The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants

A Direct Relationship

By Clifton N. McIntire, Jr.; CIMA, CFP®

By Lisa Ellen McIntire; CIMA, CFP®

Expenses can play an important role in portfolio performance. You don’t hear much about expense ratios in an up market, like early 2007. If your account was up +28 percent, whether the expense was 3 percent or 1 percent doesn’t seem to make much difference. But, let the market decline, like it did later on in October 2007 and we change our perspective. A 10 percent portfolio decline plus charges of 3 percent equals a 13 percent decline. Now we need a 15 percent increase net of fees just to get even.

The Four Cost Horsemen

Basically you have four cost areas:

1. Custody—someone must hold the stocks and bonds, collect dividends and interest, prepare tax information for the government, issue monthly statements, and send checks.
2. Commissions—orders must be executed, transfer securities into and out of your account, trades settled.
3. Investment Decisions—the money manager must be paid.
4. Monitoring Performance and Advice—usually an investment management analyst is engaged to provide this service; as well as write the investment policy statement and prepare the asset allocation study.

Portfolio Size

Naturally, size makes a difference. For a doctor’s stock account with a $200,000 total value, all of the above can be accomplished for annual fees between 2.00 and 3.00 percent. An account with $1,500,000 in total assets part bonds and part stocks would pay annual fees between 1.25 and 1.75 percent depending on the ratio of stocks and bonds. These are annual fees and are all-inclusive. Commissions, portfolio management fees, and statements check charges are all included. One quarter of the annual fee is charged every three months. Family related accounts are generally grouped for a quantity fee discount.

Assessment

Some financial consultants prefer to use mutual funds with smaller accounts. A charge of 1 percent per year for their service with a stated minimal fee is common practice. This does not include fees deducted from the account by the mutual fund (anywhere from .50 to 2.50 percent) or commissions paid by the fund managers for trade executions. 

Morningstar Report: Morningstar Expense Ratio Results

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. How much do you pay for this service? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com 

Get our Widget: Get this widget!

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Filed under: Financial Planning, Investing, Portfolio Management | Tagged: CFP, CIMA, Clifton N. McIntire, CMP, david marcinko, Financial Planning, Lisa Ellen McIntire, portfolio expenses, Portfolio Management, www.certifiedmedicalplanner.com | 1 Comment »