Retirement planning

Financial Planning at My Age?

By admin | 2009/12/21 11:37 Posted in Financial planning, Retirement planning | Comments (0)

Many people do not fully understand what Financial Planning is all about in the first place so they cannot really know if they would benefit from a plan.

In a nutshell, Financial Planning is a method of achieving the type of life that you plan for. Unfortunately many people do not plan and they end up not getting what they wanted.

Everyone’s financial plan is based on his or her own unique situation. But most plans address the following elements:

Current Financial Situation – Both you and the planner need to know where you are at financially which includes a net worth statement ( list of assets and liabilities) as well as a cash flow determination (income and outgo). This is important to identify areas of potential savings and have an ability of judging progress over time.

Investment Risk Tolerance and Capacity – It is crucial to understand these areas before attempting to determine whether your current investments are appropriate for your situation.

Investment Analysis and Recommendations- It’s important to know what investments you have currently prior to determining whether they are appropriate for your situation (based on risk tolerance, risk capacity and goals). Only than can alternative recommendations be appropriate.

Investment Policy Statement - Many people get off track in their investments because they don’t have a clear game plan. An Investment Policy Statement clearly outlines the objectives of your investments, expected returns, possible gains and losses based on historical data, and provides guidance for managing your investments going forward.

Retirement Planning – This element identifies the goals that you have now and in the future, takes into account current and future income and assets and then determines the likelihood that you do not run out of money before the end of the line.

Estate Planning - This is about having the proper documentation so that you are cared for the way you want should you become incapacitated as well as passing on your assets when you are gone in the best possible way.

Risk Mitigation -Bad or unexpected things can occur if life and there should be a plan to deal with them as they occur. How would you; handle a 3 million dollar health problem, are sued for 2 million due to a car accident, die prematurely, need long term care. Risk mitigation planning is avoiding some risks, transferring some risk with insurance and retaining the risk in some areas. If insurance is part of the plan you want to make such you have the right type in the right amount and at a good price.

Debt Management - While this does not apply to everyone, some people need help in recognizing good and bad debt and having a plan to decrease both in the best manner.

Tax Planning – The less you pay in taxes, the more that’s left in your pocket. Identifying ways of decreasing taxes can be to your benefit. This planning often involves your accountant, CPA or enrolled agent.

Regardless of your age, financial planning can help you live the life you want through the proper management of your finances and risks.

Based on their education, experience and ethics, those advisors who are Certified Financial Planners ® would be a good choice to analysis your situation and craft a written financial plan to address the above topics

Michael Chamberlain CFP®
CC Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advises.

Consider Target Date Retirement Funds Carefully

In the last several years, numerous mutual fund companies have developed Target Date Retirement Funds (TDR) that are based on when people plan to retire. The longer away the retirement date, the more aggressive the allocation (more stocks) and it gets more conservative (more cash and bonds) as the retirement date nears.

The idea is that with one fund you get exposure to domestic and international stocks as well as corporate and government bonds and the allocation automatically adjusts over time.

These companies realize investors often do not pay attention to their asset allocation of their investments. People tend to put money into mutual funds but do not monitor them over time.

These funds are designed to fix that but there are some issues that you should be aware of if you are considering this type of an investment:

1. The proper mix of asset types within your portfolio should be based upon your tolerance for risk (your mental ability to deal with volatility), your capacity for risk (your financial situation) as well as your goals including your time frame. The problem with these retirement date funds is they look only at a point in time to determine the allocation and totally disregard your risk tolerance and capacity. The result could be an allocation that is not appropriate to your situation, which could be greater volatility or under performance of your investment.

2. Each investment company has a different philosophy as to the allocation for a given retirement date. How is a person to know which of the 100’s of funds is best suited to their situation? Note the difference in allocation amongst these funds:

Fund Name	Stock %	Fixed income %
Fidelity adviser freedom 2015 A	53%	47%
J.P. Morgan Smart retirement 2015 A	52%	48%
T. Rowe Price retirement 2015	65%	35%
Vanguard target retirement 2015	61%	39%
Schwab retirement 2015	55%	45%
Putnam retirement ready 2015 A	42%	62%

There can be as much as a 50% difference, which has a huge impact on risk and expected return.

3. The target date funds often do not provide great enough diversification across different asset classes. Value style funds, small-cap funds, emerging market and REITs are usually underrepresented. This lack of diversification may increase volatility and provide smaller returns than a more properly allocated portfolio.

4. A recent study has revealed there are many misconceptions amongst those who have invested in these funds.

a. 40% think that the fund has a guaranteed return- NOT TRUE

b. 40% think they get higher returns than the stock market in general- NOT TRUE

c. 60% think that they will be able to afford to retire on that date of the fund-NOT TRUE.

5. The fees associated with these accounts vary dramatically and are a huge revenue stream for some companies. The commissions and operating expenses can be a drag on performance. People may be better served with those funds with no commission and lower operating expenses.

Fund Name	Commission %	Gross expense Ratio
Fidelity adviser freedom 2015 A	5.75%	0.93%
J.P. Morgan Smart retirement 2015 A	4.5%	1.35%
T. Rowe Price retirement 2015	0	0.65%
Vanguard target retirement 2015	0	0.18%
Schwab retirement 2015	0	2.35%
Putnam retirement ready 2015 A	5.75%	1.1%

If you are invested in these types of funds or are considering them, you should find out their allocation and determine if the mix of asset classes in the fund is really suited to you and to be sure that your fund has low fees to help increase your return.

Michael Chamberlain CFP®
Ca Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Should I Roll My 401K to an IRA?

By admin | 2009/12/04 13:01 Posted in Financial planning, Investing, Retirement planning | Comments (0)

Ok, you have gone ahead and retired. Now you are wondering, “What should I do with my 401K; leave it where it’s at or convert to an IRA?” Unfortunately, it’s not a simple question to answer. It depends upon the choice of investments as well as the ongoing costs of the 401(k) compared to that of an IRA. Other factors to consider are your age and whether you would need the funds before 59 1/2 as well as the amount involved.

Advantages of the keeping the 401(k) include:

You can borrow money from the 401(k) without penalty, as long as you pay it back.
If you’re less than 59 ½, you can withdraw money in your 401(k) under certain circumstances such as needing to pay medical bills. The qualifying expenses would have to be tax deductible and would exceed 7 ½% of your adjusted gross income.
If you become disabled before 59 ½, you can make early withdrawals from the 401(k).
Management fees of the funds within the 401(k) at very large companies are sometimes less than those of an IRA.
If the amount involved is small, you may get better diversification amongst different asset classes since the 401(k) often does not have a minimum account size.

Advantages of the IRA include:

Greater selection of investment options.
Management fees of the funds within the 401(k) at small to mid sized companies are often more than those of an IRA.
More freedom to switch investments with greater frequency.
The IRA may provide easier to deal with than dealing with a 401(k) and an existing IRA. There is less administration and record keeping with one account rather than two.

Once you have established that none of the advantages of the 401(k) would benefit you and that you understand the costs of the 401(k) compared to an IRA, converting to an IRA could allow for a better asset allocation than your 401(k).
Having the correct asset allocation of different investment types is perhaps more important then deciding to convert from the 401(k) to the IRA. The proper mix of asset classes can decrease your risk and increases your return. The allocation should be based upon your tolerance for risk, your capacity for risk and your goals including your timeframe.

Most people need some professional assistance to determine the proper allocation. Many financial publications recommend people use a “Fee-Only” advisor who does not sell products for objective advice that is free of conflict of interest (similar to a doctor or CPA).

If you convert to an IRA, considering using low-cost mutual funds and or exchange traded funds (ETF’s) to keep your investment costs low.

The time when it DOES NOT make sense to move your funds from a 401(k) to an IRA is when you are getting recommendations to buy a product that has commissions and high fees associated with the IRA. Unfortunately most financial advisors sell product and the commissions of 3 ½ – 7% can come right out of your account. Most retirees do not have the experience to fully understand the fees involved and the long-term impact on their nest egg.

If you are considering your options for converting a 401(k) to an IRA be sure to talk to a financial advisor who is not going to try to sell you the IRA.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Tips for a more successful retirement

By admin | 2009/12/02 09:50 Posted in Financial planning, General info, Retirement planning | Comments (0)

At a recent meeting of retirees, a presentation of the “10 biggest retirement planning mistakes” was given. There were many questions and much discussion. Everyone left having a few pearls of wisdom to take home. When all others were gone, a retired teacher approached me and said “Mike, I learned a lot but having been a teacher for many years, you might want to consider dwelling on the positive not the negative.” In that spirit of accentuating the positive, here are some tips for a more successful retirement rather than mistakes to avoid.

Have Goals Tasks you wish to accomplish, places you want to go, and people you wish to help. The goals are a list of things you plan to do. There can be both short-term and long-term goals, large goals as well a small. The chances of reaching the goals are much greater when the goals are written, have a time frame attached to them, as well as the expected financial cost and where the funds will come from to accomplish the goal. For instance, I will complete Spanish 1 at the Community college by next June with a grade of B and the fees of $250 will come from the interest on my CD.

Make timely decisions (do not procrastinate). Some retirees are afraid of making the wrong decision so based on that fear do not make decisions at all. A common comment is “I’ll think about it”. If you have all the accurate information and understand the circumstances you have all the facts necessary to make a decision. Getting accurate information can be difficult particularly so in a sales situation. Do not be afraid to get a second opinion from someone who is not trying to sell you. Ask family members or trusted advisor such as your tax preparer, attorney or financial planner depending on the decision at hand.

Due not put all your eggs in one basket. Your investments should be diversified across different types of investments. Having all your assets in CDs may not yield enough return to meet your needs. Having all your investments in stock (or mutual funds invested in stock) is much too risky. The correct asset allocation for you and your situation should be based on: your risk tolerance (a mental state) your risk capacity (a financial state) and your goals including your timeframe. Determining the correct allocation sometimes is best accomplished with professional help.

Good debt – bad debt. Not all debt is created equal. Some interest such as a home mortgage is tax-deductible and would be much preferred than the interest on an auto loan. Credit card debt is the worst type due to its non-deductibility and very high interest rates. It should be avoided like the plague.

Mitigate your risks. In dealing with risk, your options are to avoid the risk, transfer the risk to an insurance company or retain the risk and pay the price should the dread event occur. These three options exist for all risks including; health, auto, home, disability and long-term care. Unfortunately some people have too much insurance while others do not have enough and most are paying more premium than they should for the insurance they have. Everyone is different and your risk mitigation program should reflect your unique situation.

Proper estate planning documents. All retirees should have proper estate planning documents that designate who should make health care decisions for you or control your finances should an incapacitation occur. It is so much easier to address this ahead of time than after an event such as stroke, Alzheimer’s disease or other incapacitating affliction. If you own real estate, a living trust may be a good way of making sure your assets go to whom you choose upon your passing. Always consult with an estate-planning attorney for these matters.

Ask for help if needed. Financial planning, insurance, investments, taxes, retirement planning are subjects that are complicated. The way most retirees learn about these subjects is through the “school of hard knocks”. It is the age of specialization. We go to the doctor for a checkup on our health, we take our car for tune-ups at the garage, the gardener tends our garden, and for financial advice there is a financial planner.

To help identify the areas where help may be needed complete a “Financial Satisfaction Survey”. It’s free and can be very reveling. Go to the website below and download the survey or call 800-347-1340 and it will be mailed to you. There is one survey for those who are retired and a different one for those not yet retired. http://www.chamberlainfp.com/pdf/fp_security_survey_retire.pdf

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

NAPFA Presentations are Free and Worthwhile

By admin | 2009/11/25 12:14 Posted in Estate planning, Financial planning, Investing, Retirement planning | Comments (0)

There is a free offer that everyone should know about. The National Association of Personal Financial Advisors is providing free monthly educational presentations about personal finance to the public.

“The Basics of Investments” is the next presentation and will be on December 4^th from 10 to 11 am. Most people have read about stocks and bonds or have heard people talk about them but this is the opportunity to get the basics about what they are, how they operate, risks associated with each and what might be appropriate for you.

Future topics include:

Advanced investment concepts – January 8, 2010
Managing your 401(k) – February 5, 2010
Leaving a legacy – March 5, 2010
Women and money – April 2, 2010
Financial planning and small business owners – May 6, 2010
Your retirement- June 4, 2010
Financial windfalls – July 1, 2010

The presentations are in the “webinar” form. This involves watching a presentation on the computer while listening to the presentation on the telephone. Each monthly session is one hour in length and contains a formal 40-minute presentation and 20-minute Q&A opportunity. To register for the meeting log on to the NAPFA web site at http://www.napfa.org/ then click on the “Consumer Webinar” logo on the right. It is as easy as that.

The Consumer Webinar Series is designed to help consumers across the country better understand personal financial matters. Each session will be led by a NAPFA-Registered Financial Advisor who commits to the highest of standards in the financial planning industry. Many of the instructors are authors, educators and leaders in the industry. The advisers will bring their knowledge and experience to the seminars.

The Consumer Webinar Series sessions are FREE and held monthly. Each is web-based to make “attending” easy no matter if you live in Boston or Los Angeles. Each session is held live but are also recorded and available in the Archived Sessions section on the NAPFA website. The public is encouraged to register for the live sessions as there is an opportunity to ask any related financial questions you may have.

NAPFA is an organization of 1000 financial planners from around the country that work with clients to improve their financial lives by making better decisions and without selling investments or insurance.

Michael Chamberlain CFP®
Ca Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

10 Tips About Buying Annuities

By admin | 2009/11/18 10:05 Posted in Financial planning, Investing, Retirement planning | Comments (0)

What are Banks, Broker Dealers and local friendly insurance salesman selling to retirees and those near retirement? The answer is Annuities.

The stock market has plummeted and people are worried about losing more. Insurance salesman (could be in a bank, or at a broker dealer) can take advantage of that fear and use it to sell the apparent benefits of an annuity.

An annuity is a contact from an insurance company to pay back the principle with interest. However the devil is in the details. Remember, if it sounds too good to be true, it probably is. Before you buy an annuity think about these tips!

1. Always know what the interest rate will be for the entire duration of the surrender period. Do not buy one where you know the first year rate and the following years are left to the discretion of the company.

2. In a low interest rate environment (such as what we have now) it is not wise to purchase an annuity with a long lock on the rate. When interest rates rise, you are locked in to the low sub market rate.

3. The preferable time to purchase an annuity is in a high interest rate market. If rates fall in the future you locked in the higher rate.

4. Get annuity quotes from 3 separate sales people. The reason is that some annuities have high commission that hurt the client either with long surrender periods or reduced interest. Some salesman are more motivated by the higher commission than doing what is best for the client. By talking to 3 different salesmen you are more likely to be offered a better contract.

5. Index Linked Annuities are very complex. New rules are being put into place to create more regulation for their sale. These are sold primarily because the agents make bigger commissions than fixed annuities.

6. Be very skeptical of an annuity salesman who recommends an annuity as a means to access Medicaid if a nursing home may be needed. There have been changes in the law in this area and further change can occur.

7. Depending on the age of the client (and other factors), make sure there is no surrender charges should the funds be needed for a nursing home.

8. Avoid those annuities that have a “bonus up front”. They either have long surrender periods, lower interest in later years or limit how much you can withdraw.

9. Be sure to specify the correct beneficiaries. Should you pass away you need to be certain to whom the money will pass. This should include both primary and secondary beneficiaries.

10. It goes with out saying that you want a highly rated company. The best list of all the rating services of all the companies is The Insurance Forum that publishes a list each year and is available for a small fee. http://www.theinsuranceforum.com/pages/ratings.html

Keep in mind that big companies like AIG and The Hartford got Government bailout money so how safe is the annuity?

If you are thinking of an annuity, talk to an expert that is not trying to sell you one.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice

10 Tips for These Difficult Economic Times

By admin | 2009/11/16 12:42 Posted in Cash-flow budgeting, Financial planning, General info, Investing, Retirement planning | Comments (0)

The recent economic changes impact everyone and particularly those who are retired. Whether it is a drop in value of your retirement account or a decrease in interest rates at the banks, everyone has noticed.

The question is – what can retirees do now to shore up their finances? Some things are fairly obvious, such as delaying a vacation, going to a less costly restaurant or putting off major purchases as long as you can.

But there are other things retirees can do to help in these difficult times:

1. Know what and where you’re spending. Saving a dollar is easier than making one. Keep track of what you spend each month. This is an easy way to help you identify those areas you might be able to cut back without impacting the quality of your life. Use pencil and paper, a computer program such as Quicken® or Excel, or an online tool available at: http://www.mint.com.

2.    Shop your insurance program. There can be large differences in premiums from one company to the next and it is wise to re-shop your insurance package (home and car, etc.) with several companies every few years. The savings are often in the hundreds of dollars.

3.    Comparison shop banking services. Many banks have raised fees and decreased interest rates. As an example, Bank of America investment services money market account now pays a 0% interest. Customers would do well to go elsewhere. Don’t overlook your local credit union or banks outside the area. Searching online can help identify institutions with higher interest rates.

4.    Beware of something that sounds “too good to be true.” Be cautious about an invitation for a “free lunch” to learn about an “investment that can never go down,” “Earn extra money from your home,” “Long Term Care without paying for it,” etc. Remember there is often fine print or a hook and they are always selling something. If you don’t understand it, avoid it or at least seek a professional second opinion (from someone who’s not selling the product).

5. Do not be the victim of scare tactics. Do not let salespeople take advantage of you in reaction to the recent economic havoc. An 83-year-old client was recently sold an annuity at her bank and she cannot get all her money back until she’s 93, which is totally inappropriate.

6. Do not take retirement plan distributions if you do not need them. A new law allows retirees to not take a minimum distribution from certain retirement plans. The concept is to allow the values of the account to come back up and then resume distributions.

7. Understand your investments costs. In this environment, it’s crucial that you have a firm understanding of all the fees (commissions, sales loads, deferred charges, redemption fees, surrender fees, account fees, management fees, distribution fees, and even statement fees). Depending upon the size of your portfolio, going to investments with lesser costs could save you thousands of dollars a year.

8. Proper asset allocation in your portfolio. Having the proper mix of different types of investments is the prime way to mitigate risk. The allocation that is appropriate for you is dependent upon your risk tolerance (a mental state), your risk capacity (your financial state) and your goals, which includes your timeframe. The people that felt the most pain with the recent drop in the market had an incorrect asset allocation. Now is a good time to make sure your asset allocation is correct.

9. Determine if you need help. It’s what you don’t know that can hurt you the most.

To help identify the areas where you could use some professional assistance, a Financial Security Survey was developed. It’s free and can be very reveling. Go to the website below and download the survey or call 800-347-1340 and it will be mailed to you.

http://www.chamberlainfp.com/pdf/fp_security_survey_retire.pdf

10. If you need help, get objective advice. Money magazine, Kiplinger Personal Finance, CNN Money, MorningStar, MSNBC, Newsweek, and AARP all have had articles recommending people get objective advice from a “fee-only” advisor. These individuals do not sell product, so there is no conflict of interest between what is best for you and the person who is selling a product. The publications above recommend readers go to http://www.napfa.org and http://www.garrettplanningnetwork.com for a list of “fee-only” planners in your area.

While these 10 tips will not undo the effects of the changes in the economy, they offer some practical steps you can take to strengthen your finances today and position your retirement savings for improvement as the economy comes around.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.

Social Security Beneficiaries May Get Double Whammy

By admin | 2009/10/23 10:46 Posted in Financial planning, General info, Retirement planning | Comments (0)

Social Security beneficiaries usually see their monthly benefits increase once a year, based on the cost of living escalators. These have usually been in the range of 1-4% per year. That could change in the next 3 years.

With the current state of the economy, the Congressional Budget Office projects an actual decline in consumer price indexes and expects no inflation for the next few years. The office has stated that there may not be any cost-of-living increase in Social Security benefits until possibly 2013.

The vast majority of Social Security beneficiaries have their premium for Medicare Part B and to a lesser extent, Part D, deducted from their monthly Social Security benefits. These premiums are projected to continue to go up.

The net result is that it is quite possible that Social Security checks will actually be smaller starting in 2010 as compared to 2009. This projected decrease will impact about one quarter of the retirees, including those recently signed up for Medicare as well as higher income beneficiaries.

The other three quarters of the Social Security beneficiaries are protected by a “hold harmless provision”, which prevents Medicare Part B premiums from increasing in any year by more than that specific years cost-of-living increase. If there is no bump in Social Security benefits, the Medicare Part B premiums will stay the same. There is no such protection with Part D premiums.

Currently Medicare Part B premiums are $96.40 a month. The Congressional Budget Office predicts the premiums to be $119 in 2010, $123 in 2011, and $1028 in 2012. There is no premium for Medicare Part A.

None of the insurance carriers that provide Medicare Part D prescription drug coverage have indicated premium increases in 2010. However if it’s anything like past years are an indication we can continue to expect higher Part D premiums.

If you currently have in Medicare Part D plan it is critical that you reevaluate which Part D program is best for you between November 15th and December 31^st each year. Premiums for the various plans change as well as deductibles and co-pays. Your prescription medicines might be different this year versus last year and the various different programs change the cost-effective drugs.

The long and the short of it is that if you are on Social Security, between deflation, Medicare Part B and D premiums, don’t be looking for your Social Security check going up in the next year or two.

The Problem with Retirement Based Mutual Funds

By admin | 2009/09/08 11:53 Posted in Financial planning, Investing, Retirement planning | Comments (0)

The question “What is the ideal mix of investments for someone retiring at 65?” is not a reasonable question to ask in the first place. It could be analogous to asking “What’s the proper medication for a person age 65?” or “What car should I have now that I’m 65?”

A number of investment companies have developed mutual funds that are designed based on answering the silly question. They are called target retirement date funds. The intent is to have the mutual fund company change the asset allocation to a more conservative mix, as a person gets closer to retirement.

One problem is each investment company has a different perspective as to what is a proper allocation at the various stages. Please note the differences for the follow 2025 target date funds for the following companies:

Vanguard - US Stock 61% Non US stock 15% Cash and bonds 23% Other 1%
T Row price – US Stock 60% Non US stock 20% Cash and bonds 19% Other 1%
Fidelity - US Stock 52% Non US stock 19% Cash and bonds 28% Other 1%
Putnam - US Stock 36% Non US stock 20% Cash and bonds 42% Other 2%

The main folly with this target date approach is that basing the allocation on a retirement date fails to address the underlying factors that should determine the proper allocation.

A client’s asset allocation in their portfolio should be based on three factors,

Risk tolerance (their mental ability to withstand down markets)
Capacity for risk (their financial ability to withstand down markets)
Goals (which would include their time frame)

Unfortunately all target retirement date mutual funds allocations are based solely on the date of retirement. This methodology target date approach fails to address the 2 major factors determining the proper allocation for that individual. The result could be more risk than the person should have in their investments.

Clients with at least $10,000 of investments are better served by having an allocation across different asset class custom designed for their situation.

The only situations where target retirement date funds might be appropriate is in a retirement account that has very few choices to construct an appropriate portfolio or the client has a very small amount of investments to work with or the client does not know where to go to get help to have the proper custom designed allocation.

Understanding Your Investment Costs

By admin | 2009/09/02 10:35 Posted in Financial planning, Investing, Retirement planning | Comments (0)

In this low interest rate environment and with the stock market having tanked, saving a dollar can be easier than making one. Depending upon the size of your portfolio, cutting your investment costs could save you a bundle.

One client recently said, “What investment cost? I don’t pay any costs.” What he meant was that he did not know he was paying the costs. Most people do not know about the fees often associated with investments and their impact, so lets review.

Commissions are paid when many investments are purchased, and they can apply to individual stocks, limited partnerships and many mutual funds. Individual bonds usually have a markup that the client never sees.

When investors purchase mutual funds, many do not know that there are two primary types: those that pay commissions to the salesperson and those that do not, known as “no load.”

There are at least three different classes of commissionable shares. “A” class shares have commissions as high as 5 1/2 percent. “B” class shares do not have a commission upfront, but they have a backload that is deducted if you liquidate the fund in the first several years. They also have a higher annual cost than the “A” class shares. “C” class shares have no front-end commission and a limited one-year backend load (should you leave early), but they have higher annual expenses than the other two classes.

A “no load” fund will always provide a higher return than those paying commission (all else being equal) and should be considered the best type of choice.

Many mutual funds also have annual marketing or distribution fees and are considered an operational expense, which can be as high as 1 percent.

Keep in mind that every time a sale occurs when commissions are involved, there is a conflict of interest between what is best for the client and what is best for the salesman and the company. To avoid this situation, clients would be well-served to work with financial advisers who do not sell product.

Other fees that are often charged can include account fees, statement fees, wiring fees, distribution fees, redemption fees and account closure fees or management fees.

In this current financial environment, now is a great time to learn about what fees you pay and to trim your investment costs, thereby keeping more dollars in your pocket. Money magazine, Kiplinger Personal Finance, CNN Money, MorningStar, MSNBC, Newsweek and AARP recommend readers go to www.garrettplanningnetwork.com or www.napfa.org for a list of “fee only” advisors in your area who can recommend investments that do not pay commissions.

Chamberlain Financial Planning