Wes Moss: Avoid mutual fund rip-offs

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

I recently met with a retired woman who came to see me because she was frustrated and concerned by her portfolio’s failure to keep up with the stock market’s average rates of return. A quick glance at her statements revealed the problem: fees.

The woman’s financial advisor had placed her in several high-priced mutual funds, defined as those with expenses of 1 percent or more. On top of that, her money guy was charging her an annual management fee of 2 percent.

Bottom line: Her portfolio has to return 3 percent every single year just to break even on her fees — this at a time when the 30-year Treasury yields less than 3 percent. So it’s like running a marathon in quicksand.

We’ve talked before in this blog about the pitfalls of fees.  But that meeting reminded me some messages bear repeating, over and over again. Please, please, be aware of the fees you are paying, and analyze them closely. Get help with that if you need to. Fees can absolutely devastate your portfolio’s return.

One common fee-related mistake is allowing your financial advisor to put you in C-share class mutual funds. These funds carry little to no upfront expenses, but are loaded with heavy annual fees (more than 2 percent per year on average).

A better option would be to have your advisor buy you “no-load” or institutional share class mutual funds, which are designed to keep underlying management fees to a bare minimum (sometimes cutting costs up to 70 percent). Even when you add in an advisors’ management fee of 1 percent, you’re still saving money from Day 1.

Take a look at your investment statement. If it lists mutual funds with names that end with a capital “C,” you may be paying too much for those investments. Ask your advisor if there’s a cheaper way to own those same funds. If he says no, it’s time to consider getting your financial advice elsewhere.

Quality, custom-tailored financial advice is a valuable service, and those who provide it need to earn a living. At the same time, investors need to watch out for themselves. If the total fees in your current arrangement are much more than 1 percent, you are paying too much.

When is the last time you reviewed the fees you are paying? Do you meet or speak with your financial advisor on a regular basis?

– By Wes Moss, for Atlanta Bargain Hunter

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7 comments Add your comment

Indendent

October 10th, 2011
7:08 am

Schwab acct.. IRA.. checked it every week… own a basket of diversified no load mutual funds… large caps YAFFX.. mid caps ARTQX.. small caps JATTX.. Bonds LSBRX…. World OAKWX… balanced PRPFX.. 15% in each fund .. plus 10 % CASH…. best time of year is Oct. thru April…. hange in there… save and invest .. don’t protest against business and investment … get to WORK.. take what you can get .. food service.. retail.. etc..

Colleen

October 10th, 2011
9:09 pm

You support the Herman Cain plan that raises taxes on low income and reduces taxes on high income. When asking a question–Will your taxes increase under the Herman Cain 999 plan, I answered YES and by over 2000%. There was no answer from you so obviously you still support his plan and could care less about how it would increase taxes on retired people or low income people.

Colleen

October 10th, 2011
10:59 pm

You ask for comments on Does the Herman Cain’s 999 raise your taxes. Then you stop comments on this after no response from you on the comments.

Colleen

October 10th, 2011
11:11 pm

Would I pay more under the 999 plan? Answer Yes, I would pay 24% more.

Wes Moss

October 11th, 2011
5:46 pm

@Colleen – I see the premise of your argument, but come to a different conclusion. If you are in retirement and drawing Social Security, your savings rate does not need to be the same as someone making $1M/year in their prime working years. You assumed you need to save more than 35% of your $30,000/year retirement income (by virtue of spending only half of that income). I think the case you could easily make with your argument is “who should be getting social security benefits in the future”? Which would be an entirely separate argument. Maybe individuals making $1M/year would trade a lower overall effective tax rate under a 999 type plan, for opting out of the social security payment system – again, this could open the door for much needed social security reform (moving forward). I’ll be watching the debate tonight.

James

October 14th, 2011
2:18 pm

Colleen has a different agenda that 999.

Andra Scaman

October 16th, 2011
4:02 am

It falls on World Tennis Day :) )