Marketing Fee or Commission: It's Money Coming Out Of Investor's Pocket

Marketing Fee or Commission: 

It's Money Coming Out Of Investor's Pocket

                                           by: Brendan Magee

I was listening to an investment radio show the other day and the hosts wanted to make it very clear to the audience that they do not sell securities. They didn't and won't sell stocks, bonds or mutual funds. They were promoting "Crash Proof" vehicles as they call them. According to them the stock market was way to risky to have your money there. 

In promoting their vehicles, as they called them,they were saying that the companies they use to crash proof people's money didn't pay them a commission.Rather, they paid their firm a marketing fee. The benefit was that 100% of the client's money gets invested right away. All the more reason an investor should do business with them.

First, let's be clear. It shouldn't make any difference how a firm gets paid if what they are doing provides value to the public. Call it whatever you want. In this case, the vehicles are insurance products. They are annuities. Annuities come in a variety of products. There are fixed annuities, indexed annuities, and variable annuities. Indexed annuities are the big thing now as they promote that investors in these products have their money grow when the stock market goes up and they do not go down should the market go down. In essence they are crash proof. 

As far as the producer or agent is concerned they are golden because the commission on deposits into these accounts range any where between seven to twelve percent. So if the investor deposits $100,000 into one of these products their commission ranges any where between $7,000 to $12,000, not a bad pay day. If you look at the contract of these products the commission or marketing fee is referred to as deferred compensation and it drops over the a specific period of time.

So everyone wins under this scenario. The investor has their money in a safe investment, and the producer gets paid handsomely. But, what about the insurance company? Aren't they out on a limb? What if the investor decides they don't like the investment for some reason? What if circumstances dictate they need their money back? What if they discover a better investment? The insurance company just gave the producer $7,000. No problem they'll just ask for the commission/marketing fee back, and the producer will happily give back the $7,000, right? Wrong!

No way in #### is the producer giving back the $7,000! They have mortgage payments to make and college tuition to pay for. That money is spoken for. The insurance company has put themselves way out on a limb here, right? Wrong! They are not that stupid. You ask for your money back. The producer isn't going to give back their commission/ marketing fee. Where will the insurance company go to get their money back? Answer? You. 

Deferred compensation,as mentioned above, means that their is a penalty assessed against the money you deposited into your annuity. Let's say the commission/marketing fee was seven percent. The penalty, if you withdraw your money over designated period of time, starts out at seven percent. You get your $100,000 back in this case minus the $7,000 they paid the producer. Now the penalty goes down over a designated period of time,but you won't get your money back before the penalty is assessed  Plus, you are going to pay income tax on the money you take out of the contract if the money was after-tax. 

So yeah, your money gets deposited right away, but you are not being given a free lunch. Your money needs to stay in that vehicle/annuity for a specified period of time or you will pay a hefty penalty. The announcer didn't mention that on her show. She also didn't mention that the penalty is paid by you. 

Like just about everything else, it's what's not being said that is the most important thing an investor needs to hear. 

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments go to www.coachgee.com or call 610-446-4322.

Investors, Do You Know The Rules & Can You Verify They Are Being Followed?

Investor's, Would You Know If The Rules For Successful Investing 

Were Being Followed Or Violated?

                                          By: Brendan Magee

The other day a client of mine asked me for some help with investing in her company's 403b plan, a nonprofit company's version of a 401k plan. She wanted some assurances that she was making the right choices from the list of funds available. 

We sat down with the guide book for her plan which went into not only the investment options, but also participation rules. For example, there was a lot information on when and how money money could be accessed with or without penalty, when changes could be made,etc. The booklet was about 150 long.

As we made our way through the investment options and how much she was going to contribute to the plan, I noticed something pretty significant was missing from all the information we had. There was nothing that clued Joan in on the rules she needed to follow in order to make sure she was going to be successful and achieve  financial security with her retirement money. 

There was also nothing given to her that would enable her to verify that the rules were being followed or violated. After signing up and contributing to the plan, the success she wanted to achieve was totally out of her hands. She was at the mercy of the people who would now be managing her money. People she never had or probably ever would have the chance to meet.

As we discussed what was missing, Joan was not feeling as confident as she would have preferred. She said it would be nice to know what the rules were before she made her investment selections so she would be able to discern which investment companies were following the rules and which ones weren't. She didn't want to find out five, ten, or fifteen years down the road she was being taken advantage of. 

Fortunately, we took our time and went over the rules for successful investing and found a few investments within the plan that she felt good about. We also set up a system to measure whether or not the rules were being followed and the plan was being successful or not.

The question I asked and Joan was wondering about was, "With all the information being supplied to investors, be it in a 401k plan, a 403b plan, or personal brokerage accounts, how come the rules for successful investing are not the first bit of information given to investors? Why isn't it listed any where in the information they are providing investors?"

So the $64,000 questions are, Do you know what the academically proven, empirically proven rules are for successful investing? Do you have the ability to verify that the rules are being followed or violated? If you cannot answer these questions with a 100% yes, give me a call or shoot me an e-mail.

P.S. If you do know the rules, get in touch and let me kow how you came across them and how you verify they are being followed day-in-day-out.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments go to www.Coachgee.com or call 610-446-4322.

The Real Reason Why Tom Brady and Your Mutual Fund Can't Stay On Top

Tom Brady and Your Fund Can't Stay On Top

by: Brendan Magee

All I have heard on the news lately is the punishment that has been handed down to Tom Brady and the New England Patriots.  Ironically, his suspension ends when his team plays the Indianapolis Colts, the team that reported that the Patriots were deflating the balls in last year's playoff game. 

This is where our investing lesson begins. The Patriots have won four Super Bowls. In each of those games the other team lost, 2004 still hurts. Certainly, the Patriots are a great team with tremendous athletes.A somewhat deflated football couldn't account for a decade worth of great football, or could it? 

The same could be said for every team in the National Football League. Very of the games are complete blowouts. They usually come down to the final two minutes of the game to decide the winner. Every team spends hours of preparation looking for that little edge to put them over the top. 

Now let's just say a deflated football or filming the other teams practices gave New England the edge they needed. Pro football is a pretty close knit fraternity and the players and coaches move from team to team each year. New England's secrets aren't going to stay a secret for long. Other teams want to win championships and enjoy all the perks that come from winning football games. 

If they realized that New England has gained a competitive edge, they can't just sit back and do nothing. Otherwise, New Engalnd will win all the time and the rest of the teams will be left to settle for second place. So the Colts report New England deflating the football or the Eagles report to the league offices New England filming their practices and stealing their hand signals. The edge is gone and New England falls back to the pack a little bit. They do not stay on top. 

The same thing happens with mutual funds. A fund has a record year. It's performance has far and away outperformed the pack. That fund manager is sought out for television appearances, covers of magazines, makes the speaking circuit and is paid thousands for his or her insights, gets offers to write books, etc. 
The rest of the fund managers don't get any of these perks. They are left to answer why their fund didn't perform as well as the champion. 

Let's say the top fund manger's performance came from tech stocks. Stocks the other fund managers didn't pay too much attention to. They have two choices, stay put and allow the top performing fund to maintain their competitive advantage or start investing in those same top performing tech stocks. How could they explain another year of under performance? How can they risk their jobs? Answer, they don't. They invest in those same tech stocks and the competitive edge is now gone. The champ is now one of the heard. 

Just like the N.F.L. the mutual fund industry is very competitive and is played by people who have a tremendous amount of ability. No one gets into that industry to settle for second place. They are not going to allow the other teams to maintain a competitive advantage for long.


Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments, go to www.Coachgee.com or call 610-446-4322.

So What If You Beleive An Economic Crisis Is Looming

So What If You Believe An Economic Crisis Is Looming!

                                            by: Brendan Magee

I was watching a commercial promoting a "Crash-Proof Retirement" seminar. The commercial showed the seminar director asking attendees at a previous seminar for a show of hands asking,  How many in the audience believed an economic crisis, the kind that we saw in 2008 was looming on the horizon? I'm not sure I got the question word for word, but I got the gist of the question. 

The presenter pointed out that just about everyone in the audience had their hands up. So there was a lot of angst in the room about the economy and what that meant for money they had in the stock market.  

The point of the seminar was that the stock market was way to volatile for anyone, especially a senior citizen in retirement, to have their money in the stock market. What the presenter nor anyone in the audience failed to realize was their answer to that question doesn't matter one bit. The current level of the market takes into consideration everything that is knowable and predictable. It is only unknowable and unpredictable information that moves the market. There is information and data factored into the stock market that neither the presenter, the audience, me, you, etc. have a clue about.

So the premise of the seminar , is to not be too risky with your retirement nest egg, and senior citizens, middle aged people or a thirty something year old wants to be too risky with their money. Unfortunately, by merely asking the audience this question the presenter has put himself and the audience in the shoes of a gambler and speculator. They are in the position of trying to predict the future. No one can consistently do that. When you engage in that kind of behavior you will undoubtedly come out on the short end of the stick.

Since the presenter brings up 2008, let's go back there. In 2008 U.S. Large Company stock were down 36%. That was painful. Everyone was hitting the panic button. Capitalism as we knew it was on the verge of collapse if you believed the media. Take all your money out of the market and cut your losses was the advice Jim Cramer was giving. 

Now if investors followed that advice look at what they missed out on since 2009 until today:

U.S. Large Company Stocks up 110.81%

U.S. Large Company Value Stocks up 196.62%

U.S. Micro Cap Stocks up 193.33%

International Value Stocks up 93.08%

International Small Value Stocks up 134.30%

Fixed Income by contrast is up 9.62%.

By far, in early 2009 one could have made a more believable case that an economic crisis was at hand. The point is this, do not base your investment decisions based on what you feel or believe is looming no matter how much data you have to support your beliefs. 

Your information and beliefs have already been factored into current stock market prices. Only unknowable and unpredictable information will move the market. If you do engage, based on those beliefs, you will be operating under the same set of circumstances as the guy or gal going into the casino, the race track or buying lottery tickets. You are gambling and speculating, and you will lose. 

You are operating under the delusion that you know how six billion people around the world will react to news and events that have not even happened yet. Not the side to be on. 

Please know that when investing in stocks or any securities there is a risk of loss and that the returns used in this blog are in no way guaranteed. Please consult your professional before making any investment decisions. Past performance is not a guarantee in any way of future performance. 

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments go to www.Coachgee.com or call 610-446-4322