Brokerage firm Archives - The Chicago Financial Planner

Investing Seminars – Should You Attend?

March 12, 2017 by Roger Wohlner Leave a Comment

It must be the season for investing and retirement dinner seminars. I’ve received a number of these invitations in the mail recently.

Typical was one from a local investment firm “___ Cordially Invites You to Attend an EXCLUSIVE Dinner Gathering!” Wow, me invited to anything that was exclusive? The only brokerage sponsored investment “seminar” that I have ever attended featured legendary market guru Joseph Granville who among other things played the piano in his boxer shorts. It was in a movie theater in Milwaukee back in grad school, no food was involved.

Opening the invitation, it was from a well-known brokerage firm. The topic of the seminar is “Strategies for helping build a stronger portfolio.” The areas to be covered include:

Outlook for Domestic/International Stock & Bond Markets
Focus on distributions: strategies for managing your retirement income
Developing a systematic process to help GET and STAY on the right financial track
Strategies to help take advantage of upside market potential while planning for a possible downside

So far this all sounds great. Reading on I noticed that while the session is sponsored by two brokers from the firm, the featured speakers were from a mutual fund company that offers funds that are often sold by commissioned reps while the other speaker was from an insurance company who is big in the world of annuities.

Should you attend?

Clearly the objective is to sell financial products to the attendees, this is reinforced by the choice of speakers. That said there might be some good information available, the topics are certainly timely especially for Baby Boomers and retirees.

Consider attending one of these seminars only if you feel that you can resist a sales pitch. In the case of this session, the restaurant is a pretty good one that is close to my home. I am often tempted to check out one of these seminars out of professional curiosity, a free meal at a good restaurant would be an added bonus.

What are you hoping to gain from attending? The brokers are likely spending a fair amount of money on this session and expect a return on their investment. There will be a good deal of sales pressure at the very least to schedule a follow-up session with them.

Think about your real objective

If you want a good meal and perhaps a little bit of knowledge, go ahead and attend.

If you are serious about finding a financial advisor to guide you to and through retirement, perhaps you should forego the meal and try to find someone who is a good fit for you. I strongly urge that you seek a fee-only advisor who sells only their knowledge and advice. NAPFA (a professional organization for fee-only advisors) has published this excellent guide to finding a financial advisor.

A free meal is great, but in the end as they say, there are no free lunches.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if it’s right for you. Financial coaching focuses on providing education and mentoring on the financial transition to retirement.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

Filed Under: Investing Tagged With: Annuity, Brokerage firm, Investment, Mutual fund, NAPFA, retirement

Do I Own Too Many Mutual Funds?

February 25, 2015 by Roger Wohlner 10 Comments

In one form or another I’ve been asked by several readers “… do I own too many mutual funds?” In several cases the question was prompted by the number of mutual fund holdings in brokerage accounts with major brokerage firms including brokerage wrap accounts. One reader cited an account with $1.5 million and 35 mutual funds.

So how many mutual funds are too many? There is not a single right answer but let’s try to help you determine the best answer for your situation.

The 3 mutual fund portfolio

I would contend that a portfolio consisting of three mutual funds or ETFs could be well-diversified. For example a portfolio consisting of the Vanguard Total Stock Market Index (VTSMX), the Vanguard Total International Stock Index (VGTSX) and the Vanguard Total Bond Index (VBMFX) would provide an investor with exposure to the U.S. stock and bond markets as well as non-U.S. developed and emerging markets equities.

As index funds the expenses are low and each fund will stay true to its investment style. This portfolio could be replicated with lower cost share classes at Vanguard or Fidelity if you meet the minimum investment levels. A very similar portfolio could also be constructed with ETFs as well.

This isn’t to say that three index funds or ETFs is the right number. There may be some additional asset classes that are appropriate for your situation and certainly well-chosen actively managed mutual funds can be a fit as well.

19 mutual funds and little diversification

A number of years ago a client engaged my services to review their portfolio. The client was certain that their portfolio was well-diversified as he held several individual stocks and 19 mutual funds.

After the review, I pointed out that there were several stocks that were among the top five holdings in all 19 funds and the level of stock overlap was quite heavy. These 19 mutual funds all held similar stocks and had the same investment objective. While this client held a number of different mutual funds he certainly was not diversified. This one-time engagement ended just prior to the Dot Com market decline that began in 2000, assuming that his portfolio stayed as it was I suspect he suffered substantial losses during that market decline.

Adding more mutual funds doesn’t necessarily mean added diversification.

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How many mutual funds can you monitor?

Can you effectively monitor 20, 30 or more mutual fund holdings? Frankly this is a chore for financial professionals with all of the right tools. As an individual investor is this something that you want to tackle? Is this a good use of your time? Will all of these extra funds add any value to your portfolio?

Can you realistically monitor 30 mutual funds?

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What is the motivation for your broker?

If you are investing via a brokerage firm or any financial advisor who suggests what seems like an excessive number of mutual funds for your account you should ask them what is behind these recommendations. Do they earn compensation via the mutual funds they suggest for your portfolio? Their firm might have a revenue-generating agreement with certain fund companies. Additionally the rep might be required to use many of the proprietary mutual funds offered by his or her employer.

Circumstances will vary

If you have an IRA, a taxable brokerage account and a 401(k) it’s easy to accumulate a sizable collection of mutual funds. Add in additional accounts for your spouse and the number of mutual funds can get even larger.

The point here is to keep the number of funds reasonable and manageable. Your choices in your employer’s retirement plan are beyond your control and you may not be able to sync them up with your core portfolio held outside of the plan.

Additionally this is a good reason to stay on top of old 401(k) plans and consolidate them into an IRA or a new employer’s plan when possible.

The Bottom Line

Mutual funds remain the investment of choice for many investors. It is possible to construct a diversified portfolio using just a few mutual funds or ETFs.

Holding too many mutual funds can make it difficult to monitor and evaluate your funds as well as your overall portfolio.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Concerned about stock market volatility? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if it’s right for you. Financial coaching focuses on providing education and mentoring in two areas: the financial transition to retirement or small business financial coaching.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

Filed Under: Mutual Funds Tagged With: Brokerage firm, ETF, Exchange-traded fund, Fidelity, Index fund, Mutual fund, Vanguard

Time to Let it Go

June 6, 2012 by Roger Wohlner 4 Comments

I received a call from a prospective client today. She was upset at the major stock brokerage firm that she was using. The caller was in her mid-fifties and clearly had educated herself on many of the aspects of being an investor. She was upset that she and her 7 figure portfolio were shuffled to a new advisor when her old broker left the firm. She was rightly upset that she had no input in choosing who would handle her money.

Further the caller was upset that she wasn’t receiving trade confirmations on a regular basis and wondered what she was actually paying for the services she was receiving.

These are all great questions and ones that should be asked by all investors. The caller had indicated that her portfolio was the result of a “windfall” and that she had been doing a lot of reading to education herself from scratch.

While I applauded her for asking these questions, towards the end of the call I turned the conversation around a bit. She had indicated that her portfolio was her major source of income and that she didn’t know what she was spending on an annual basis. Further she really didn’t understand how her money was invested or why.

I indicated to her that I thought she was focusing on the wrong issues and that she should focus on getting a financial plan in place and getting a handle on her spending and the resources available and needed to support her lifestyle.

Clearly this is not what the caller wanted to hear as she seemed fixated on determining if the brokerage firm was doing what it claimed for her and if they were overcharging her for these services. When I asked, she did not feel that she was the victim of fraud or anything related.

While I can understand how she feels, her fixation on this is in my opinion causing her to focus on the wrong things. What’s the point of focusing on this broker, given that she doesn’t feel valued as a client and that they had indicated to her that they wanted her to move her account?

Investing is about the best use of your dollars from this point forward. I hope that this caller will ultimately “let it go” and hire a real financial advisor and listen to their advice.

Please feel free to contact me with your financial planning questions.

Filed Under: Financial Planning Tagged With: Brokerage firm, Financial Advisor, Financial plan, Investing