Advertising, Fees, & Retirement Accounts
Insight NewsletterIssue #26
Don’t touch your retirement account. Always be thinking about your future. Invest in yourself. You can’t mess around with a retirement account. You can’t do options in your IRA. Always invest. Never invest. Sacred Cows, Sacred Retirement?
Are you confused yet? You are not alone. There are so many advertising dollars bombarding consumers with “solutions” that few consumers can separate the wheat from the chaff. Financial Institutions’ spend more than $1.5 billion a year, marketing their services to consumers in the United States. That’s nearly $40 million a week of advertising dollars trying to catch your attention, tell you what to do–get your business and get your money. No wonder people are confused.
The bottom line is that if you don’t have an interest in finances and investments, all that advertising isn’t going to help you a bit. You will be a confused consumer just waiting to taken advantage of by some financial sales person whose hocking product for their employer. These hucksters aren’t bad people; they are only trying to put food on the table for their families. They are relying on those $40 million per week on advertising to get you in the door and get you to invest your savings through their product channel.
Customers of financial services firms can be poorly served in a variety of ways. The most common approach is to get you to buy mutual funds. This earns the salesman a one-time 3% commission on your invested money. The Financial Institution (FI) earns about 1% on your money, and you receive minimal service and limited expertise for your ongoing 1% mutual fund fee. The sales person has already pocketed your 3%; they are on to the next prospect.
The worst deal that most consumers can get is bad advice. Bad advice can ruin a retirement plan, and more importantly your financial security in your “sunset years”. Recently, we’ve heard some ghastly stories. More than one person we know transferred their retirement account to Pensco Trust, a custodial bank that allows investors to invest their retirement account in leveraged real estate. Consumers have the opportunity to invest directly in real estate with their retirement funds. While this is a good thing for knowledgeable investors, it can be a disaster for others. In a leveraged investment, you can lose ALL YOUR MONEY, quite easily, and we’ve known a few people who have.
We all know some of the things that can happen to people’s savings. A brother-in-law opens a Pizzeria, asks for $400k to get the restaurant off the ground. You oblige. A year later the restaurant closes its doors and you’ve lost your $400k.
Some of the most valuable advice the best advisors deliver is to serve as a patient ear and voice in helping clients sort out their choices and reach prudent decisions regarding their money.
In Conclusion
Excellent investment counsel minimizes excessive fees and delivers wise counsel. Be discerning in your choices of who to work bank and invest with.
Despite this tough up and down year, we’ve not found a lot of reasons to do anything significantly different. We have recently seen good value in some pockets of the fixed income market. Despite the high volatility in recent months, we’ve made few adjustments this year. We continue to manage our clients’ money in the less economic sensitive sectors, and we are still taking advantage of the once-in-a-lifetime opportunity in precious metals, while using solid dividend paying blue chip companies as our core equity holdings.
At Barnes Capital our approach is to protect and grow our client’s wealth with less portfolio risk while providing exceptional client service. This combination of benefits is uncommon amongst financial services companies.