The mutual fund industry has problems beyond the ones regulators are investigating, and unfortunately they have included a combination of arrogance and indifference to the needs of customers. As a professional advisor, you are closer to your clients than are most mutual fund groups. You take the time to understand and address clients' needs. In this column, I'd like to help you focus on specific ideas for changing your practice in 2004, to take advantage of powerful trends in your profession.
Even before the mutual fund headlines of the past year, leading advisors had begun implementing changes designed to increase their objectivity, revenues and practice efficiencies while meeting clients' need for lower costs. Many of today's clients want to pay fees (not commissions) for professional investment advice and asset management, and they want the total (all-in) cost of these fees to be 2.0% annually or less.
Recently, I have spoken with several successful advisors who are helping clients meet all-in cost targets ranging from 1.50% to 2.0%. They are generating personal earnings, before overhead, of $400,000 and up. Several years ago, they were advocates of mutual funds. But under the new cost-conscious model, they just can't make funds with high management fees work. You can't generate $400,000 a year selling funds with high expense ratios, when your clients are only willing to pay total ongoing costs of 2.0%. The math doesn't work.
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