"You Can Observe a lot Just By Watching"

Baseball legend Yogi Berra was as famous for the things he said as what he did on the field.  Many of his quotes don't make sense on one level, and yet they may on another.  For example:

"It ain't over till it's over."

"When you come to a fork in the road, take it."

"This is like deja vu all over again."

"You can observe a lot just by watching."

Berra came to mind recently as I thought of the many conversations over the years with people who think they don't pay any fees on their investments.  On one level, they don't see any cost on their statements, so it must not exist, right?  On another, one man's revenue is another's expense.  If you're not paying anything, then they're not making anything, and I highly doubt businesses function on goodwill alone.  Ignoring the possible types of relationships momentarily (see my previous post, Form Follows Function), it's clear that many people don't understand that they are paying fees one way or the other.

To simplify things, I like to break down costs into the following three areas when I'm comparing competing options.

Types of Costs

1. Compensation to the Representative = Millions of people in the US go to work for a company, and in exchange for their efforts, they receive compensation.  It is no different with your financial representative.  Whether he/she works for a Registered Investment Advisor or for a Broker-Dealer, your representative is in business to receive compensation.  How they go about seeking profits or providing services may be different, but the goal of every business is to generate profits.  
2. Costs of the investment product = These costs may go include several items, such as a markup/markdown, commission, expense ratio, mortality expense, trading costs, or fee.  These costs usually goes to the company for creating and/or distributing the investment product, and may help pay for items such as compensation of their employees, marketing, or overhead.
3. Recordkeeping or administrative costs = The firm you deal with tracks and communicates (physically or electronically) details of transactions and of your portfolio through  trade confirmations &/or statements.  Firms incur costs for tracking this information (for example, custodians, transfer agents, and broker-dealers), and often pass on these costs to clients.

I hope you find this post and others in this blog to be both educational and helpful.  Let me know what your thoughts are by posting on either the LinkedIn or Facebook pages for Locker Wealth Management, by emailing me directly at alex.locker@lockerwealth.com, or contacting us through our website.

Happy Investing!

Form Follows Function

Image provided courtesy of Grant Cochrane/
FreeDigitalPhotos.net

Architecture is one area that makes Chicago a world-class city.  One lasting principle of architecture & design that many are familiar with is "Form follows function."  In other words, as Wikipedia puts it, " that the shape of a building or object should be primarily based upon its intended function or purpose."

So, let's talk about this mantra in the context of a four-letter "F" word - fees- as it pertains to both brokerage accounts and advisory relationships.

Brokerage Accounts

A broker is an entity that arranges a transaction between parties and receives a commission for the transaction.  In this scenario, brokers are often motivated to encourage a transaction, as long as it is "suitable."  However, a broker's obligation is primarily to their employer.  Brokers also have lesser requirements for disclosing conflicts of interest that investment advisors.  You may or may not know the costs of a transaction beforehand.  Some firms offer fixed rate transactions (ex., $15 per trade), others may charge based on the number of shares and liquidity of the investment.  In other cases, costs are layered inside the expense ratio of the investment product.

Advisory Relationships

Investment advisors, by definition, provide advice.  They have a fiduciary responsibility; in other words, their primary obligation is to the client, and they must put the client's interest in front of their own.  In this type of relationship, you may be charged a retainer, a flat fee for planning, or a percentage of the account.  The fee structure is agreed to up front, before services are provided, and in writing.  Any potential conflicts of interests must be disclosed.

In short, how you pay your representative may depend on what you are paying them for.  Ask yourself a few questions in advance of engaging in either type of relationship.  

• Do you have the time, desire, or experience to manage a portfolio by yourself?
• Do you just want help with transactions, or are you looking for advice?
• Are you comfortable working with someone whose obligation is to their employer rather than to you as a client?
• Do you want to know your cost structure upfront, or would you rather pay-as-you-go?

If you would like to discuss your situation more in depth, click on "Our Website" above and go to the Appointments section to schedule a phone consultation.

The Agony of a Football Fan

Football has taken over this time of year for many sports fans (including me).  As I watched my team lose a game and listened to the post-game TV commentary, it made me think of how we often react to the stock markets.  Every game provides a roller-coaster of emotions.  Win a game & you're buying Super Bowl tickets.  Lose a game & you want everyone fired or traded. Your legacy is based on 4% of days during a 5 month period, and every week you get a 6-day performance review from self-proclaimed bosses despite the fact they are largely unqualified to do so.  It's even more noticeable because you only get 16 chances per season, as opposed to 82 in basketball or 162 in baseball.

Would you invest this way?  If so, STOP!  Focus on the "season", not the "session".  It's your life, not fantasy football!  Remember, your enemy is RISK, not another person, institution, or index. Try this instead as your new "roster".

• Owner = You (after all, it's your money);
• General Manager & Head Coach = Your financial advisor (Get the right people in the right positions with the right strategy);
• Assistant General Managers = Tax, legal, & other business advisors;
• Position Coaches = Money managers or mutual fund managers;
• Players = Individual securities;
• Offense = Stocks (Appreciation is how you move forwards)
• Defense = Bonds, Cash, & Insurance (Protect your position as much as possible)
• Special Teams = Alternative Investments, IPOs, & strategies with higher risk

The "plays" that are called will vary based on the condition of the markets, the economy, as well as your personal situation and preferences.  Most coaches have a sheet with plays for given situations that they've developed ahead of time.  In other words, they know what their choices are before the scenario arises.

Perhaps it's time for you to consider us as your new General Manger.  Visit "Our Website" above to learn more and schedule a phone consultation.

A Moment of Clarity

Answers.com defines "a moment of clarity" as "when you suddenly get a deep understanding of some truth that's been out of reach for you.  When your vision becomes unclouded and focused by a mad rush of what has been called an epiphany or revelation."

The phrase often is connected to those suffering from an addiction, but in today's world -where the "I need it now"/microwave-mentality has taken hold - I believe that recognizing moments of clarity are more important than ever.  The media often refers to what is critical for today's trading session, though your financial well-being probably doesn't depend on a single day; firms market software to help you trade faster (trading faster does not necessarily mean investing better).  One company even had commercials stating "Every second counts."  If you're financial well being depends on what you did at 2:07:00 vs. 2:06:59, there may be larger issues to address.

The scenario is all too common.  You start with an idea of how you want your life to be.  After getting a job, making some money, paying some bills, spending a little, saving a little, maybe even getting married and caught up with the obligations of Life, you realize that you're not where you thought you would be and that you need help. Your moment of clarity awaits.

1. Acknowledge that your current course is unmanageable, and that you need help.
2. Believe that an expert - an advisor- could help.   
3. Hire an advisor, clarifying costs & expectations.You need to be clear on what traits you want in your advisor, and how to work with them.  A title on a business card does not automatically make them right for you. 
4. Make a searching and fearless inventory of your beliefs, standards, & goals.
5. Admit to yourself (& to your spouse, if applicable) and your advisor about how your decisions have impacted your life.
6. Be open to & prepare yourself for change.
7. Ask for help from the right resources as needed (for example, tax, legal, medical, etc.)
8. List any person or organization to whom you have outstanding obligations.
9. Eliminate any debts or obstacles, whenever possible, that may keep you from maintaining your beliefs & standards, or reaching your goals.
10. Continue to monitor your beliefs and actions (personally & financially), and admit any mistakes.
11. Communicate with your advisor, in the previously-agreed upon manner, to make sure you're sticking to the plan.
12. Encourage others you care about to search for their own moments of clarity, and to seek advice as you have.

The above points were derived from the 12-Step Program originally published by Alcoholics Anonymous.