Recently I was invited to appear on a live CNNfn television 
show to discuss my article “How to evaluate Load vs. No Load 
Mutual Funds.” (You can read that article on my website 
http://www.successful-investment.com/articles21.htm)

As the producer and I were working out the logistics of my 
appearance, she mentioned in passing that “most people can’t 
afford an investment advisor.”

While that wasn’t the time or place for me to discuss this, I 
realized that many people might have a similar misconception. 
Had conditions allowed, I would have pointed out the following 
to her.

There are only two ways an individual can invest in mutual 
funds: Selecting and investing themselves or using outside help. 
If they use outside help they’ll have a couple of choices again: 
A commissioned salesperson (broker, financial planner or 
Registered Representative) or a fee-based investment advisor.

Most people don’t know the difference and often start with a 
broker who charges about 6% commission off the top to purchase 
a mutual fund. The fund is usually from a limited selection of 
fund families the broker has a relationship with. He, of course, 
would never recommend a no load fund or an exchange traded fund 
(ETF), since it is not in his best interest -- although it might 
be in yours.

Having a fee-based investment professional handling your 
portfolio will get you as close as possible to receiving advice 
that is based on nothing but the advisor’s best knowledge and 
evaluation of the market. They advise only what they consider 
top performing funds since sales commission is not a 
consideration and does not create any conflict of interest for 
them. But, how can you "afford" an advisor?

First off, the advisor's fee is usually in the range of 1% to 3% 
per year depending on portfolio size. This amount is billed in 
advance on a pro-rated quarterly basis and charged directly to 
your investment account. This creates an initial savings right 
off the bat.

Most fee-based advisors offer complete service as far as your 
portfolio is concerned. That means that they don’t simply “sell” 
you a mutual fund and disappear until you call again. Since 
investors evaluate advisors based on the performance of their 
portfolio, advisors are keenly interested in maximizing your 
bottom line. In the long run, your gain should outweigh their 
fee.

Many advisors utilize an investment discipline or methodology 
that keeps you not only invested during upswings in the market, 
but also in the appropriate funds for the current economic 
environment. For example, at one time, tech funds were hot. 
Now, generally, they're not. An advisor watching market trends 
could have been able to assist you in avoiding the bursting 
bubble. (In fact, my clients were advised to pull out of the 
market and into the safety of money markets in October, 2000, 
just before the market plummeted. What they didn't lose because 
of this will more than cover my fees for the rest of their 
lives!)

Most advisors don’t have lengthy agreements and you usually can 
cancel by giving 2 weeks notice. The advisor never has access to 
your money because he is affiliated with a custodian who handles 
the money, the monthly statements and fulfills the proper legal 
reporting requirements.

With this arrangement an advisor can actually save you money. 
How?

1. The advisor will use only no load funds. Because of his 
affiliation with a custodian (often a major brokerage firm), 
he’ll have access to some 10,000 mutual funds, not just to one 
or two fund families as most commissioned brokers do. This 
allows him to pick the best available, which potentially means 
a higher return for his clients.

2. At times there are superior load funds available, especially 
in the international arena. I have used a couple of those in my 
own practice because they were available to me as “load waived 
funds” and my clients got the advantage without paying a sales 
commission.

3. Custodians many times also offer “Advisor only” funds. These 
are usually high performing mutual funds where the fund family 
wishes, for whatever reason, to deal only with investment 
professionals, so they set high minimum dollar requirements.

Such was the case in my practice during our most recent buy 
signal (4/29/03). I purchased the NAMCX fund, which was only 
available to advisors through my custodian. This fund rewarded us
with a cool 47% over the following five months. Most independent 
investors would not have had access to such a fund on their own.

Keep in mind that markets fluctuate and starting with an advisor 
in the middle of a downturn will not likely yield high profits 
at first. However, over time, an advisor will most likely produce
results better than what you would reasonably expect yourself to 
do, even with the advisor's modest fee.

Choosing the right advisor and watching how your portfolio 
performs with their advice will almost always prove that it 
doesn't cost you to have an investment advisor, it pays.

© Ulli G. Niemann