20 February 2006

A Weekend Conversation

“Ugh, my financial advisor called, it’s time for my yearly ‘check-up’”

“That’s good he makes you do it every year, even if it’s just more revenue for him.”

“Yeah, I should go, it’s at least less painful than the dentist”

“And just as important, can I ask you a question? Is he a ‘fee-only’ advisor?”

“I have no idea. Does it matter?”

“Well, yes. It’s really important actually and most of the big name branches like Edward Jones and Fidelity are not.”

“Uh oh, why does it matter?”

“Fee-only means they only get paid by you, not by the mutual funds they’re selling.”


“That’s important because they are truly independent and have no conflicts of interest if only you are paying them.”


“Ok, let’s say that there are two mutual funds that fit your profile. Fund A has high returns and low expenses. Fund B has lower returns and higher expenses.”

“I’d rather be in Fund A”

“Of course. But let’s say that Fund B pays a commission that’s 10% higher than Fund A. Now, does your advisor put you in the fund that’s best for you, Fund A, or the one that’s best for him, Fund B?”

“I hope the one that’s best for me.”

“Do you know that?”

“Well, no.”

“A lot of the big brokerage houses have been fined for selling their customers Fund B rather than Fund A and not telling them about Fund A. Who is your guy with?”


“They’re one of the ones that paid fines. I can’t tell you your guy was one of the guilty, but it seemed like they were pressured company-wide. It may be time to look into a fee-only advisor.”


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