recently wrote a column about how important it is to pay
attention to fees and costs when investing.
fees may seem small, but over time they can have a major
impact on your investment portfolio.
Scanlon said investors also should ensure that what theyíre
paying their financial adviser is worth it.
people pay much more than they think for the advice they
get," said Scanlon, a former managing director at
Bernstein Global Wealth Management in Dallas. "If
you are paying 2 percent to get 5.7 percent (in an
investment return), what that really means is that you
are paying 35 percent of your return for this advice,
which is outrageous."
help investors stay on top of investment costs, Scanlon
and partner Audie Apple started GuardVest, a website
that measures and tracks key portfolio measurements so
that investors can "hold advisers accountable for
the advice they deliver."
free service, which is expected to launch in a few
weeks, will enable investors to see a confidential
evaluation of their financial adviser based on
investment risks, the investorís return and the fees
theyíre paying, compared with a "less expensive
adviser has no idea youíre running your report,"
to Scanlon, 87 percent of money managers donít beat
the performance of market indexes, like the Standard
& Poorís 500.
critical because of the growing popularity of
exchange-traded funds, or ETFs, with lower expenses.
mutual funds, ETFs bundle together investments, such as
stocks, commodities or bonds. Both offer generally
low-cost, professionally managed investment portfolios.
difference is ETFs are traded throughout the day like
stocks while mutual funds are bought or sold at the end
of the day after the price for that day has been set.
most widely traded ETFs are market index funds, which
reflect average prices on the S&P 500 and other
indexes are really, really hard to beat," Scanlon
problem, Scanlon said, is that returns of traditional
stock and bond portfolios have fallen, but advisers
havenít adjusted their fees to compensate for that.
a much larger percentage of the portfolio returns will
go to fees," he said.
markets are expected to be 35 percent lower for a 60/40
mix (a portfolio of 60 percent stocks and 40 percent
bonds), and thatís for indexes," Scanlon said.
"This problem can be compounded even further if an
adviser picks actively managed, more expensive funds
you are now going to get a 5.5 percent return and your
total fees are 2 percent, you get 3.5 percent. If your
funds underperform by 2 percent, then you now are
getting 1.5 percent with market risk."
dominance of index funds makes that even harder to
justify, Scanlon said.
you were in an index fund that could get 6 percent a
year, very realistically, you, the investor, at a full
service brokerage firm could get zero after you pay the
fee and the active management underperformance," he
said GuardVest will highlight the total fees an investor
is paying and his or her returns vs. indexes.
advice to pay close attention to what youíre getting
for your money is sound. But some investors may want to
keep their adviser simply because they like him or her.
fine, Scanlon said, but ask yourself is the adviser
delivering for you? "What are you paying for liking
your financial adviser?"
likens his service to Carfax, which provides consumers
with a used vehicleís history report that includes
such things as structural damage reported, accidents,
previous owners and airbag deployment.
percent of managers underperform the indexes, and the
indexes cost you pennies to own," Scanlon said.
"If you donít know how your adviser is doing vs.
the index, then it is entirely likely that you are
underperforming and paying 10 times more for the