LETTERS

The ABCs of fees

I was quite amused to read the March 2 article “Defender of commissions says: Well, at least they’re up front.” This man is so incensed about commission-bashing that he will personally pay for advertising that chastises no-load mutual funds. How archaic. We must all adapt to the industry’s rapidly changing environment. Remember what happened to the dinosaurs?

Fees are neither good nor bad — they are simply an alternative method of compensation. Most representatives are not fee-only; they offer financial services for fees or commissions, and the more experienced representatives allow clients to choose the method of compensation that works best for their situation.

The real issue is how representatives receive compensation for the delivery of continuous, value-added services. In reading the quotes of the “Defender of Commissions,” it sounds as if he believes a fee is a continuous load and, therefore, a disservice to the client. Nothing could be further from the truth.

There are two inherent conflicts of interest when the method of compensation is commission. First, the only way the representative can get paid is to sell a product. That means the focus could be on the needs of the representative rather than on the needs of the client. Second, rarely can representatives afford to provide value-added, ongoing services when the method of payment is a one-time commission. Most clients require continuous service, rather than one-time service, for their assets.

For a 1% or 2% fee, the client receives a number of valuable services that enhance the overall performance of his or her assets and provide a deeper feeling of security. The services include the development of a strategy and written policy, the selection of investment objectives, asset allocation, rebalancing, manager search, monitoring and performance reporting. No one is going to provide these services for a one-time commission and stay in business very long.

Fees go up only when the market value of the assets increases. That reality links the interests of the client and representative in a way commission-based compensation never can.

Additional client benefits include personal service, 100% liquidity, commission-free investment alternatives, multiple fund family investments, no-cost trading and tax-sensitive recommendations. Clients also feel representatives who work for fees give more unbiased counsel for fund investments.

If clients do not believe fee-based representatives add enough value, they will terminate the service and find a provider who does. Inferior services only fool people for a while.

Fees or commissions — which one is better? It is not about superiority. It is about providing clients with choices and letting them select the services and methods of payment that best fit their needs and situation.

Most clients require continuous services for their assets, not the one-time sale of a financial product. I suppose, in an ideal world, representatives would provide continuous services for years into the future for the one-time payment of a commission. I’m sure these Good Samaritans do exist, but they are few and far between. The rest are probably doing charity work in some Third World country after filing personal bankruptcy in the United States.

JACK WAYMIRE

President

Select Advisors Inc.

Sacramento, Calif.

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