First of all, sales reps say you will never pay the surrender charge or penalty for early withdrawal because you intend to hold the investment for at least seven years. That is true on the day you buy the investment – you have no intention of selling it that day. But, it is not true one year later when you determine the investment product (mutual fund, annuity) is under-performing and charging excessive fees. You determine you could do a lot better elsewhere, but you have to pay a 6% penalty (one year has elapsed) to move your assets.
Why are surrender charges just a big number? As you may know, investment product companies still pay the sales rep a 5% commission even though the assets are not deducted from your account. In effect, the product company is front-ending the commission payment to the advisor. The product company needs time to recover the commission payment. Most of the reputable companies charge early withdrawal penalties for seven years. They have that length of time to recover the commission payment and they are protected by the surrender charge if you decide to leave early. Continue reading →
Savvy investors do not buy investment products from sales representatives (reps). They select “real” financial advisors who have the specialized expertise and services they need to help them achieve their financial goals. This is a far cry from reps who want to sell mutual fund products that pay 5% commissions. Regardless of what reps say in their sales pitches, astute investors should know reps, who are paid at the time of the sale, have no economic incentive to help them achieve their financial goals.
If you are a savvy investor you should pay fees to a financial advisor for his knowledge, advice, and services. If you become dissatisfied with the advisor’s results you can terminate the relationship and the advisor’s compensation stops. This is a powerful incentive that motivates advisors to help you achieve your goals. Continue reading →
On August 30, 2012 401k plan sponsors (companies, trustees) are required to disclose all plan expenses to plan participants. Expenses are a very big deal because every dollar of expense is one less dollar participants have available to reinvest for their retirements. It is in participants’ best interest to understand ALL of the expenses that are deducted from their accounts for three reasons:
1. Expenses may be excessive in relation to investment performance.
2. Expenses reduce participants’ net performance.
3. Participants may have to defer retirement dates due to high expenses and poor net performance. Continue reading →
Most financial advisors report gross performance because the number is always higher, perhaps two to three percent higher. And, most investors accept the numbers because they do not know they should be asking for performance reports that are net of all expenses. The higher the expenses, the more likely the advisor is to report gross results.
There are several layers of expense that you should be aware of. If you know all of the expenses, you can add them up and deduct them from your performance yourself. Or, you can use a free tool that resides on the Investor Watchdog website (http://www.investorwatchdog.com/) that will obtain expense data for you. Continue reading →