distributions. So the education that you and VeriPlan provide has saved me thousands in taxes, not to mention the expenses on high cost mutual funds. Thanks again." M. D. in El Paso, TX
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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.
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