Stockbroker or Fee Only Planner – Why It Doesn’t Matter Without Full Transparency – Part I

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Someone Has Made Picking a Mutual Fund Way Too Complicated

It just isn’t that tough to do, with the proper tools, training and benchmarks.  Here is a very simple secret.  Before the advent of 401(k)’s,  individuals with some accumulated wealth were able to locate a top performing fiduciary portfolio manager without a financial intermediary.  Not On My Nickel takes you back to those days.

There is a debate going on at both the Securities and Exchange Commission and the Department of Labor on whether or not a stockbroker should act in your best interests, to the “fiduciary” standard of ERISA or the “fiduciary” standard of the Investment Advisers Act of 1940 or the “suitability” standard of the stockbroker.  The reality is it really doesn’t matter for the average retirement investor.  Why?  Both types of Advisors are conflicted and the only solution for the average retirement investor is to learn how to use the simple tools to make an informed choice themselves. Neither stockbroker nor fee only planner provides any performance results after all fees.  You simply do not know the value of either intermediary – stockbroker or fee-only fiduciary planner.  Based on Not On My Nickel’s analysis comparing the returns of the top performing active balanced fund managers and blended growth and mid-cap growth funds, to the very few performance records available for fee-only planners, you are losing out significantly to high fee and poor performance selections using either type of intermediary.

Listen to Representative Hurt (Republican VA) speak on why you need access to a stockbroker’s advice to pick a mutual fund, Congressman Hurt Floor Speech on HR 2374.  

Ask Congressman Hurt why it makes sense to pay more each and every year for the exact same product that you can buy yourself at a discount brokerage firm, or directly from the Fund firm, without these high fees, using tools, research and information through educational services, such as Not On My Nickel?  (For the record, Not On My Nickel offered to show our analysis to the House Financial Services Committee prior to their vote on HR 2374.  They refused to accept the information and refused to meet with us to understand another alternative for today’s retirement investors, that might be in their best interest.)

Do you really believe it is worth paying more money to a stockbroker each year for the exact same product?  Do you think you should pay your real estate agent a finders fee each year for the wonderful home she found for you?  Also, remember the Stockbroker has no ongoing duty to monitor this Fund they told you to buy.  That is your responsibility.

  • Do you know what your investment performance is after all fees, when you pay an intermediary for advice?
  • Do you know how that compares to if you simply invested, yourself, in the top performing balanced fund and growth funds that have out performed their relevant indices for decades?
  • Do you know if your returns are better after 10 years based on a computerized portfolio management model based on modern portfolio theory, in active or passive funds and paying a fee for advice, compared to selecting these Funds yourself, based on targeted research?

It is more than beyond time that you are given the answers to these questions.  Not On My Nickel helps you gather these answers so you can know what you are paying for in all-in asset management fess, just as easily as you can determine what is a fair fee to pay today for the IPad Air.  However, the difference is you need this transparency as the costs have estimated to impact you in the $100,000′s of dollars – a far greater impactful decision that saving $20 on the IPad Air.

How To Save Hundreds of Thousands of Dollars Over Your Retirement Investing Lifetime

Today we will share with you how you can purchase the same mutual fund, yourself, and save thousands upon thousands of dollars over your investing lifetime in one simple step.

As the concept of Target Date Funds is suggesting, the average retirement investor just needs one or two low fee, consistently managed balanced funds and for the young, one or two top growth funds. The problem is the Target Date Funds currently offered carry higher fees and poor performance compared to the select top balanced funds that NOMN has researched.

As NOMN wrote on August 2, 2013:  Target Date Funds Carry Greater Risk and Cost More: Why is the Department of Labor Allowing Them?

Let us a assume you buy the T. Rowe Price moderate allocation fund (PRWCX) directly from  a discount brokerage, such as Scottrade, your self.  You pay Scottrade a one-time fee of $17. You can also buy the Fund directly from T. Rowe price and save any transaction fee.

If you buy the same fund through a stock broker you will pay greater fees each year, for the exact same Fund, or precisely .35% more of your outstanding balance, than if you purchased the Fund on your own.

Think about this.  Your are paying more for the exact same product, year after year, after year.  What other industry allows this type of dysfunctional pricing?  What are you getting for paying hundreds of dollars more for the same product?  Nothing. Under the “suitability” standard the stockbroker has no further obligation to you.  Once you buy the fund, his responsibility ends, even though you keep paying him an annual fee!

The Drawback of the Stockbroker – How Much You Lose Each Year By Using a Stockbroker in Dollars and Cents

Here is the chart from the moderate allocation mutual fund, PRWCX, T. Rowe Price’s 6-30-13 semi-annual prospectus, filed with the SEC.  Take a look at how much you are giving to the stockbroker and the financial services firm for using an intermediary. You pay 1.04% each year of the outstanding balance if you buy the Fund from a stockbroker. If you buy it your self, you pay only .73% each year!

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The Fund firm, T. Rowe Price, also shows you how much you lose in performance on your investment by buying the mutual fund through a stockbroker in this chart below:

 

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What the above chart tells you, for the year ending June 30, 2013, if you had purchased the Mutual Fund PRWCX from the stockbroker you would have made on $200,000, $35,780.  If you bought the Fund on your own, you would have made on a $200,000 investment, $36,520 or $740 more in one year!  Remember, through the power of compounding and as your balance grows, your loss for purchasing this fund from the stockbroker will grow larger and larger each year, as you will always pay expenses at the “Advisor Class” rate.  Again, under the “Suitability” standard, the stockbroker does not even owe you a telephone call for the extra fees you are paying.

Do You Know Where to Get the Best Price on the New I Pad Air?

Of course you do.  There is complete transparency on the new I Pad Air pricing.  It is called capitalism and a free and competitive marketplace.  Read today’s article from “tom’s Hardware.”

Apple, Staples, Best Buy, Matching I Pad Air Pricing

The financial services firms provide the “financial education” in your workplace.  There control the message and information flow. There is not any transparency, which is a major contribution to our current retirement crisis and “financial literacy.”  Retirement investors have been made to depend on all these high-fee intermediaries and have no idea about how to value the pricing and performance of the advice they are paying for. Of course, these intermediaries are conflicted.  Their livelihood depends on you buying mutual funds from them and not on your own. We are certain very few employees are trained in their workplace by the financial services firms on the devastating impact these fees have on the growth of your retirement portfolio.

Not On My Nickel seeks to provide retirement investors the same pricing transparency you can get from tom’s Hardware, so one can make an informed choice on the largest investment of their lifetime.

Part II of this post is forthcoming on why a “Fee Only Planner” costs you as much or more as a stockbroker and may even be less of a fiduciary, despite their claims that they are.

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