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THE ANSWER DESK . . . ARCHIVES
Volume 176: To submit a question to
MFI's panel of experts, please write to us.
This week's panel:
Rick Ferri
 Richard
A. Ferri, CFA is the President of Portfolio
Solutions, LLC in Troy, MI. His firm specializes in low cost, tax
efficient investment strategies for high net worth individuals, family
estates, trusts, and business concerns. Mr. Ferri’s new book Serious
Money, Straight Talk about Investing for Retirement is available
at Amazon.com
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Paul Pignone
 Paul
R. Pignone, CFP, CLU, ChFC, a Financial Advisor and Principal at Boston
Retirement Advisors, Inc., in Salem, New Hampshire, has been involved in
the financial industry since 1978. Paul specializes in retirement and
estate planning, investment management, and business and tax consulting.
He has taught financial planning and investments at high schools and
colleges and has conducted seminars in Retirement and Investment Planning
at Digital, Honeywell, GTE, and many other organizations. Visit Paul's
website here.
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Questions and Responses
What should I look for in a financial advisor?
Should I move to a fixed income fund?
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What should I look for in a financial advisor?
from Ron
Q: I retired in Jan. of 1994 and rolled over
all of my savings/pension etc. to Merrill/Lynch, who administers everything for
the Company I retired from. Because of various limitations (in stocks
& funds that we can purchase), and the market conditions over the past year,
I was thinking about moving my entire savings to a financial advisor group.
Needless to say, this is a BIG move and scary. However, I do feel that
someone with more experience than I have, could do better for me
financially.
What should I be looking for in a financial advisor? I have checked our
local Better Business Bureau on a couple of companies that I have researched so
far. I guess I'm concerned about the fees and charges that they charge.
So many of them tell you that it doesn't cost anything. I'm not that dumb
to think that there are no fees involved. That's why they're in business.
Any comments would be helpful.
A: (Rick) Hiring
an advisor makes a lot of sense for most people because hiring an
advisor:
1) Eliminates procrastination - Many people
know what they should do with their portfolio, i.e. asset allocation and
indexing. However, a majority of those who know what to do procrastinate, and
never follow through with the strategy completely. Advisors provide a service by
implementing the managing the complete plan.
2) Offers consistency of strategy - On
average people switch strategies about every 3 years or so (as measured by ICI
mutual fund turnover statistics). Three years ago people are heavy in US growth
stock, three years later everyone is moving to US value stocks, three years from
now it might be high yield bond funds, international stocks, and no US. Advisors
are (or should be) more consistent. This consistency of management style will
help achieve higher lifetime returns.
3) Creates a human circuit breaker -
Sometimes, when an investor wakes up in the middle of the night because they
dreamed the market collapsed, advisors are there to act as a psychologist,
talking investors out of doing something emotional, and really dumb in their
portfolios.
4) Places someone on duty 24/7 -
Believe it or not, there will come a time in your life when you just do not what
to deal with this investment stuff anymore, or can't deal with it for personal
reasons. Advisors are there to do the investment chores for you, day in and day
out.
Advisors best serve clients by acting in an administrative
function, not a guru function. It is not an advisors job to
forecast the markets, it is their job to understand the RISKS of the
markets, and help a client design the right mix of investments for their needs.
Then it is the advisors job to implement the plan, and to keep the ship on
course.
How much should you pay an advisor? The most you should pay is 1%
of assets under management, and it goes down from there.
Should I move to a fixed income fund?
from Merc
Q: I am holding onto Weitz Hickory fund this year,
though it has been a poor performer, just like the rest of the market. My
question is whether I would be better off transferring the money to their Value
Fund, Partners Value or Fixed Fund. I tend to want to go to safe place like
Fixed Fund because I am retired, and am now having to take money out of IRA.
A: (Paul) Yes, the Weitz Hickory
fund has suffered as the markets first quarter performance was dreadful. A
growth fund, their 5 year performance was in the top 4% within it's category.
Somewhat inconsistent the last 3 years, a better choice might be the
Partners Value (or Value, virtually similar returns and holdings).
Both funds have superior performance over the long term. The Partners
Value is only 7 years old vs. the Value which is 15 years old. Fixed
Income is for a totally different objective and if your looking for safety and
Income, their are better choices. For the U.S. Gov't category, I'd
recommend you look at the Vanguard Fixed-GNMA fund.
Important Disclaimer
Investing in equities involves a serious
principal risk, and no assurance can be given that the techniques described here
will be successful. Returns vary and you may have a gain or loss when you sell
your shares. Past performance is no guarantee of future results. Index returns
shown are historical and include the change in share price, reinvestment of
dividends, and capital gains. Indexes are unmanaged and do not reflect the
impact of transaction costs. Transaction costs would have reduced the total
returns.
International investments, especially those in
emerging markets, entail greater risks (as well as greater potential rewards)
than U.S. investing. These risks include political and economic uncertainties of
foreign countries, as well as the risk of currency fluctuations. These risks are
magnified in countries with emerging markets, since these countries may have
relatively unstable governments and less-established markets and economies.
Lastly, the questions and responses set forth
here are for general informational purposes only and are not intended to
substitute for performing your own independent research or contacting your
financial or legal professional before making any investment decisions. We make
no guarantees as to the performance of any investment strategy you choose and
are not responsible for any losses you might incur.
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