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Don’t Let Wall Street Chisel Away at Your Future Wealth!! Their High Expenses and Conflicts of Interest Are More Costly than You May Know.

Don’t Let Wall Street Chisel Away at Your Future Wealth!! Their High Expenses and Conflicts of Interest Are More Costly than You May Know.

Over the past fifteen years, the employment of Fee-Only Investment Advisors has slowly but surely grown in popularity among sophisticated investors. The reason for this is quite simple. Fee-Only Investment Advisors are usually less expensive, don’t have conflicts of interest, and have a fiduciary duty to put the client’s interests before their own interests.

As Exhibit 1 illustrates, Fee-Only Investment Advisors are the least expensive among investment professionals. There are two reasons for this. First, Fee-Only Advisors are not brokers. As a result, they do not benefit in any way from recommending the purchase or sale of a security or financial product. This is not the case for brokerage firms and their agents. Brokers benefit handsomely from frequent transactions. As a result, the average turnover of a portfolio managed by a broker (including wrap-fee accounts) is significantly higher than Fee-Only Advisors.

The non-stop advertising of brokerage firms showcasing their low commissions would make one believe that investor trading expenses are lower now than at any time in history. After all, in the past 10 years we have seen brokerage commissions go down by 23%. However, what brokers do not point out is that during that same period the average volume on the NYSE has gone up over 600%! In other words, brokers have used the ploy of lower commissions to detrimentally convince investors that they should trade more. As Exhibit 1 shows, the greater the turnover in a portfolio, the greater the “Expenses You Do Not See.” In the 1950s the average portfolio turnover was 25%, and now it is approximately 112%.

The second reason why Fee-Only Advisors are the least expensive is because they are not paid to sell any products (i.e., mutual funds, insurance, annuities, or stocks). Fee-Only Advisors provide a service, and that service is doing whatever is best for the client. On the other hand, brokers are paid to push certain products. By becoming more knowledgeable about how people and companies are paid (see Exhibit 2), you can become more adept at distinguishing the difference between solid advice and shameless self-interest.

Most investors do not fully appreciate the magnitude of how lower expenses can increase an investors wealth over time (see Exhibit 3). Don’t let brokers chisel away at your future wealth. Make some smart choices today by hiring a Fee-Only Investment Advisor, and tomorrow you may have twice as much money.

(c) 2006 Marathon Strategic Advisors, LLC

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