Spot profit-eating investment fees

Investing » Don’t Let Investment Fees Strangle Profits
Investors are understandably eager to earn high returns. But nothing erodes that eagerness or kills the investor’s confidence in his or her advisers like a plethora of investment fees that eat away at those gains.
That’s one reason investors are paying a lot more attention to fees these days, according to Ram Subramaniam, head of products at TD Ameritrade, an online stock brokerage firm in Omaha, Neb.
“Any fee is getting more scrutiny, partly because the market returns aren’t as attractive as they were,” he says. “People are conscious and aware of what they’re paying. What you pay in fees eventually impacts your return.”
Here’s what to look for in investment fees and what to do about it.

Investment fees

Examples include account maintenance fees, mutual fund management fees, trading fees or commissions, and investment management fees. Some are for services such as investment advice. Others are tied to activities such as buying or selling stocks, bonds or options. Still others are charged “just for the privilege of keeping your money there,” Subramaniam says.
Investment fees can be structured as a flat rate per month, per year, per trade or as a percentage of account assets or the transaction amount. For example, an annual account maintenance fee might be $100 or 1 percent of assets. A trade might cost $9.95 or involve a commission based on the price and number of shares. Some companies charge lower fees for trades entered online and higher fees for trades placed with the assistance of a telephone operator or stockbroker, according to a Bankrate chart of brokerage companies’ charges.

Fund fees

Mutual fund companies also charge fees that vary in structure and amount, according to Justin Krane, president of Krane Financial Solutions, a financial planning firm in Los Angeles.
“When you’re buying a mutual fund, you have to pay for professional management, and there are commissions to buy or sell. Those could be as little as $8 or as much as 2 percent, or 5 percent for a load fund,” Krane says.
The term “load” means the investor pays the fund company an upfront and/or back-end percentage in addition to the broker’s transaction fee or commission, if any. These deals typically are highlighted on lists of so-called select or premium funds.
A no transaction-fee fund might be a good choice, but investors should understand that fund companies also typically pay a promotional fee to the brokerage company. As a result, that fund’s expense ratio might be higher because those behind-the-scenes fees are wrapped into the fund’s costs, Krane says.

Fee-only or fee-based?

Many investors also pay additional investment fees to financial advisers.
Krane says some advisers earn commissions on the products they sell you, others are only paid a fee by their clients, and still others collect commissions and fees. Financial advisers who act solely in their client’s interest generally are compensated on a fee-only basis. The term “fee-based” generally means the adviser receives a mix of fees and commission.
“The client needs to know,” Krane says. “Granted, I’m paying you a fee, but in what capacity am I paying you? Are you operating as a fiduciary or salesperson? The financial planning community is going for a fee-only model. The Wall Street community wants fee-based.”

Fee-saving tips

Savvy investors can save money on fees. Here are four tips:

Tips to save money on fees

• Do your homework. Investors who dig into the brokerage company’s website or make a phone call and ask about investment fees can get a lot of useful information. Always find out how much an account or trade will cost before you make a commitment. “The more information and power investors have, the better decisions they will make about fees,” Subramaniam says.
• Compare your options. Actively managed mutual, international or global funds and funds from certain brands or brokerage companies tend to involve higher investment fees. Index funds and exchange-traded funds typically have lower fees, Subramaniam says. Still, fees shouldn’t be your only consideration but rather part of your investment decision.
• Do the math. Don’t assume a mutual fund being sold with no transaction fee is a better investment than one that costs a few bucks to buy. At times, a nominal transaction fee might be immaterial in the context of a large investment and expected high return. “If there is a better fund where there is a lower expense ratio and where you can pay the $35 versus something that has a lower fee, maybe you should do that,” Krane says.
• Add it up. Just as banks offer investment services, investment houses offer checking and savings accounts, debit cards, credit cards, mortgages, and other banking products. Subramaniam suggests companies offering cheap investment services might make up the difference on bank fees or visa versa. Consider the company’s entire fee schedule before you consolidate your accounts.

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Investor Optimism Weakened; Hunger for Investment Advice on the Rise at Charles Schwab

SAN FRANCISCO–(BUSINESS WIRE)– According to a just-released survey of Charles Schwab individual investor clients, just 26 percent feel better off financially than they did one year ago, down from 44 percent who said they felt better off in Q4 2010. Additionally, just one-third (33 percent) of these investors now say they feel confident in their ability to make investment decisions.
Amid this downbeat sentiment, newly enrolled accounts in the company’s advisory programs grew by 10 percent in 2011, and net assets in these fee-based solutions increased by 33 percent last year. According to the survey, 77 percent of Schwab clients say they’re most confident when receiving ongoing or periodic professional investment advice.
“Our approach to full-service, with solutions for everyone from active traders and do-it-yourselfers to those who want periodic advice and guidance or ongoing professional investment management, resonates with today’s investors,” said Walt Bettinger, Charles Schwab president and chief executive officer.
“In so many ways, Schwab is now in a category of its own, providing robust advice at a fair value through our own financial consultants as well as through the many thousands of registered investment advisors we support through Schwab Advisor Services,” said Bettinger.
Schwab’s suite of advisory programs, which added on average more than $1.5 billion in new assets each month of 2011 to end the year at $109 billion in total, provides clients with ongoing investment support and portfolio solutions. These include:

• Schwab Advisor Network® – A referral to a local independent investment advisor who can take over day-to-day investment management for investors with more complex financial situations and specialized planning needs.
• Schwab Private Client™ – An ongoing private client relationship with dedicated representatives at Schwab and non-discretionary advice provided by Schwab Private Client Investment Advisory, Inc.
• Windhaven Portfolios™ – Globally diversified portfolios composed primarily of low-cost index exchange-traded funds (ETFs), dynamically managed by Windhaven Investment Management™ and provided through Schwab.
• Schwab Managed Portfolios™ – Diversified portfolios of either mutual funds or ETFs designed for a range of investment strategies and managed by Charles Schwab Investment Advisory, Inc.
• Managed Account Services – Specialized investment strategies for part or all of a portfolio, managed by professional asset managers.

“Questions from clients about the market, their portfolios, and what the market environment means for them have been accelerating throughout the year, so naturally, the length and the depth of conversations we’re having with our clients are also on the rise,” said Bettinger. “Clients really appreciate the ability to call the shots when it comes to when, how and how much they need our guidance.”
Bettinger underscored that Schwab also delivered more than 28,000 complimentary consultations and helped more than 12,000 retail clients with financial plans in 2011. Last year, financial consultants at Schwab had more than 493,000 face-to-face interactions with retail investors; more than 107,000 investors attended nearly 11,000 in-person events hosted by Schwab branches he said.
Describing additional results of the investor survey, Bettinger noted that Schwab retail clients continue to prefer investing potential new assets (62 percent) over saving (29 percent), paying off debt (29 percent) or spending (13 percent). Only 20 percent of clients moved assets into cash in Q4 and even fewer (13 percent) say they moved to the sidelines in response to recent market volatility.
About Charles Schwab
The Charles Schwab Corporation (NYSE:SCHW – News) is a leading provider of financial services, with more than 300 offices and 8.6 million client brokerage accounts, 1.49 million corporate retirement plan participants, 780,000 banking accounts, and $1.68 trillion in client assets as of December 31, 2011. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and mortgage services and products. More information is available at www.schwab.com and www.aboutschwab.com. (0212-0800)
Follow us on Twitter: @charlesschwab
Independent investment advisors are not owned by, affiliated with or supervised by Charles Schwab & Co., Inc.
*The Schwab Survey of Investor Confidence was conducted in December 2011 and aggregates the views of more than 1055 retail clients. Online interviews were conducted December 1-13, 2011 by global market research firm Synovate, which is not affiliated with Schwab. (0112-0811)
Diversification strategies do not assure a profit and do not protect against losses in declining markets.
Investments in managed accounts should be considered in view of a larger, more diversified investment portfolio.
Please read Schwab’s Disclosure Brochure for important information, pricing and disclosures relating to Schwab Managed Portfolios and Schwab Managed Account Services.
Please read the Schwab Private Client and the Schwab Private Client Investment Advisory, Inc. Disclosure Brochures for important information and disclosures about this service.
Windhaven Diversified Portfolios strategies are available through Schwab’s Managed Account Connection™ program (“Connection”). Please refer to Windhaven’s Form ADV Part 2 for more information.
SAN Network member advisors are independent and are not employees or agents of Charles Schwab & Co., Inc. (“Schwab”). Schwab prescreens advisors and checks their experience and credentials against criteria Schwab sets, such as years of experience managing investments, amount of assets managed, professional education, regulatory licensing, and business relationship as a client of Schwab. Advisors pay fees to Schwab in connection with referrals. Schwab does not supervise advisors and does not prepare, verify or endorse information distributed by advisors. Investors must decide whether to hire an advisor and what authority to give him or her. Investors, not Schwab, are responsible for monitoring and evaluating an advisor’s service, performance and account transactions. Services may vary depending on which advisor an investor chooses.
Schwab Private Client Investment Advisory, Inc., Windhaven Investment Management, Inc., and Charles Schwab Investment Advisory, Inc. are registered investment advisors wholly owned by The Charles Schwab Corporation.


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Financial planner vs adviser: Know the difference

There is a real confusion among investors over who a financial planner is and who an investment adviser is. These terms are used very loosely, so it is necessary that one understands the function of each of these professionals and approach the right people.
A few decades ago, there was confusion between what comprises sales and marketing. People thought they were very much the same. But it is to be understood that sales is just an important ingredient of the functions of marketing. Sales lies in persuading and convincing a person to buy a product that is suitable. Marketing involves all the activities right from the conception of the product, to branding, advertising and retailing.
It is an all-pervasive function from the product being ready to reach the market and ultimately being sold to the customer.
There prevails a similar confusion with who is an investment adviser and who is a financial planner. It is quite common to find these terms used interchangeably, but it is necessary to understand that an investment adviser and a financial planner have vast differences as between sales and marketing.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the director and chief financial planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.
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