Business & Finance

Avoid the Great American Investment Rip-Off

21b077a970315a1f85bd_cc46cd8636ed7745a9a6_stock_image_-_business_-_v1.jpg
21b077a970315a1f85bd_cc46cd8636ed7745a9a6_stock_image_-_business_-_v1.jpg

Don’t get trapped by The Great American Investment Rip Off. I’m not talking about dubious investments

or Ponzi schemes – I’m talking about various layers of fees that seemingly respectable advisors may be charging you without you being aware of it.

 A case in point is “Jill,” who I met several years ago. Jill came into my office with paperwork for her $2,000,0000 portfolio. She told me she rarely had contact with her advisor, who charged her a 1% annual investment management fee ($2,000,000 x 1% per year = $20,000 annual fees). Jill was horrified, however, when I explained to her that she was – in effect – paying her advisor $70,000 a year for her investments – not just the $20,000 on her invoice.

Sign Up for E-News

 How easy is it to pay an extra $50,000 in fees on a $2 million account? Very easy. Unlike purchase of a home, car or other item with a clear price tag, investments that generate additional commissions to advisors come in all shapes and sizes. The advisor is supposed to disclose all the types of fees he or she charges a client, but my clients tell me they weren’t aware of these additional fees.

 Here’s how Jill was paying an extra $50,000 per year:

  1. All of Jill’s investment funds were “C” shares. I asked Jill if she was aware of this and she told me she wasn’t (like most client who come to me, she didn’t know what A, B or C shares were – and didn’t recall the advisor explaining these to her). A, B or C shares are different fee-loads that earn advisors additional commissions in different ways. Each of the C shares Jill was sold give her advisors an additional annual recurring 1% commission. $2,000,000 x 1% C Shares fees = another $20,000 in annual fees.
  2. Jill’s former advisor invested her account in relatively expensive mutual funds that cost Jill – on average – 1.3% per year (note: these fees are payable to various mutual fund companies). If Jill had been invested in more cost-effective funds that charge e.g. 0.3% per year, she could have saved 1% per year in extra fees. Using the $2,000,000 example, Jill was spending an additional $20,000 per year to pay for relatively expensive mutual funds with no clear indication they provided a better net return than less expensive ones.
  3. Jill had $1,000,000 in a taxable (non-IRA) investment account and $1,000,000 in a Rollover IRA. These were invested willy-nilly by the advisor, with no attention paid to relative tax efficiencies of the two accounts. Jill’s $1,000,000 non-IRA account contained ordinary bond mutual funds (not municipal bond funds), real estate mutual funds and a wide range of equity mutual funds with extremely high turnover ratios. None of these types of investments are optimal to hold in a non-IRA account. Jill was earning a lower rate of return on her bonds because of the way non-municipal bond interest is taxed, and was paying short- and long-term annual capital gains taxes each year. A rough back-of-envelope calculation of the additional cost to Jill is $2,000,0000 x 0.5% = $10,000 or more per year. And we haven't even mentioned the lost benefit of asset class rebalancing; her advisor did not appear to rebalance funds on a periodic basis.

If you add the additional cost to Jill of C shares, expensive underlying mutual fund fees and tax inefficient asset allocation, the damage can be quantified as an extra $50,000 a year Jill wasn’t aware she was paying. Advisors who charge additional commissions and other fees are supposed to clearly disclose this to clients BUT I’ve never met clients who remember being told what the various types of fees are (and how much it might cost the client). This reflects poorly on the investment industry – not on busy individuals who otherwise make intelligent decisions and who engage advisors in good faith to manage their investments.

 The term “Fiduciary” has been thrown around a lot and the public is confused about the meaning. In the context of investment advisory fees and products, it boils down to this: Is your advisor sworn to put your client interests before his/her own? (one way to do this is to avoid mixing product sales with advice-giving). Or are you working with an investment advisor who isn’t required to put your needs first – and can sell you products that he/she feels are “suitable” for you? “Suitable” is a very broad term with little backbone.

Jill didn’t realize she was working with a “fee-based” advisor – she thought this advisor didn’t sell products or earn commissions. That’s because Jill received a quarterly invoice for 1% of her $2,000,000 investment assets. It’s also because Jill thought “fee-based” (selling some products) is the same as “fee only.” A fee-only advisor only will charge by the hour, retainer or as a percentage of assets that are under management. A good fee-only advisor will advise on all aspects of a client’s financial life and not just “manage investments for a high fee.”

 A great resource to clear upon ambiguity about fees your advisor may be charging you can be found in a free booklet by NAPFA, the largest fee-only organization in the US). Go to http://www.napfa.org/HowtoFindAnAdvisor.asp for more information.

Eve Kaplan is a Fee-Only (no products sold) Certified Financial Planner® Practitioner with 30+ years of investment/planning experience. Kaplan Financial Advisors upholds the highest fiduciary standards in the planning industry.  Eve opened Kaplan Financial Advisors 11 years ago to provide comprehensive financial planning and investment management services to single women and couples. Eve can be reached at 908-898-0549 or Eve@KaplanFinancialAdvisors.com.  Visit her website at  www.KaplanFinancialAdvisors.com

 

Copyright © 2011-2015 by Eve Kaplan

The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer.

 

TAP Into Another Town's News:

You May Also Be Interested In

Sign Up for E-News

Morristown

AtlantiCast

AtlantiCast: Episode 15

On this week’s AtlantiCast, learn some important tips for controlling and avoiding diabetes from an Atlantic Health System expert, see how Atlantic Health is advancing cutting-edge research, hear what’s being done to keep health care environmentally friendly and much more!

 

Memorial Day Parades, Events in the Morristown Area

May 24, 2018

MORRISTOWN, NJ -  Grab your red, white and blue and celebrate the brave men and women have sacrificed their lives to preserve our freedom. There are several commemorations, parades and events planned in Morristown to honor them this Memorial Day.

On Saturday May 26, a memorial service and parade will take place in Morris Plains. The memorial service will take place at 9am at ...

Morristown Loyola Retreat Hosts Retreat; Monday June 11

MORRISTOWN, NJ - Sacred Thread Ministries is inviting members to a one day retreat on Monday June 11 at the Loyola Retreat Center in Morristown.

Members of the community are invited to discover the gardens of your soul and the mindfulness that enables us to focus on the energy of the present moment for a day of retreat.

The retreat will take place at the Loyola Retreat Center, 161 ...

Reserve Your Spot: Morris County Historical Tours Begin This Summer

MORRISTOWN, NJ - Community members are invited to “Discover Morris County” through the summer walking tour and lecture series  The Morris County Tourism Bureau invites everyone to experience the rich history that Morris County has to offer with a knowledgeable guide. Summer programs will be held over nine successive Saturday mornings during June, July and August.  ...

Jacobus Vanderveer House Designated A Blue Star Museum; Allows Military Members Free Access to the Museum

May 23, 2018

Bedminster’s historic Jacbous Vanderveer House & Museum has been designated a Blue Star Museum, one of more than 2,000 museums across America to offer free admission to the nation’s active duty military personnel and their families from Memorial Day through Labor Day.  The Jacobus Vanderveer House & Museum is one of 24 Blue Star Museums in New Jersey, and one of only two ...

Butterfly Bonanza Flies to Pyramid Mountain; June 9

MORRISTOWN, NJ. On Saturday, June 9, from 12 noon to 4 p.m., celebrate the beauty and importance of New Jersey’s butterflies and other pollinators at the annual Butterfly Bonanza at Pyramid Mountain Natural Historic Area in Montville Township.

Butterfly Bonanza is packed with excitement, entertainment, and education for all ages. Enjoy a guided ‘Bug Safari’ tour of ...

4 Day Sale at The Depot

4 Day Sale going on now through Sunday at The Depot Gift & Home. The more you spend, the more you save!

980 Mt Kemble Avenue (Rt 202)

Morristown NJ 07960

Superheros to the Rescue! Over 900 Runners Run the 2018 Superhero Half Marathon

May 21, 2018

MORRIS TOWNSHIP, NJ -  Who is the strongest superhero? There has been some debate on the internet as to who the strongest superheros are. According to CBR.com, it is Sentry (3rd),  Thor (2nd) and The Hulk (1st) who top their list. However, it might just be the 900 runners that were strong enough to participate in the 2018 Superhero Half Marathon on Sunday May 20 at Ginty Field in ...

10-Year Old Boy Battling Cancer Receives Generous Donation From Randolph Hockey Family

RANDOLPH, NJ- While the inter-town hockey battles on the ice between Randolph and Roxbury are fierce at every age level, when it comes to real life battles off the ice there is no hesitation to offer help to their neighbor.

Such is the case with a recent gesture of unity and support from the Randolph Varsity hockey team, when they came together to deliver good wishes and ...

Peter Toth to Perform a Free Piano Recital at the Morristown Historical Park; Sunday May 20

MORRISTOWN, NJ - The community is invited to Washington's Headquarters Museum on Sunday May 20 to enjoy a piano recital featuring Hungarian pianist Peter Toth.

The free piano recital will take place at 1pm at the national Historical Park's Washington Headquarters Museum; 30 Washington Place.

Toth will play the park's 1873 Steinway Grand piano that will ...

The Kootz at Macculloch Hall Historical Museum

May 15, 2018

MORRISTOWN, NJ - Stop by the Macculloch Hall Historical Museum to hear The Kootz perform a medley of blues, pop, and rock from the 60s-90s on July 1 from 2-3pm.

Break out the picnic blanket or beach chairs and join us in our historic garden Sundays at 2:00 pm for a selection of music and poetry.

$10 per adult, FREE for members!

Rain or shine. In the case of inclement ...

Three Bloomfield Teens Are Missing, Police Seek Community Assistance to Locate Them

BLOOMFIELD, NJ - The Bloomfield Police Department is asking for the public's assistance to locate three teenagers who went missing this week. One of the parents reports that a large sum of money is missing suggesting the three may have fled the state. 

16-year-old Ulises Yance and 15-year-old Alex Lopez were last seen Fridaymornin, and 16-year-old Alexa Arenas was last seen ...

In London Town - NJFO Season Finale

On Saturday May 19 and Sunday May 20, the New Jersey Festival Orchestra, under the baton of David Wroe, presents a magnificent 35th anniversary season finale celebration of music linked in some way to England and its great city of London.

The concert opens with Sir Edward Elgar’s exhilarating Introduction and Allegro for Strings, a work composed in 1905 to enable the string section ...

Parents of Dangled Roxbury Kid File Lawsuit Warning

May 20, 2018

ROXBURY, NJ - The parents of a 6-year-old special needs student who, according to authorities, was hung upside down and shaken by a frustrated teacher's aide in March, filed a notice of tort claim today, the first volley of a forthcoming lawsuit.

The notice says the Landing couple intend to sue the aide, the Roxbury school board, a number of school  administrators and ...

Suspect Charged in Fatal Hit-and-Run Flees Country

May 22, 2018

NORTH PLAINFIELD, NJ – A 36-year-old suspect charged in the hit-and-run death of a pedestrian May 15th has fled the country, according to Somerset County Prosecutor Michael H. Robertson.

Charges have been filed against Mario Infante, age 36, of New Street, Plainfield, following an investigation by detectives from the Somerset County Prosecutor's Office and North Plainfield ...

Living longer is in your control

Research published this week in the journal Circulation, reported findings of a 34 year study on over 100,000 people found five modifiable lifestyle     
 behaviors associated with a 14 year longer life expectancy in women and a 12 year long life expectancy in men at age 50. The health behaviors related to longer life included never smoking, eating a healthy diet, ...

Why You Should Buy Your NJ Home Before Interest Rates Rise

Interest rates for a 30-year fixed rate mortgage climbed from 3.95% in the first week of January up to 4.61% last week, marking a 7-year high according to Freddie Mac. Many factors fueled the current pace of acceleration.  Sam Khater, Freddie Mac’s Chief Economist, opines:

“Healthy consumer spending and higher commodity prices spooked bond markets and led to higher mortgage ...

The Queen of the Big Time by Adriana Trigiani (Ballentine Books, 2005)

            The Queen of the Big Time by Adriana Trigiani, a New York Times best selling author, was recommended to me by a young woman who actually came from the town of Roseto, Pennsylvania, the place where the novel is set. “The author did such a wonderful job of describing how the town actually is,” said the young lady.

'Turning Off the Morning News' brings comic twist

‘Turning Off the Morning News’ tackles today’s issues with a comic twist

By Liz Keill

PRINCETON, N J – Despite the late night comics, no one quite captures the insanity of the political/social status world like Christopher Durang.

His latest play, “Turning off the Morning News” hit the ground running.  John Pankow as Jimmy addresses the audience, ...

SURVIVING A STROKE: Quick Medical Response Gives Mom Her Life Back

Carotid artery dissection. It’s one of the most common causes of stroke in younger adults.

And while you might not associate the word “stroke” with younger patients, the condition – if not treated immediately – could lead to paralysis and even death.

Lindsey Singh can attest to the importance of immediacy. The 31-year-old mother of two from Flanders experienced ...

Letter to the Editor: Gum Litter and what YOU can do about it

May 14, 2018

Gum is non-biodegradable, meaning it doesn't’t break down ever….

Today, the unlikely problem surfaces. The average person chews 275 sticks of gum per year. With the amount of people in daily society, it’s no mystery why chewing gum is the second most littered item after cigarette butts.  Did you know that gum is banned in Singapore?

In addition to littering human ...

Candidate Statement: May is Older Americans Month: Time to Give Back to Morris County’s Seniors Every Day!

May 24, 2018

The June 5th Primary has entered the home stretch.  For the first time in 8 weeks, there is no where I need to appear other than at the doorstep of a registered voter to ask for their support in the election booth.

Since I decided to pursue the open Freeholder seat in March, I have been all across Morris County.  I have been out and away from my family every day since, attending such ...

Congressional Candidate Tony Ghee Candidate Statement

With the retirement of longtime Congressman Rodney Frelinghuysen, the good people of Morris, Essex, Sussex and Passaic Counties will elect a new representative this November. It also means that our Republican Party has a choice to make, as well.

Do we nominate a career politician in an age when most people don’t trust their government or the people serving, or do we seize this ...

Warrants, DWI and Narcotics Top This Week Police Blotter

May 14, 2018

4/23: ARREST FOR NARCOTICS: Officers were dispatched to the Mahlon Dickerson Reservation in Jefferson Township on a report of a noise complaint. An investigation led to Rebecca L. Schank-Smith, age 22, of Bloomingdale, and Delia A. Gutierrez, age 23, of Lincoln Park, to be charged with Possession of a Controlled Dangerous Substance. They were both released with a court date pending.

4/23: ...

GFWC Woman's Club Denvilee Rockaway Area Places Flags on Veterans' Graves

May 20, 2018

GFWC Woman's Club of Denville-Rockaway Area Helps Honor Veteran's with Flags for Memorial Day

On a very rainy Saturday, May 19, fifteen members of the GFWC Woman's Club of Denville- Rockaway Area, along with local Cub Scouts, citizens, and Veterans helped Phyllis and Jim Vialard, board members of the Memorial Association of Rockaway, Marcella, and Denville, place flags on ...