MUTUAL FUND ARTICLES BY ULLI G. NIEMANN
Articles for Free publication in your Newsletter or on your
How to Pay Less and get More: Discount
Broker vs Professional Management Fees
By Ulli G. Niemann
How do you invest? What do you really pay? At the end of
the day, what are your real results? These are questions
smart investors should be asking themselves (but usually
don't). In this era of more fees, misc. charges, holding
periods and back end redemptions, even at discount brokers,
how are you really making out?
Working with a new client brought this all to my attention.
I know what I found may not apply to everyone; however it
will apply to many and very likely apply to you.
I need to preface this by saying that, unlike the majority
of registered investment advisors, I have built my practice
over the past 15 years by dealing with "small" investors.
Many of them are first timers because my minimum account
size is only $5,000.
I targeted this group because I enjoy the educational part
of my business. A happy side benefit has been that by providing
million dollar service to these so called "small" investors,
they naturally refer me to parents, relatives, friends and
business associates, often with considerably more assets
than the original client. What a happy consequence.
Having set the stage, here's what happened with my new client
who we will call John. John was 26, newly married with a
one year old son. His wife was taking care of the child and
John had a good full time job. After selling his house in
California and moving to Florida he had $6,000 left for starting
a long-term investment program.
Though he had been reading my newsletter for about a year,
John decided to manage his 401k on his own. It was a noble
effort but provided less than desirable results.
He then attempted to set up a brokerage account at a major
discount broker. With his $6,000 he was told that the quarterly
fee would be $45, and, of course, if he sold any mutual fund
within the first 180 days, there would be an early redemption
$45 per quarter would be equal to an annual fee of 3% of
his starting balance. John called me somewhat frustrated
and said that he'd be willing to set up an account with me,
but how would it make sense if in addition he'd have to pay
my advisory management fee?
That was a good question because it certainly doesn't make
sense to have an account in any type of market environment
and pay about 6% in fixed annual fees.
However, what John didn't know was that if you have an account
with a registered investment advisor who is affiliated with
custodial broker, the fee structure changes.
What did that mean to him? It meant that I opened the account
for him as a new client. He now has no annual fees, other
than my management fee, and his 180 day holding period for
mutual funds is reduced to 90 days, minimizing, if not eliminating,
the likelihood of an early redemption fee.
The net result was that he would receive the benefit of
my experience-which he already trusted based on my track
record of pulling clients out of the market in October 2000-and
it would cost him no more, and likely less, than his discount
Needless to say, John was very relieved. In essence, he
traded broker garbage fees for professional management at
no additional cost to him.
And, since he itemizes his deductions on his tax return,
all fees paid are tax deductible, which is just an added
bonus to factor into the equation.
It turned out to be an all around win-win situation for
John. I encourage you to review your situation and see if
what looks like a discount in fees is actually costing you
© Ulli G. Niemann