How we get paid

Click here for a simple to read chart of our 3 main services and specific cost for each service. Then read below to get a better understanding on how this impacts you, and why it makes us better suited to serve your needs. Thanks for the time.

FEE STRUCTURE.odt

STRAIGHT TO THE POINT…

How I get Compensated and why you should be happy to pay me J

Quote from Arthur Levitt, Former SEC Chairman:

“If you have more than $50,000 to invest, you should fire your broker and find an investment advisor. Brokerage firms would like you to think that they perform the same functions as investment advisors. Many brokers call themselves 'financial consultants' or 'financial advisors'. But they are not the same as independent investment advisors... an investment advisor's fiduciary duty is on a higher plane, like that of a lawyer, a trustee, or the executor of an estate..”

MORE QUOTES

- According to Morningstar, the average stock fund rose 35% last year… but that wasn’t nearly enough to overcome the 41% loss the year before. (41%? The S&P fell only 38%!) Only six funds -- six! -- Managed double-digit returns across the two-year span.

- This brings to mind some timeless wisdom Chris imparted in the summer of 2008: “I’ve long held that mutual funds are full of bad habits, like a boy who can’t stop picking his nose and burping at the dinner table.

- If you had to design a poor investor, you need look no further than the typical mutual fund.

“For example, the typical mutual fund turns over its entire portfolio at least once per year and owns 160 stocks. These are two things that often lead to mediocrity: too much trading and too many stocks. “All that churning fattens the brokers of the funds. And the funds often have unseemly arrangements to direct commissions to brokers who help market the funds. Owning all those stocks also means the fund managers often know little about what they own."

- “No individual stock matters much, nor does any single issue make much of a difference, so why bother looking at any of them in detail? It is little wonder the typical mutual fund puts in such an indifferent result.

I feel fee based and fee only planners are the only true professional consultants in the financial services industry. We have given up the immediate “carrot” for the benefit of the client and to true long term planning and investment management. I feel fantastic about how we get compensated as it shows trust and value and a commitment to putting the client first.

As people hear and understand (truly understand) how our industry works and how we all get compensated and the differences, more and more and drawn to what we do. It’s less expensive and they know they are going to get value. About 95% of advisers are commission based as that’s where the “big quick bucks” are.

Let me break down the commission system a bit further. I know how this system works because I started in a commission based practice and that is what helped me see that this format was more a benefit to the adviser than the client. Again these are salesmen in my opinion. They sell you a product or investment that they get compensated very well to sell to you. Once they sell you this product do you think they have a vested interest in working with you still? The average commission is about 5.75% and range up to 9% or higher for some annuity products. So if you paid a commission adviser they would make $5,750 on a $100,000 portfolio the same time you hire him. Not only the commission but most commission based mutual funds have other expenses as well. 12b1 fees, transaction costs, loads, and so on. We have seen funds with expenses over 4%! So lets say the average fund has an internal expense of 1.5%. So you paid 5.75% up front and then will pay 1.5% per year in internal cost to an adviser who has moved on to the next prospect as they need to continue to sell to make money. Here is our approach in contrast.

The most ethical approach as I see it, and the way the financial planning industry has been swaying, is fee-based advising. Why? There is rarely an incentive for a specific product or service to be pushed in your direction. It is less likely you’ll encounter hidden sales charges, and often you can avoid transactions costs as well. Fees are usually a percentage of the total portfolio amount. For example, .85%-1.5% per year is a fairly common advisory fee. In this example, if a $100,000 account increases to $120,000, the advisor’s fee increases from $1,500 to $1,800. If the account dropped to $80,000, the advisory fee would drop down to $1,200. So it takes me years to make what the other adviser got paid upfront. So we believe that we have created the “win win” scenario. We aren’t perfect. But you know that since we have a vested interest in the way you perform that you know that we are trying to make you money. In most cases we will save a client money by working with us! I will prove how if you let me know what funds you may have and can show you the actual expenses you are paying currently. If I cant be cheaper and provide you more value I will buy you lunch and give you a $50 gift card to a store of your choice. However if Im less expensive and can provide value, I ask that you consider us, nothing more.

I think the logic behind the fee-based approach is fairly obvious and will eventually appeal to more and more people. Part of the problem is that the industry doesn’t ‘rush the process’ because they often make money from it. Those are my thoughts on the fees vs. commission debate. I got out of sells years ago and ever since then my clients have been more than pleased with our services as they know we care and work for them.

We are typically far ahead of the curve in the industry. We have been using low cost ETF’s when there were only a handful of companies that had them. Now everyone is jumping on the band wagon (except commission based advisers as they don’t get paid to sell them). So give us a try. Again we aren’t perfect but we model integrity and honesty and hard work. DONT TAKE MY WORD FOR IT. Here is some of the research from the experts.

If you have an adviser or mutual funds of any kind, PLEASE READ THIS! It changed my perspective on our industry and how clients are getting the short end of the stick. Read on to see what experts say.

This document will blow you away. Its again the basis for our firm and why we do what we do and how it is such a huge benefit to the client.

Hidden Mutual Fund Fees To Be Made Transparent.doc

MUTUAL FUND COST KILLING RETURNS

Costs are the biggest problem with mutual funds. These costs eat into your return, and they are the main reason why the majority of funds end up with sub-par performance.

What's even more disturbing is the way the fund industry hides costs through a layer of financial complexity and jargon. Some critics of the industry say that mutual fund companies get away with the fees they charge only because the average investor does not understand what he/she is paying for.

Fees can be broken down into two categories:
1. Ongoing yearly fees to keep you invested in the fund.
2. Transaction fees paid when you buy or sell shares in a fund (loads).

The Expense Ratio
The ongoing expenses of a mutual fund is represented by the expense ratio. This is sometimes also referred to as the management expense ratio (MER). The expense ratio is composed of the following:

• The cost of hiring the fund manager(s) - Also known as the management fee, this cost is between 0.5% and 1% of assets on average. While it sounds small, this fee ensures that mutual fund managers remain in the country's top echelon of earners. Think about it for a second: 1% of 250 million (a small mutual fund) is $2.5 million - fund managers are definitely not going hungry! It's true that paying managers is a necessary fee, but don't think that a high fee assures superior performance.

• Administrative costs - These include necessities such as postage, record keeping, customer service, cappuccino machines, etc. Some funds are excellent at minimizing these costs while others (the ones with the cappuccino machines in the office) are not.

• The last part of the ongoing fee (in the United States anyway) is known as the 12B-1 fee. This expense goes toward paying brokerage commissions and toward advertising and promoting the fund. That's right, if you invest in a fund with a 12B-1 fee, you are paying for the fund to run commercials and sell itself!

On the whole, expense ratios range from as low as 0.2% (usually for index funds) to as high as 2%. The average equity mutual fund charges around 1.3%-1.5%. You'll generally pay more for specialty or international funds, which require more expertise from managers.

Are high fees worth it? You get what you pay for, right?

Wrong.

Just about every study ever done has shown no correlation between high expense ratios and high returns. This is a fact. If you want more evidence, consider this quote from the Securities and Exchange Commission's website:

"Higher expense funds do not, on average, perform better than lower expense funds."

Loads, A.K.A. "Fee for Salesperson"
Loads are just fees that a fund uses to compensate brokers or other salespeople for selling you the mutual fund. All you really need to know about loads is this: don't buy funds with loads.

In case you are still curious, here is how certain loads work:

• Front-end loads - These are the most simple type of load: you pay the fee when you purchase the fund. If you invest $1,000 in a mutual fund with a 5% front-end load, $50 will pay for the sales charge, and $950 will be invested in the fund.

• Back-end loads (also known as deferred sales charges) - These are a bit more complicated. In such a fund you pay the a back-end load if you sell a fund within a certain time frame. A typical example is a 6% back-end load that decreases to 0% in the seventh year. The load is 6% if you sell in the first year, 5% in the second year, etc. If you don't sell the mutual fund until the seventh year, you don't have to pay the back-end load at all.

A no-load fund sells its shares without a commission or sales charge. Some in the mutual fund industry will tell you that the load is the fee that pays for the service of a broker choosing the correct fund for you. According to this argument, your returns will be higher because the professional advice put you into a better fund. There is little to no evidence that shows a correlation between load funds and superior performance. In fact, when you take the fees into account, the average load fund performs worse than a no-load fund. (For related reading, see Start Investing With Only $1,000.)

Mutual Fund Hidden Fees

One of the major disadvantages in buying mutual funds is the hidden fees that are taken out of the fund even before net asset value is reported to you. These fees can greatly reduce your actual returns in mutual funds. It is critical that you seek funds that minimize these fees. This special report shows you how these fees can impact your portfolio. Here are the key hidden mutual fund fees:

Advisory and Administrative Fees

Advisory and administrative fees account for approximately 70% of a fund's total expenses. The investment advisor manages the portfolio and the administrator is responsible for legal, regulatory, tax, accounting and other operational matters. These fees are determined by contract and usually computed on a percentage of assets. Many funds use a declining rate structure where the percentage fee rate decreases as assets increase. Types of assets, management approach and investment strategy all affect the fee rate charged. Actively managed portfolios are more expensive to manage than index portfolios because of research and transaction costs. Fees for asset types such as small-cap funds, sector funds, and international funds also tend to be higher because of higher research and/or transaction costs.

Custodial Fees

The custodian holds the funds securities in safekeeping, settles securities transactions for the fund, collects interest and dividends paid on securities, and records information about stock splits and other corporate actions. This fee is usually based on the size of the fund assets and the volume of securities transactions. Custodial fees also can be impacted by asset types. For example, custody of foreign securities is considerably more expensive than domestic issues.

Transfer Agent Fees

The transfer agent maintains the records of the shareholders' accounts and transactions, disburses and receives funds from shareholder transactions, prepares and distributes account statements and tax information, handles shareholder communication, and provides shareholder transaction services.

IFB Wealth Management

Where Integrity is our Compass