Tan Kin Lian's Blog: Financial adviser charged fixed fee

Wednesday, September 16, 2009

Financial adviser charged fixed fee

Mr. Tan,

I suggest that you add this advice in your book:

Do not use Financial Advisers charging on a fixed percent of the total managed fund with no conditions attached. This scheme is supposed to motivate the Financial Adviser to grow the fund to the benefit of both the client and customer. The contrary could turn out with Financial Adviser collecting the fee regardless of the outcome of the fund performance (which is also a conflict of interest) and customer suffering a double whammy – i.e. losses on the fund + paying a fee above all the other basic charges...

12 comments:

Anonymous said...: Fund managers collect fees regardless the performance fees.
Lawyers collect fees regardless the outcome of the cases.
Our top people collect mils of taxpayers' $$ regardless of high umployment rate etc
There are so many occupations whose salary not affected much by their "output".; September 16, 2009 9:17 AM
Tan Kin Lian said...: The investor has a choice of buying a low cost unit trust, indexed fund or exchange traded fund. There is no need to pay a fee for a financial adviser to help in selecting or switching of funds. So, this additional expense can be saved.

However, if the financial adviser is able to add value and make profit for the investor, the investor will be willing to use their advice. If their advise does not help to make money (profit), then it is better to invest in ETF.; September 16, 2009 9:57 AM
Zhummmeng said...: The fees are for managing your funds . If yuo think the advisers not performing up to expectation your recourse is to sack him or her.
Performance fee can an added incentive but not easy and also maybe to your disadvantage in time of bull market .
The non performance can be due to many reasons.
Examples ,Competence, structuring the portfolio, rebalancing etc and yourself is the often the main cause of non performance...; September 16, 2009 11:03 AM
Anonymous said...: By the time you sack your adviser, it is already too late and you would have already lost a lot. I agree with Mr Tan to use ETFs instead. Most advisers cannot even beat ETFs and benchmarks.; September 16, 2009 12:07 PM
Zhummmeng said...: Very true that ETFs are efficient and low cost but when it comes to structuring a portfolio of different asset classes , this is not for the inexpereinced and unsavvy.A portfolio must meet your goals , risk appetite and return.A lot of things go into structuring the portfolio and NOT a basket of ETF funds.
A good investment adviser can help you and manage for you.; September 16, 2009 1:00 PM
Vincent Sear said...: Investors have to distinguish between an financial adviser and a fund manager.

A financial adviser looks at the client's overall financial position, and recommends a portfolio of investments to suit the budget, the time frame and the objective. Some of the portfolio components recommended usually would include some unit trust funds.

A fund manager is responsible for choosing the underlying stocks in the fund and the overall performance of the fund.

An investor who's knowledgeable enough to compose and balance his/own own portfolio should have no problem bypassing the financial adviser. An investor who could and would transact stocks and other direct investment instrument could and should bypass both the financial adviser and the fund manager.

Not all of them are indispensable, neither are they redundant. Know your own limits and capabilities, know your own circumstances and objectives. Then, you'll know what are the services you need and worth paying for.; September 16, 2009 4:03 PM
Anonymous said...: I think it is unfortunate that many people buy into the myth that investing is very complicated and not for inexperienced and unsavvy people. I think this plays into the hands of financial institutions and advisers who are then able to get a bigger cut of their customers' money. Dr "Money" Larry Haverkamp's The New Paper column and Mr Tan's blog have shown how simple it is to structure an effective investment portfolio based on common sense. Don't overbuy insurance; just buy term insurance; avoid exotic investments; stick to a low cost ETF like STI ETF and safe bond investments on top of CPF. I have proven to myself it is not necessary to be experienced or savvy to make a decent and relatively safe return by minimising costs. I can understand why ETFs make many financial advisers very nervous about their own relevance and livelihood.; September 16, 2009 4:38 PM
Anonymous said...: I agree with Mr. Tan's suggestion to use ETFs for investment. Simplicity is the best. ETFs are simple to understand, easy to apply and it works.

Tools that contain risks usually incur higher costs. If investors willing to take higher risks, they must be willing to pay more.

A basket of ETFs can be based on your risk profile works - no needs to listen to all the stories that the investment advisors tell you about how you should be investing. To earn their keep, they will use charts, new theories, fanciful software, to persuade you.

There is no such thing as a good investment advisor - all of them are just salesmen trying to make a lot of money for themselves using your money (not theirs!). Everything I look at the investment proposals I look at them and ask, if I lose 20%, how much are you making? most of them kept quiet.

The win-win situation is: If I make 10%, the advisor makes 0.1%, if I lose 20%, the advisor also loses 25%. I win, he win. I lose, he also lose. That will teach him to be careful about MY money.

Remember it is all these "expert investment advisors" who caused the biggest financial meltdown since the Great Depression. So much for the asset allocation, portfolio diversification, market correlation nonsense.

The best person to trust is yourself and not someone else.; September 16, 2009 7:52 PM
Vincent Sear said...: Sorry but I have to disagree. Shares, bonds, futures, options, savings etc. all have their place in a properly balanced portfolio. ETF is a good instrument, but it's not a magic wand to all financial solutions. Let's not forget. Once upon a time not so long ago, many thought that structured deposits with capital "protection" was the ultimate solution.; September 17, 2009 9:44 PM
zhummmeng said...: Vincent Sear,
have you heard of ETFs for bond , gold, and all sorts of ETFs. Futures and options are used temporarily by fund managers and sometime savvy investors can use these derivatives too to increase or decrease their portfolio risk and return.
ETFs are not magic wands, yes, but they are better than buying funds which often the managers screw them up.
Few funds beat the indices . Then why not buy ETFs and out of them structure your portfolio.; September 17, 2009 11:00 PM
Vincent Sear said...: Zhummeng

I state an opinion, not an advice. Why not? It's up to individual decision after sizing the situation. Not me. But remember, ETFs are managed by fund managers too.; September 18, 2009 6:58 PM
Anonymous said...: A lot of ETFs are programmed automatically to track indices e.g. STI ETF. The cost is very low compared to unit trusts and other funds, most of which are not able to beat the index and the index ETF after their high costs. The smart way to invest in equities is to use ETFs if you want lower risks, lower costs and higher returns.; September 18, 2009 11:23 PM