At Balanced Rock, we’re constantly looking for ways to help our clients lower investment expenses and plan more cost-effectively. This is usually accomplished with a combination of tax savings, lower fees and expenses, value-oriented outside service providers, and the use of technology. In the aftermath of the Great Recession, with future investment returns expected by many to be below long term historical averages, expenses and taxes are likely to have a greater impact on results than ever before.
The financial industry is slowly evolving from a product sales model toward a client service model, but due to outdated pay schemes, the majority of the “advisors” out there are desperately trying to hold on to their commission focused businesses. We’ve decided to share some of the most common ways we help our clients lower their costs and keep more for themselves. Read on for 13 ways you can set things straight, lower your costs, and grow your wealth.
1. Use a fee-only advisor to significantly reduce the conflicts of interest that exist in the typical brokerage or sales-based relationship, and which usually lead to the purchase of higher cost commissioned products. Our Financial Planning service is available on its own at a reasonable cost of $150/hour or is included as part of our wealth management service at no additional cost. The planning fees paid are usually more than offset by more efficient portfolios with lower investment expenses and better planning strategies, often within the 1st year.
2. Make sure your advisor is keeping up with technology so they can deliver advice in a convenient, easy to access, and cost-effective manner. Do you need to take a half day off work for a meeting, or does your advisor offer videochat? We use a combination of user friendly, interactive software and in-person meetings to ensure the most efficient use of time and money both for us and for our clients.
3. Follow through with a comprehensive planning process; you don’t know what you don’t know, so let your advisor do their best by following their process. They’ve done this before. We frequently find valuable opportunities while simply going through the planning process, utilizing benefits and strategies unknown to the client.
4. Due to management fees and investment expenses, actively managed mutual funds tend to fall short of the returns of passive index funds over the long term, and they offer commissions to advisors that can lead to conflicted advice. Balanced Rock focuses on the lowest cost investments, including index funds, and never earns commissions from them.
5. A properly managed and diversified portfolio of individual stocks and bonds can be the least costly and most tax-efficient way to invest. We can build one for you as part of our all-inclusive fee. In addition to index funds, Balanced Rock also works with individual securities (stocks, bonds, etc) when appropriate, which can be even more cost effective and tax efficient than passive funds. We buy the same institutional research that fund managers use so we are able to cut out layers of fees, while providing a more personalized investment allocation in line clients’ goals and values.
6. Watch out for overpriced “specialty” funds such as those advertising themselves as sustainable, green or socially responsible. Unfortunately, some of the most costly actively managed and passive investments are values-based or socially responsible funds. Investors face daunting expense ratios often greater than typical actively managed funds. We purchase the underlying company specific ESG (Environmental, Social and Governance) research to incorporate values-based preferences into client portfolios at no additional cost.
7. Purchasing life, disability, or long-term care insurance is a costly and confusing endeavor, and getting your advice from a salesperson can be a very expensive mistake. Selling insurance products is a big money maker for commission-based advisors. Their interest is to sell you as much pricey insurance as possible to maximize their commissions. We don’t sell insurance (or any other financial products!). We focus on the level of protection you actually need and then work through low cost providers to help you buy right amount of insurance at a reasonable cost.
8. Clearly understanding your college savings options (including the fees!) and creating a plan while your children are still young is a key step to being ready for big college expenses. When managing client assets, Balanced Rock does not charge any fees on 529 Plans (education savings accounts). We do this out of principle as a way of supporting our clients’ family education goals.
9. Understand that college sticker prices do not necessarily equal value (or true cost) when it comes to education. We partner with college planning advisors who are experts at finding the best value in school selection and at navigating the world of scholarships and financial aid.
Real Estate & Mortgages
10. Start with the biggest expenses when thinking about your budget. If you have a mortgage, it’s probably your largest monthly expense. We can not only connect you with excellent mortgage brokers, lenders and real estate agents, but we accept no kickbacks or fees from any of them. This means you can be sure we only recommend vetted and highly qualified providers with reasonable fees.
Tax Planning & Preparation
11. Reducing and/or deferring taxes is one of the few free lunches available in investing; it can improve returns without increasing risk. By carefully considering the many tax implications of your investments, we can increase your after-tax returns without having you take on extra risk. Each of our clients benefits from a tax efficient financial plan and tax conscious investment selections.
12. Most estate plans are pretty similar, covering the same basics, but their costs and the level of service provided can vary wildly. Proper estate planning can also save a significant amount of taxes for the right people. At Balanced Rock we recommend and work with attorneys based on the level of estate planning that’s actually needed for each individual client. We can refer clients to a number of reasonably priced, trusted attorneys based on their specific situation. And as always, there are never any referral fees involved.
13. Make the most of your employer plan by choosing low-cost investments; maximizing company matches; and considering the plan’s allocation as part of your total portfolio. It’s often your largest account but frequently gets the least attention. Employer-sponsored retirement plans (such as 401ks) are often significant, yet because they offer the typical advisor no opportunities for a sale (until a client retires) they are often ignored. We help clients allocate their retirement plans appropriately given their total portfolio while also taking advantage of the lowest cost options available. For these types of accounts we reduce our wealth management fee to 0.3%.