Transparency is Essential!

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While I was a designing a 401(k) plan for a company I am working with I started thinking about how important transparency is while working with an investment advisor, investment company, a mutual fund company, a 401(k) provider, etc…

It is an important factor for developing a successful relationship with a wealth advisor and a proper investment strategy, and it is what I pride my practice on. In actuality what does this really mean in the investment world?

It means: understanding all of the fees you are paying. If you are working with an advisor, what fees are you paying? What are your custodial fees, trading costs, and maintenance costs? Do you own Mutual Funds, or Exchange Traded Funds, what are their respective expense ratios? Do you think you purchased a Large Cap Value Stock Fund but the fund has some style drift? Do you know what these terms even mean?

Unfortunately my industry is notorious for hiding fees and making things way too complicated. Have you tried to understand your monthly statement? Sometimes, I have to read them two or three times just to make sure I explain them correctly, and I have 16 years of experience in this industry. Often time working with a Fiduciary will help with many of these issues. A fiduciary is any investment professional or financial advisor who is required by law and practice to act solely in the interests of and with undivided loyalty to their clients.

In my firm we break down our investment management fees into three simple categories;

  1. What are you paying to have your money managed?
  2. What are the underlying expense ratios of the underlying holdings?
  3. What are the custodian and transaction fees?

Every investor should be able to answer these questions rather easily, and at the very least, be able to gather this information from the investment institution with which they are working.

The retirement plan marketplace is especially tricky. Each provider is different, some will charge asset based fees, while other’s charge flat fees, and participant fees. Some charge both, or all three. In February 2012 the Department of Labor published rules and regulations on fee disclosure for retirement plans governed by the Employee Retirement Income Security Act (ERISA). These steps have a made a huge impact on the transparency of fees; however, there is still is a long way to go before investors and even advisors truly understand the complexity of these plan fee structures. For this reason, we recommend working with plan providers that do not charge asset based plan fees, rather charge a fixed annual base plan fee and per participant fee.

Are you confused by your investments? Not sure exactly what fees you are paying? Don’t worry we can help! Click here to schedule your complimentary consultation.

Joe Carbone, Jr.

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About the Author: Joseph Carbone, Jr.

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Joseph A. Carbone, Jr., is a wealth advisor and partner of Focus Planning Group. Joseph is an accomplished wealth advisor with extensive experience in portfolio management/research, financial planning, employee benefits, client relationship management, and insurance design. Joseph holds a bachelor’s degree in finance from Dowling College and obtained the Certified Financial Planner™, Accredited Investment Fiduciary®, and Accredited Asset Management Specialist℠ Designations.
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