Fees, charges and financial disclosure are the hot topics in the advisory world in 2015. The public has become aware of the various charges in all types of investment products so they can now decide how to spend fees under an almost infinite array of arrangements. Paul J. Mauro, owner and president of Legacy Financial Advisors, Inc., in Westborough, MA, has provided several suggestions regarding fee options.
“The key question for every consumer is to decide what fees they want to pay and pay those only. No one should pay fees for a service they don’t want. Conversely no one should expect to receive a service they don’t pay for. I know that sounds simple but some individuals have a hard time with this simple truth.
“The best way to look at the fees in your financial life is to use the automobile (vehicle) analogy. Having just bought a vehicle for my son, I was reminded of the menu-like process of choosing which options I want. Soon, we will be able to pick self-driving cars as an option but I did not see that in the list yet.
“Let’s take a look at the fee layers as options on the basic investment vehicle. You may want to buy only the bare skin and bones, portfolio chassis and do all the buying and selling of securities or investments yourself. This is the lowest cost form of transportation to help get you to your investment goals and destination. It is true that you can save thousands of dollars over your lifetime if you do this work yourself and you don’t pay someone else for their time and talent.
In this case, you pay yourself the fee.
- Option 1: The first option most investors add to their vehicle is active management. Once your portfolio is large enough, or your life becomes busy enough, or you are just willing to delegate the work to someone else, you may choose to pay a management fee. This can be hourly, yearly, a percentage of assets or some other arrangement between you and your manager that you both agree on that is legally available to you.
- Option 2: The second option investors may add to the vehicle are risk management options. When your portfolio is large enough, or when you are older and more concerned about risk of loss, investors buy various forms of hedging programs to help reduce the risk of loss. All of the strategies have fees to execute that add to the cost of the vehicle. However, also like investment management, if you want the benefits of the technique you have to pay the fee.
- Option 3: The third option investors may add to their investment vehicle are tax efficient investment strategies. This can include tax deferral arrangements, daily tax loss harvesting or other sophisticated tax planning devices. If tax reduction is important this option may be a fee that actually saves you money every year. Once again, if you want the benefits you have to pay the fee.
“There is no right or wrong fee. There are only fees that you pay for with the benefits you want and fees that are hidden or undisclosed (which are beyond annoying). It’s like when I picked up my son’s car at the dealer and I saw a fee for delivery charge. Because I was not getting the car delivered and I was picking it up myself, I asked the fee be taken off. That is what you should do when customizing your personal investment vehicle. Pay for the benefits you want and don’t buy the extra benefits you don’t want. Make sure you ask if there are any other fees. Don’t agree on anything until you have a clear understanding of what all the fees are and their purpose.
“There is no guarantee that any investment will achieve its important goals. Investment return and principal value will fluctuate. Investor’s investments, when redeemed or sold, may be worth more or less than their original cost.”
Securities and advisory services are offered through SII Investments, Inc. member FINRA, SIPCand Registered Investment Advisor. SII and Legacy Financial Advisors are separate and unrelated companies. SII does not provide legal or tax advice.
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Paul Mauro | http://www.profnetconnect.com/paulmauro
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SOURCE Legacy Financial Advisors, Inc.