Are you taking full advantage of the evolution of the Investor Experience?

By Kelly Fraser – Senior Wealth Management Advisor

Over the last 2-3 decades, the investor experience has been almost completely reshaped. As pensions have become a rarity, access to investment markets have become dramatically democratized. Investors are now far more responsible for meeting their retirement goals and have become increasingly aware of the need for a coordinated investment strategy.

A walk down Memory Lane

Picture a time when you wanted to invest in the market… you would pick up the phone, request quotes, and then have a trade placed for you. It wasn’t uncommon to pay hundreds of dollars to place that trade. Fast forward to the birth of the internet and we are presented with more possibilities for more cost-effective and accessible investments, as well as access to tools for the masses. We now have mutual funds without sales charges available, we have the creation of exchange traded funds, and more comprehensive insurance products to name just a few. In many ways, this has created a more competitive environment for investors. However, many find themselves realizing how complicated it can be with so many choices. It begs the question… how does one know if they are getting the most out of their investments? Not to mention whether there’s an over-arching strategy governing these investments in alignment with one’s financial objectives and plans.

At Wambolt & Associates, we continue to notice how common it is for investors to not leverage some of the most advantageous outcomes of all this transformation. As fiduciaries, working with our client’s best interests as our guide, we see extraordinary opportunity for many investors that are often overlooked.

What opportunity may look like or where to look

As a result of so much choice, investors may have investments held through banks, credit unions, mutual fund companies, insurance companies, and broker-dealers or ‘wire houses’. Typically, there are employees available to help investors select investments or at least provide tools to allow investors to explore on their own. What is often not clear is what conflicts of interest may be present in the positioning of the investment products or services. These conflicts of interest have been a key driver in differentiating financial professionals as fiduciaries or not fiduciaries. A simple way to think about the difference is that a fiduciary is regulated by more strict laws that require them to always put their client’s interests first, regardless of compensation or other interests of their own. The only way to truly uphold fiduciary responsibilities is to really know each client’s personal situation and what is best for that client is specifically understood. With this in mind, one can start to understand the value in some sectors of the financial industry slowly moving away from a transaction-mindset. In other words, how can anyone make a thoughtful recommendation without first understanding the context in which it is being provided?

Some examples that demonstrate how an investor may not be experiencing the optimal investment options available are the reality that most banks, credit unions, mutual fund companies, life insurance and broker dealers have proprietary funds they ‘push’. In addition, a larger company with a robust menu of options (like a broker dealer) often has proprietary management services they profit from more than other options available. It is not uncommon to hear of financial professionals position themselves as a fiduciary some of the time, but not all the time. As the consumer, this can be difficult to navigate thoughtfully.

Hidden tax & expense inefficiencies

Packaged investments, such as mutual funds, commonly have higher expenses built into the investment to cover the management of the fund, making it worthwhile to ‘look under the hood’ at expense ratios and other fees that are commonly included in the price of the fund. Since mutual fund companies don’t pay taxes on capital gains that are realized, they must pass them through to the shareholders (regardless of whether that investor profited or not with their personal investment). At Wambolt & Associates, we feel that relinquishing control of one’s tax liabilities in this way should be avoided in most cases, if possible. *Tip: if you own mutual funds, review your December statement for capital gain distributions. As with many things in life, we outgrow some things, but continue to do what’s familiar because it’s easy. Or perhaps we tell ourselves, “I got this”, not realizing that perhaps we could benefit greatly from some professional counsel to better understand what gaps we may be overlooking that could use more attention. Please leverage our team to ensure you aren’t forgoing other opportunities that may be more relevant or appropriate with respect to your holistic financial situation.

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The commentary on this website reflects the personal opinions, viewpoints and analyses of the Wambolt & Associates employees providing such comments, and should not be regarded as a description of advisory services provided by Wambolt & Associates or performance returns of any Wambolt & Associates Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Wambolt & Associates manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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