The investment world is moving from an emphasis on sales commissions to an emphasis on fees.
Old way: You’d deal with a stockbroker who would suggest what to buy. You’d pay a one-time sales commission, which could be steep. But if you simply held that stock for the long term, future costs might be negligible.
New way: You’re encouraged to deal with an investment advisor who charges an asset management fee. That’s usually around 1% of your portfolio value. For example, if you have $300,000 to manage, you’d pay the advisor about $3,000 a year.
If you sign up for such investment management, will you be getting your money’s worth? Perhaps, but there is no guarantee. Before you act, interview several managers and ask a few questions.
You might ask for recent examples of how an advisor persuaded a client not to invest in what turned out to be a bad deal. Also ask to see sample asset allocations. You want to be sure that the advisor tailors asset allocations to specific clients, rather than use a one-size-fits-all model.
Once you see some asset allocations, ask how they were rebalanced, in the past. A good investment investor will have a plan to reduce clients’ exposure to assets that have soared in price and move them into well-valued opportunities.
