MUTUAL FUND ARTICLES BY ULLI G. NIEMANN
Articles for Free publication in your Newsletter or on your
Prospering with Mutual Funds: How
anyone can "Afford" an Investment Advisor
By Ulli G. Niemann
Recently I was invited to appear on a live CNNfn television
show to discuss my article "How to evaluate Load vs. No Load
Mutual Funds." (You can read that article on my website http://www.successful-investment.com/articles21.htm)
As the producer and I were working out the logistics of
my appearance, she mentioned in passing that "most people
can't afford an investment advisor."
While that wasn't the time or place for me to discuss this,
I realized that many people might have a similar misconception.
Had conditions allowed, I would have pointed out the following
There are only two ways an individual can invest in mutual
funds: Selecting and investing themselves or using outside
help. If they use outside help they'll have a couple of choices
again: A commissioned salesperson (broker, financial planner
or Registered Representative) or a fee-based investment advisor.
Most people don't know the difference and often start with
a broker who charges about 6% commission off the top to purchase
a mutual fund. The fund is usually from a limited selection
of fund families the broker has a relationship with. He,
of course, would never recommend a no load fund or an exchange
traded fund (ETF), since it is not in his best interest --
although it might be in yours.
Having a fee-based investment professional handling your
portfolio will get you as close as possible to receiving
advice that is based on nothing but the advisor's best knowledge
and evaluation of the market. They advise only what they
consider top performing funds since sales commission is not
a consideration and does not create any conflict of interest
for them. But, how can you "afford" an advisor?
First off, the advisor's fee is usually in the range of
1% to 3% per year depending on portfolio size. This amount
is billed in advance on a pro-rated quarterly basis and charged
directly to your investment account. This creates an initial
savings right off the bat.
Most fee-based advisors offer complete service as far as
your portfolio is concerned. That means that they don't simply "sell" you
a mutual fund and disappear until you call again. Since investors
evaluate advisors based on the performance of their portfolio,
advisors are keenly interested in maximizing your bottom
line. In the long run, your gain should outweigh their fee.
Many advisors utilize an investment discipline or methodology
that keeps you not only invested during upswings in the market,
but also in the appropriate funds for the current economic
environment. For example, at one time, tech funds were hot.
Now, generally, they're not. An advisor watching market trends
could have been able to assist you in avoiding the bursting
bubble. (In fact, my clients were advised to pull out of
the market and into the safety of money markets in October,
2000, just before the market plummeted. What they didn't lose
because of this will more than cover my fees for the rest
of their lives!)
Most advisors don't have lengthy agreements and you usually
can cancel by giving 2 weeks notice. The advisor never has
access to your money because he is affiliated with a custodian
who handles the money, the monthly statements and fulfills
the proper legal reporting requirements.
With this arrangement an advisor can actually save you
1. The advisor will use only no load funds. Because of his
affiliation with a custodian (often a major brokerage firm),
he'll have access to some 10,000 mutual funds, not just to
one or two fund families as most commissioned brokers do.
This allows him to pick the best available, which potentially
means a higher return for his clients.
2. At times there are superior load funds available, especially
in the international arena. I have used a couple of those
in my own practice because they were available to me as "load
waived funds" and my clients got the advantage without paying
a sales commission.
3. Custodians many times also offer "Advisor only" funds.
These are usually high performing mutual funds where the
fund family wishes, for whatever reason, to deal only with
investment professionals, so they set high minimum dollar
Such was the case in my practice during our most recent
buy signal (4/29/03). I purchased the NAMCX fund, which was
only available to advisors through my custodian. This fund
rewarded us with a cool 47% over the following five months.
Most independent investors would not have had access to such
a fund on their own.
Keep in mind that markets fluctuate and starting with an
advisor in the middle of a downturn will not likely yield
high profits at first. However, over time, an advisor will
most likely produce results better than what you would reasonably
expect yourself to do, even with the advisor's modest fee.
Choosing the right advisor and watching how your portfolio
performs with their advice will almost always prove that
it doesn't cost you to have an investment advisor, it pays.