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Sound Advice: April 24, 2024

WE DO BETTER WHEN YOU DO BETTER!

 One of the more prominent recent TV commercials comes from a well-known Wesst Coast adviser whose spokesperson proudly announces that they do better when their clients do better.  Surprise, surprise, with rare exception that’s the fee arrangement used by the overwhelming majority of firms in this industry. 

Typically, advisory fees are set as a percentage of assets under management.  Although a midpoint would probably be about 1% annually, as assets to be managed reach higher levels, fees are reduced.

Yet, this commercial seems clearly aimed at convincing less knowledgeable investors that by some minor miracle the firm behind it is giving you a better deal.  That’s hardly the case.

Though fee arrangements usually follow a common path, they may reflect the asset allocation if the split varies markedly from the norm.  One example would be accounts that are heavily biased toward fixed income.  For those, the fees would be lower.  Another might be private equity or other atypical asset classes.  Those might be higher.

For people interested in even lower fees, two readily accessible options are do-it-yourself or robo advisors.  The former possibility may appear to be a bit ambitious, but the reality is anything but. The effort requires little more than opening an online account with one of the major brokerage houses, transferring the funds to be invested, setting the asset allocation, and then buying a series of index funds (domestic equity, international equity, domestic fixed income) that will make up the portfolio. 

With all due respect to folks who believe that there’s special magic performed only by professional money managers, the reality is that the returns from a small group of low-cost mutual funds or exchange-traded funds will more than hold their own, if not exceed, those of Wall Street veterans.

Option Two is robo advisors, which are little more than computers that do the investing for you, following paths that will be largely similar to those you would use on your own.  The fees will be higher than those when doing it yourself.  And when the market occasionally hits speed bumps, robos won’t be available to calm you down. 

DIY is the better choice.

 

N. Russell Wayne

Weston, CT

Any questions: please contact me at nrwayne@soundasset.com

203-895-8877

www.soundasset.blogspot.com

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