The investment times they are a’changing.
Turn the clock back to the 1950s and 1960s and you’ll be back in a time when stockbrokers were the gatekeepers of the investment markets for most investors. Those were the early days of stocks and bonds, customers’ men who got one or more shoeshines daily, and commissions for individual stock trades were $100 or more. Mutual funds were still a new concept. Exchange-traded funds, largely a new millennium addition to the roster of investment vehicles, barely existed.
In May, 1975, things changed dramatically. That’s when President Gerald Ford signed the Securities Acts amendments, which started the process of commission discounting. Now, nearly half a century later, commissions are down to zero at most broker-dealers.
Back in those early days, mutual funds were quite costly. The entry fee for new investments, known as a load, a.k.a. sales charge, was 8%. So when you invested $1,000, you had an immediate loss of $80. These days, many, if not most, mutual funds are available on a no-load basis and you begin with an investment that’s worth what you paid for it.
Another concept of note was wrap accounts, which began in the late 1990s. Those were packaged advisory accounts that included investment manager services and brokerage commissions, a combination that proved quite appealing for people seeking ongoing professional assistance. Initially, the cost of these accounts was a hefty 3% of asset value annually, which dropped substantially in the period that followed. Currently, the fee for wrap accounts is in the range of 1.25% to 1.5%.
The last few years have seen the rise of robo accounts, which place the tasks of management and trading under the control of computer models. What’s typically seen as good news is the very low fee structure, which may well be in the range of 0.20% to 0.40% per year. The other side of the picture is discouraging. Although the investments are intended to be properly diversified, the net result of these machinations will probably be no better than what would be available through do-it-yourself efforts spread among a few total stock and bond market funds. In addition, some robos invest in homegrown funds from which they reap fees and there is often a significant portion held in cash, so not all of your funds are working for you.
One more thing: There’s no personal interaction. It’s just you and the computer. Not very comforting.
N. Russell Wayne, CFPÒ
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