Individual investors pay for a variety of investment service fees, some clear and others not so clear. These fees are accessed by discount brokerage houses, full-service brokerage houses, private money management firms, load and no-load mutual fund firms, insurance companies, fee-based financial advisors, banks, etc. While these fees are often packaged in different ways, each provides all or some portion of three primary services: advice, portfolio management and administration.
Advice
This advisory service focuses on determining and often implementing an investment strategy based upon an investor’s needs, objectives and other specific considerations. Of all three service areas, this is one you can potentially do on your own based upon a little research and careful attention to detail. However, keep in mind this is not a one-time deal. You, like licensed advisors, would have to stay current on the constant changes that affect your investments. Additionally, you would have to stay up-to-date on your insurance needs, liquidity needs and even tax considerations, among other things. If you choose this route, resources such as websites, books, magazines and various organizations provide valuable and timely information to help you. If you are uncomfortable navigating this process alone, a financial advisor or other financial professional can assist you.
Portfolio Management
This portfolio management service offers the establishment and maintenance of an investor’s portfolio based upon objectives laid out during the advisory period. While it is possible for you to take on this task, it is best handled by professionals as it involves in-depth securities analysis. To complicate matters even more, investment holdings often span across multiple accounts, and it is difficult to always determine how they interrelate. Stocks, derivatives and futures all have different analysis criteria. This can be extremely complex to figure out on your own without any training in modern portfolio theory (MPT). Even the most experienced retail investment advisors lack this very specific training. Usually, individuals holding a Chartered Financial Analyst (CFA) designation are the best suited to perform this task.
Administration
The administration service offers the execution of the actual trading, clearing and reporting process. Unless you are a registered broker or dealer, this process must be handled by licensed professionals. They each have access to a multitude of securities on your behalf. As an unlicensed professional, you do not personally have access to these financial products and services. Therefore, you will have to find a licensed professional to work on your behalf. However, keep in mind that you can use various discount brokers, including online brokers, which could drastically reduce your fees. (These fees often include performance reporting and your cost basis.) Other fees, including trade settlement, confirmation and statements, are all available at a minimal cost to you.
Final Thoughts
The thing to remember is that it can become a full-time job managing your own investments. What you save in money you will lose in time and energy, but most importantly, you risk not maximizing your investment if you don’t do something properly. However, if you feel comfortable with a given service area, by all means, do it yourself, but don’t try to be a hero. Ask for help if you need it. This is what the professionals are there for.
