Fees Archives - NorthStar Capital Advisors

Picking a Financial Advisor? Ask Them “How Are You Compensated?”

Asking the right questions is critical to finding a high-quality financial advisor that you can trust. One of the most important questions that you can ask is:

How are you compensated?

Note that the exact wording is crucial. We did not ask, “How do I pay you?” or “What am I charged as a client?”. Use these limited questions and you might not get the complete picture or identify potential conflicts of interest.

For example, many financial advisors’ compensation include:

bonuses for meeting sales goals
spots on “educational” trips
direct compensation for selling you certain products

Here are some great follow-up questions:

Do you get paid or win anything based on the products you recommend to me?
Do you receive compensation for our relationship from anybody other than me?

An independent advisor’s fee usually differs from the fees assessed by the brokers that work for the banks/brokerage houses. Broker’s fees are typically based on commissions for the trades and products (mutual funds and insurance products) “sold” to their clients. This conflict of interest between the broker’s objectives and those of the client results in non-transparent and substantially higher client fees.

Hedge Funds — Exceptional Complexity, Exceptional Underperformance

The chart above compares hedge fund returns to the S&P 500 Stock Index (blue) and the Barclays/Lehman Aggregate Bond Index (red) since 2011. Various popular hedge fund strategies are portrayed by the four colorful lines that occupy the zero-to-negative return space! In both an absolute and a relative sense, this is stunning underperformance. Moreover, those hedge fund returns are before fees, so the investor return is even worse. Hedge funds traditionally charge a management fee that’s 2% of assets, plus 20% on any profits.

Despite this dismal five-year run, complex and expensive hedge funds are more popular than ever. In the Internet era, interesting, persuasive, and money-losing commentary is just a click away!

At last Saturday’s annual meeting of Berkshire Hathaway, legendary investor Warren Buffett unloaded: “There’s been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities.” Buffet added that hedge funds operate with “a compensation scheme that is unbelievable to me.”

Our brains are naturally attracted to “shiny objects” and our intuition suggests success requires a complex solution. Nonetheless, empirical data such as the chart above demonstrate that wealth can be achieved through simple investments combined with simple discipline.

10 Truths Mutual Fund Firms Won’t Admit

“Cheap funds often outperform pricey ones.”
“We can’t beat the market.”
“When skill fails, we just double (or quintuple) our odds.”
“People aren’t buying our product…”
“…except when we pay them kickbacks.”
“Hedge funds are our idols.”
“Our boards are rubber stamps.”
“Blame us for runaway CEO pay.”
“We played a starring role in the financial crisis.”
“Our lobby crushed bipartisan efforts at reform.”

Source: MarketWatch

Where Your 2013 Tax Dollar Went

On April 15, 2014, millions of Americans filed their income taxes for 2013. This chart shows how each one of your income tax dollars was spent by the federal government in fiscal year 2013.

Your 401(k) Is NOT Free

Fees charged on 401(k) retirement accounts are so obscure that most American are under the impression that they are free!

An AARP poll published last February demonstrated that 71% of respondents believe they do not pay fees on their 401(k)’s. An additional 6% said we not sure if fees were levied.

In fact, there are two main fees associated with 401(k) plans: investment management fees and administrative fees. A study from Deloitte and the Investment Company Institute release last November reported that the median 401(k) expense ratio is 0.78% but has a wide range from 0.28% to 1.38%. These fees can be justifiable if the investment performance is good, but investors need to recognize that they are definitely paying a fee.

New rules are about to take effect that will force plan sponsors to disclose the total fees or expense ratio that investors must pay.

Smart Money Newsletter ~ May 2012

Who are better investors — men or women? In the May issue of Smart Money newsletter, we take the battle of the sexes into the financial arena (Do You Invest Like a Girl?).

Smart Money is a NorthStar publication that covers financial education, money management, and investment strategies.

The latest issue examines how well men and women invest, lays out the perils of private student debt, and defines simple rules for investing.

Click the cover image to view or click here to download it directly. You can always get the latest issue of Smart Money by visiting www.nstarcapital.com/newsletters.

We hope you find this information useful. Please feel free to share with family and friends if you find it valuable.

“Pay to Play” in Your 401(k)

Think the roster of mutual funds in your 401(k) was selected because they represent the best options? Think again! Very often the decision is biased by payments between fund companies and the firms that package the 401(k) plan:

Mutual funds often make payments to companies for the privilege of appearing in their 401(k)
These “pay-to-play” arrangements can discourage plan providers from selecting the best funds for you or offering low-cost index funds since most of these do not match the payments from active funds
These payments obscure the true fees and costs of 401(k) plans
For example, the Pimco Total Return fund pays an estimated $145 million a year to get into 401(k) plans
Growth Fund of America pays $75 million a year
Dodge & Cox Stock pays $20 million a year

Exercise caution when deciding which funds to use in your 401(k). Have questions or concerns? Send your questions to info@nstarcapital.com and we’ll do our very best to help.

Five Things You Should Know About Mutual Funds

The Wall Street Journal on the 5 things everyone needs to know about his mutual fund — from hidden fees to manager investment:

What are the fund’s total fees, and where do they go?
Does the fund manager eat his own cooking?
Will the fund company put your interests before its own?
Do your fund’s performance figures mean anything?
Who runs the fund — management or marketing?

Five Things You Should Know About Funds – WSJ.comhttp://online.wsj.comThe people who sell you mutual funds will tell you various things about them. They’ll tell you about the fund company’s great reputation. The fund’s impressive “stars” and the awards it’s earned. The terrific one, three or five-year track record.

Getting a Better Deal in Your 401(k) Plan

Companies that manage 401(k) plans have been siphoning off billions of dollars through hidden fees and conflicts of interest:

“I think 401(k) fees will eventually become like property taxes. Most people can tell you within $20 what they are paying in property taxes, and they fight any move to increase them. When people know what they are paying in 401(k) fees, they will become more vocal about trying to minimize that cost.”
“The day that plan participants can see they are paying 3 to 5 percent in fees will change everything”
“Some [401(k)] participants used to scream bloody murder because they didn’t know what they were paying; the twist is now they scream bloody murder because they think it’s too much”

Learn more in Laura Rowley’s article on Yahoo Finance:

Getting a Better Deal in Your 401(k) Planhttp://finance.yahoo.comWill workers finally get a better deal from their 401(k) plans? More than two years ago I reported on how companies that manage 401(k) plans were siphoning off billions of dollars through hidden fees and conflicts of interest. Since that time, a trifecta of legal, regulatory and market…

SunTrust faces suit over operation of 401(k)

SunTrust, the Atlanta banking giant, is being sued for allegely favoring investment plans operated by SunTrust or its subsidiaries that performed poorly and charged higher fees than plans offered by an independent investment companies
The suit alleges that under the Employee Retirement Income Security Act of 1974, the defendants had a duty to choose investment options for the benefit of employees, not SunTrust.
The suit alleges some of the SunTrust-controlled investment funds charged fees several times higher than comparable funds operated by a prominent third-party investment company.
The suit says SunTrust’s 401(k) plan controls more than $2 billion, and the company could have negotiated better fees with outside firms.
Company officials removed funds not tied to SunTrust on the grounds of poor performance, but the suit says the company didn’t remove SunTrust-affiliated offerings for poor returns.

Read more in J. Scott Trubey’s article in The Atlanta Journal-Constitution:

SunTrust faces suit over operation of 401(k) | ajc.comhttp://www.ajc.com/business/suntrust-faces-suit-over-877525.htmlA SunTrust Banks retiree sued his former employer this week, accusing the company of enriching itself on high fees it charged employees who took part in certain company 401(k) plan investments from 2002 to 2010.