Is your Broker Worth the Expense? Part 3: Planning is Important!

In my last blog, I continued with Part 2 of “Is your Broker Worth the Expense?” .  I took a quick look at three common ways that brokers charge clients.  


Today in part 3, I would like to write about the importance of planning.

Having a plan is extremely important, and those of you who have heard me speak before know that it is my contention that Americans have a plan for almost everything.  


I like to give the example that our family has a very specific plan when we go to Walmart.  I have compiled a list of items on the computer that we commonly purchase at Walmart, and while we drive to the store someone is reading the items off the list.  If we need an item, it is highlighted and when we arrive at the store highlighted items are divvied up as we enter the store.  Each member of the family then places the needed items in a cart, (we use several to save time), and we have effectively reduced our time in the store from 95 minutes to 28 minutes.  


Ironically, however, as detailed oriented as Americans seem to be, I have never met with a prospect who had a good financial plan.

Many brokers offer complimentary financial plans.  My experience, however, with brokerage house planning is that what the prospect/client generally receives is a compilation of assets with a nice binder around them and not a plan.  The compilation of assets serves as a means for the broker to offer investments in one of the aforementioned payment structures.  

 The process goes something like this:

1.      The prospect/client brings statements and/or paperwork which represents all of their investments and real estate holdings along with insurance and accumulated debt.

2.      At the bequest of the Branch Manager, the data is plugged into proprietary planning software, by an intern.  The intern’s keying the information into the computer allows the broker to go out and effectively work to gain more “assets under management” (AUM) http://www.investopedia.com/terms/a/aum.asp.

3.      The broker then meets with the prospect/client with very little command of the material.

4.      The so called “plan” is then presented in a very nicely bound format, or if the prospect/client has a good deal of money, it will be presented in an expensive leather binding.

5.      The prospect/client then is quite often impressed with the length of time this must have taken, and the aesthetically pleasing manner in which it is presented.

6.      As a result, the client/prospect feels gratitude and an obligation to purchase the recommended investments.

You may find many problems with the previous description of my experience with brokerage planning, but what I would like to concentrate on here is that the above scenario is a compilation of assets with investment offerings and not a plan.  

 PLANNING IS IMPORTANT.

If you would like a plan, go to my website, www.TheDeGeorgeAgency.com, and let’s get a conversation started and/or become a subscriber to my blog.  

The DeGeorge Agency is a “Family Helping Families.”

Is your Broker Worth the Expense? (Part 2)

In my last blog, I introduced Part 1 of “Is your Broker Worth the Expense?”. I encouraged you to take some time and determine what an acceptable rate of return is for you and your portfolio.

Today, I would like to take a quick look at some of the ways brokers charge you.

For higher net worth investors, those with a minimum of one million dollars, brokers quite often suggest a “Managed Account”( http://www.investopedia.com/terms/m/managedaccount.asp) In a managed account, your money is essentially given to an outside, professional money manager. My experience with these types of accounts is that you can be charged anywhere from 2% to 5% of your total sum invested. Your broker in the “Managed Account” scenario serves as a middle person, and gets a percentage of the fee. Hopefully, he/she at least understands the methodology behind the money manager’s investing process, and matches it with your goals because giving away your money takes no real expertise.

A wrap account, (http://www.investopedia.com/ask/answers/102.asp), is another popular way for a broker to charge. Quite often the broker chooses your investments in this account, and you pay 1-2.5% for unlimited transaction costs. In effect, the broker has effectively annuitized his/her business with the wrap account approach-that is they are paid quarterly regardless of performance and/or the number of performed trades. When an individual is paid by commissions and/or fees, a guaranteed income stream is good for them; my hope is that the wrap account is most importantly good for you!

Finally, a transactional fee (http://financialdictionary.thefreedictionary.com) Transaction+Fee is when your broker charges you a commission for each and every trade that is performed. Transactional fees were the most common payment for many years in the brokerage world. Quite often today transactional fees are still the most cost effective means of payment for individuals who need help investing.

If you are not sure which method is best for you, go to my website, www.TheDeGeorgeAgency.com, and let’s get a conversation started and/or become a follower of my blog. 

The DeGeorge Agency is a “Family Helping Families.”

Is Your Broker Worth The Expense?

In my last post, I examined the devastating impact mutual fund fees can have on your portfolio over a lifetime . This week I would like to introduce Part 1 of “Is your Broker Worth the Expense?” 

The answer to the question is actually not as complex as you might think. John F. Wasik, author of 13 books and a Morningstar columnist, recently wrote an insightful and related article entitled “Is it Time to Dump your Broker?”  Mr. Wasik suggests six guidelines to keep in mind, and his article makes some excellent points.

The fact of the matter is fees can significantly reduce your wealth over a lifetime, and therefore you must determine what you consider an acceptable rate of return.

 My first rule is “Don’t Lose Money,” and my acceptable rate of return is 15%. Quite often brokers try to determine the acceptable rate of return for you. Don’t allow him/her to tell you what an acceptable rate of return should be; he/she works for you.

Secondly, many brokers look to an index like the S&P, and believe their job is to beat the index. I don’t agree with that philosophy. If the S&P is down 40% and your portfolio is down 38%, 38% is not an acceptable rate of return. Finally, brokers get paid regardless of the outcome. 

I don’t believe anyone should be paid for losing your money. Do you?

Take some time and determine what an acceptable rate of return is for you. Then, let your broker know what you expect. Give them a chance to determine a plan and/or investment objective to reach that rate of return. If he/she comes back and says they cannot reach your rate of return, thank them for their honesty and either get a new broker or begin investing on your own.

If you are not sure how to determine your own acceptable rate of return, go to my website, www.TheDeGeorgeAgency.com, and let’s get a conversation started. 

The DeGeorge Agency is a “Family Helping Families.”

Want Some Clarity on Money?

My latest presentation was entitled:

"Want Some Clarity on Money? Recession, plus Market Volatility and a Credit Crunch=Uncertainty." 

One of my points about investing is how the fees involved with mutual funds can have a devastating effect on your portfolio over a lifetime.

Phil Town in his latest book 'Payback Time' writes:

"Fact: Mutual fund managers get rich at your expense-stealing as much as 60% or more of your returns over your lifetime through fees. Fact: The average individual will need more than $3 million to be financially independent in retirement in twenty years, and won’t get there with mutual funds. Not even close. Fact: 96% of fund managers can’t equal the historical market average return of 8% per annum. When the market goes down, they go down with it, no matter how “low-risk” their funds are supposed to be."(4)

I really try to read a book a week, and Mr. Town’s investment books are the best I have ever read.

Do yourself a favor, and get a copy of one of his books today.

Do you want some clarity on money? If mutual funds are not a good investment choice and a 12-month CD is currently paying 1.5%, what should you do with your money?

Go to my website, www.TheDegeorgeAgency.com, and let’s get a conversation started.