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Keep An Eye On Your Financial Adviser



Managing Partner of Chapwood Investments Management, Ed Butowsky, joins Pimm Fox on Bloomberg’s Taking Stock to discuss how investors should be wise about their money and know how to manage their financial advisors who manage your money.

While investors hope that 2011 continue to see the markets grow Ed Butowsky explains that watching your money is just as important – especially when there is a financial advisor involved.

Ed explains that there are certain things that advisors do with your money that all investors should know about.

Is your advisor charging you a fee on your money market account?

Many people have money sitting in money market accounts as a safety net against all other things, and typically the money market accounts are making about 20 basis points. If you really look at your accounts your really not making any money in a money market account. Ed explains that advisers charge a management fee to handle that account. That fee is typically 1% of your overall account. So the money that you may have in that account you are actually loosing 80 basis points because of this management fee. Ed explains the way to get the advisers to stop charging these fees is to call them and ask them to stop charging the management fee on the money market accounts. Investors have to remember they have the power in situations like this, its their money, and the advisers will stop. Worst case if the advisers decline to do so then warn of taking the money to another firm.

Have you ever seen a commission charge on the purchase or sale of bonds?

Ed explains that investors need to understand how things work with regards to the purchase and sale of bonds. The Common practice in the broker community is to charge a “mark-up” for the purchase of a bond and a “mark-down” for the sale of a bond. When investors receive their first statement after a purchase they should take a look at the amount designated in parenthesis possibly labeled as “unrealized loss/gain”. As part of the purchase this would be considered a loss. Ed explains that the mark-ups or downs should not exceed more then .25 to .5 of 1% of the entire investment or trade. For example, if an investor buys a bond in the amount of $10,000 they should not pay more then $250 in mark-ups. While the past decade has yielded good investments for those invested in treasuries and the like, the current state of the economy is not a good environment to invest in bonds. Ed explains that the purchase of any government or municipal bonds that are longer than three (3) years because inflation is coming. Moreover the increasing cost of commodities like hard assets, oil, gold, and etc is a key indicator of inflation around the corner. In addition Ed points out that the demand alone for these assets and agricultural commodities from countries like Brazil, India, Russia, and China (BRIC) are going to cause a significant increase in prices. Ultimately the prices today for these commodities will pale in comparison in 2-3 years from now.

Does your portfolio have any Exchange Traded Funds?

Ed explains the difference between the two investments. Mutual funds begin with a pool of money and a management team that actively seeks out various investments to put down money in exchange for shares. The management team monitors and manages what to buy. Exchange traded funds (ETFs) work roughly the opposite way. ETFs begin with an idea – tracking an index – and are created from stocks not money. Put simply large institutions that already own shares pull off a bunch of shares and put them into a separate bucket to represent an index. Brokers that trade ETFs are essentially buying blocks of shares in an index rather then a single company. Ed explains that investors need to be educated as to the possibilities that exist with ETFs. The management fees for ETFs are generally significantly cheaper then the mutual funds. This surely is another area to challenge their advisor and ask the question why not invest in ETFs over mutual funds. The investor may find out that the broker is actually making a commission for selling the mutual fund, moreover if the investor digs a little deeper they may find out that the mutual fund didn’t beat the related ETF in that category.

Whether investors have money in money markets, own bonds, or have mutual funds, investors need to be very aware of the various fees that encompass various investments and constantly question their advisors of the alternatives.

Ed Butowsky is the managing partner of Chapwood Investment Management and is an internationally recognized expert in the investment wealth management industry. Ed is also a frequent guest on other networks such as CNN, NBC, ABC, Fox News, Fox Business, and Bloomberg to name a few.

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Chapwood Investments

4965 Preston Park Boulevard, Suite 100
Plano, TX 75093
(972) 865-2225
Ed@ChapwoodInvestments.com

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Chapwood Investments, LLC is an SEC Registered Investment Advisory Firm (SEC.gov). No mention, opinion, or omission of a particular security, index, derivative, or other instrument constitutes an opinion on suitability of any security. The information and data on this site, in webcasts, and in videos were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. At any given time, principals at Chapwood Investments, LLC may or may not have a financial interest in any or all of the securities or instruments discussed on this site, in webcasts, or in videos. The guests appearing on videos do not receive compensation or provide endorsements or testimonials. Past performance is not indicative of any future results. Copyright © 2023 · All rights reserved.
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