Avoid the Fee-ing Frenzy

Let’s say you’re planning on rolling over your 401k, so you ask a financial advisor for assistance. Sounds innocent enough. You’re then advised to purchase a fund that has a five star rating and stellar past performance. What could be wrong? Almost everything, so far. Yet, this scenario repeats itself daily.

First, you’re chasing past performance, which is completely the wrong way to start out.  And secondly, the costs associated with this can be startling.

Let’s start by the commission your financial advisor will make from pushing this product. If you weren’t aware of this, you’re not alone. Many investors don’t realize that hefty commissions are attached to their financial products. Isn’t this a conflict of interest? Yes, but unless you are dealing with a registered investment firm that is fee-only, that’s what you’ll run into with investments. The majority of financial advisors earn their living by “advising” you to purchase products that pay them to do so.  In the end, that fund you purchased may have a front-end load sales charge, which means it’s going to cost you quite a sum just to open the account. For example, an individual who is investing $100,000 into a fund with a 5% front-end load will be losing $5,000 just for the privilege of making the investment.

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