Briefcase Study

August 2014: Briefcase Study

In August 2014, Briefcase Study, Investment Management by Adam Cufr

Each issue of The Steward will include a brief case study. In it, strategies will be highlighted that we utilize in solving problems and creating opportunities for our clients. We hope you’ll enjoy this case study and find some wisdom in it that may help you in your own planning.

Rosanne first heard me speak a year and-a-half ago. Although retirement was not yet imminent, something I had said stuck with her. The discussion of fees inside various financial products had her wondering: “What am I really paying?” Well, life happened and she had not scheduled a time to meet and have a fee and risk analysis done on her portfolio. With her company being sold, retirement was now at the center of her radar.

We discovered that Rosanne had been paying well over 3% each year in fees on her investments…for years. Additionally, several of her accounts were not invested in a way that is congruent with her objectives. After much discussion, we were able to reduce her total annual fees by approximately 40% and, more importantly, align her investments with the level of risk she is comfortable taking.

If you are like Rosanne, and are unsure of what your own fee structure really looks like, the following few quick tips can help you or a friend recognize when you might be paying excessive fees. Of course, every situation is different, but this will allow you to take a quick inventory of your accounts.

Retail Mutual Fund Sales Charges

If you look to the right of the names of your mutual funds, does it show an A, B, or C? If so, you are invested in a mutual fund that likely contains a sales charge. For example, an A Share means you paid a sales charge when you bought the fund. A typical A Share mutual fund charges a 5.75% sales charge when money is deposited into the fund. Conversely, a B Share means you will pay a Deferred Sales Charge when you sell the fund. In other words, you pay the charge not at the beginning but at the end. Which is better? That depends. Either way, the Wall Street Journal and Forbes (among many others) have written pieces about the hidden costs of owning mutual funds like these. In fact, the sales charge is just one of many fees and costs that exist inside the typical mutual fund. If you want more information on these articles or would like to discuss this more in person, please contact us.

Variable Annuities Internal Costs

Another potential problem area is variable annuities, particularly when not intended for use as a source of lifetime retirement income. If not used properly, these can have very high costs. In fact, we have seen clients paying over 5% per year for benefits that they do not intend to use! Without using those benefits, they are simply holding a very expensive investment account.

While all of these costs (among several others) can be reduced, doing so requires action on your part. In Rosanne’s case, the before-and-after difference in fees is the equivalent of a dream vacation every year. I sometimes daydream about the number of clients we would have if we could advertise that we’re giving away yearly dream vacations. The line would be down the street.

If you have not done so already, take advantage of our fee and risk analysis. Don’t leave your life savings to chance.

To set up an appointment, call us at (419) 931-0704 or email Start now – find the clarity you deserve.