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Jerry Citrella: There’s always a fee or charge

Financial Truth

Posted: May 22, 2012 2:00 a.m.
Updated: May 22, 2012 2:00 a.m.

I’ve heard a lot of confusion lately about fees and charges for financial advice or products. I believe I’ve touched on this here before, but let’s go a little deeper into it.

I don’t know if it’s simple confusion or salespeople providing misleading information, but I keep hearing people say they’ve been told they can get certain products or services at no charge to them. I understand how this can be misunderstood, but if you are getting a financial product or service, know this: You’ll always be charged.

If you’re ever told, “there’s no charge to you,” That will be incorrect. There may be products with no direct charge to you, but you are being charged. There’ll always be an adviser, broker, agent, money manager or salesperson who earns something for helping you.

Now, advisers can waive certain fees and work pro bono, but that’s not the case in most instances. You probably have a job (or did at one time) and you obviously deserve to be paid, just like we do. The reason I mention this no-charge-to-you stuff is because I hear it often, but if nobody was getting paid, the cost of the product or the service would be less, which would mean higher returns to you. So yes, indeed there is a cost to you and don’t let anyone tell you otherwise.

No cost directly out of your pocket is one thing, but that might just mean a little less going back into your pocket. One way or another, people who work for you will and deserve to be paid.

There are usually two basic ways you’ll be charged. We just discussed the first: indirect charges, which generate a commission to the adviser helping you.

The second uses some kind of direct fee structure for the products or services you need or get. The fees are most commonly seen as a percentage of your assets being managed or overseen by the adviser, but fees will sometimes be charged for putting together a comprehensive plan or for ongoing monitoring and servicing.

For a fee, some advisers will only do your planning without providing product solutions. Many qualified advisers will use a combination of strategies that might necessitate fees and/or pay commissions. Just be aware of what you are getting.

When working with investments, I personally use a fee-based platform whenever possible. I feel that it serves two purposes: Most importantly, it puts my clients at ease.

If I’m getting a fee for the assets I oversee without receiving compensation for transactions or changes and I contact my clients with suggestions and changes, they know that it must be in the perceived best interest of the portfolio and not for my own personal gain. It builds in a level of automatic and accepted trust. We’re both on the same side of their money. If it grows, we both win.

In a commission-based relationship, the client can have horrible results while the adviser will have made his money at the onset, or makes more every time he changes something. In effect, the adviser’s success is not connected at all to the client’s results. When my fee-based investment clients make less, I make less, and when they make more, I make more. We’re both motivated by the same thing — their success.

I also prefer a fee-based relationship, because it allows me to do my job.

If I feel that something needs to be changed based on performance, market conditions or life changes, I can make the necessary changes. In a commission-based relationship, there will usually be a charge to get out of an investment or into the new one. In those cases, I have to further analyze the situation to see if the move truly justifies the cost. It becomes much more difficult to be nimble or proactive.

Simply put, when there are no transaction charges, I can simply do what is necessary. When there are transaction charges, I need to take them into consideration and might not be able to justify the necessary action.

Remember, one way or another you will be charged. Don’t do your planning based on fees. Do your planning based on needs being fulfilled fairly. Explore options and be sure to understand all charges.

Jerry Citarella is the owner of Infinity Wealth Management 23734 Valencia Blvd., Suite 301, Valencia, (661) 255-9555, ext. 11.  He is also the author of The Truth Helps Series of financial planning books. Citarella’s column reflects his own views and not necessarily those of The Signal. Submit questions to:  Securities and investment advisory services offered through NEXT Financial Group Inc. Member FINRA/SIPC.  Infinity Wealth Management is not an affiliate of NEXT Financial Group Inc.


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