Fees are what keeps Wall Street rich and you poor. I’ve said that before. Here’s a piece from Sunday’s New York Times which reinforces what I’ve been saying:<\/p>\n
\u00a0The High Fees You Don’t See Can Hurt You<\/strong><\/span> by Jeff Somer<\/p>\n High fees, often hidden from view, are still enriching many advisers and financial services companies at the expense of ordinary people who are struggling to salt away savings. The problem has persisted year after year. A new analysis of mutual fund<\/a> data confirms its severity.<\/p>\n That\u2019s why the Labor Department announcement<\/a> early this month is so important. For the first time, all financial advisers<\/a> dealing with retirement<\/a> accounts will be required to act in their clients\u2019 best interests. The announcement is long overdue and a big step forward.<\/p>\n But don\u2019t rejoice just yet: It is only a step.<\/p>\n First, the Labor Department\u2019s new rules are not yet in place. They are scheduled to take effect in 2017 and 2018 but are opposed by much of the financial services industry. They could easily be changed, weakened or blocked.<\/p>\n For now, even for retirement accounts that are to be covered by the rules, many advisers are not required to act in their clients\u2019 best interests. This means that they are legally entitled to look out for themselves first and recommend investments with higher fees, to the detriment of those who have asked for help.<\/p>\n Second, if all goes according to plan, after the new rules take effect they will deal only with saving and investing for retirement \u2014 and not for goals like a new home, a child\u2019s education, a wedding, a car or a vacation. The Labor Department doesn\u2019t have the authority to cover nonretirement investing, and the Securities and Exchange Commission<\/a>, which does have that authority under the Dodd-Frank law, has not issued its own rules. The commission is not at full strength<\/a> and is unlikely to act this year.<\/p>\n Third, while the new rules<\/a> are both lengthy<\/a> and clear on fundamental principles, they are short on crucial details. On the positive side, they say that \u201cthe firm and adviser\u201d must provide advice that is in a client\u2019s best interest, and must act with \u201cthe care, skill, prudence and diligence that a prudent person would exercise.\u201d Furthermore, companies and individual advisers must henceforth \u201cavoid misleading statements about fees and conflicts of interest.\u201d The Obama administration<\/a> says it has embraced<\/a> this fiduciary standard to save ordinary people scores of billions of dollars. They have been receiving faulty and conflicted advice and have been pouring money into needlessly expensive investments.<\/p>\n The rules say that, with some exceptions, advisers will be required to make reasonable recommendations based on an examination of industry norms and practices. But the rules don\u2019t detail which specific investments or fee levels are acceptable.<\/p>\n As a consequence, I\u2019ve been reviewing data on the performance and fees charged by mutual funds, which are the primary investing vehicle for many Americans.<\/p>\n Data provided last week by S&P Dow Jones Indices confirms that commissions and fees in actively managed mutual funds are depressing fund performance and hurting investors \u2014 while enriching fund managers and advisers. These costs are an important factor in the failure<\/a> of most actively managed funds to outperform the market consistently over long periods.<\/p>\n Fund performance records are of limited predictive value: History does not guarantee future performance, as the S.E.C. requires mutual fund companies to say in advertisements and fund documents.<\/p>\n To the contrary, even when fund managers succeed in outperforming their peers in one year, they cannot easily repeat the feat in successive years, as many studies have shown. That\u2019s why low-cost index funds, which merely mirror the performance of the market and don\u2019t try to beat it, make a great deal of sense as a core investment.<\/p>\n But whether you choose an index fund or one that is actively managed, commissions and fees provide important clues about future performance.<\/p>\n Low fees won\u2019t turn intrinsically bad investments into profitable ones, of course, but they make a big difference. Aye M. Soe, senior director of index research and design for S&P Dow Jones Indices, performed a custom analysis at my request. Using the data in her report on mutual fund performance, \u201cThe Spiva Scorecard\u201d (Spiva is an acronym for S.&P. Indices Versus Active), she separated out the effects of fees and commissions. This may seem to be dry stuff, but bear with me. Some of Ms. Soe\u2019s new findings are important.<\/p>\n Mutual fund commissions, also known as sales loads, are a big drag on performance. They are often difficult to justify if an adviser is truly working in an investor\u2019s best interest. I\u2019ll turn to them in another column.<\/p>\n For now, let\u2019s briefly consider the range of fees contained in mutual fund expense ratios, which include payments made to fund managers and distribution companies as well as many miscellaneous expenses. These expenses are stated in fund prospectuses, by requirement of the S.E.C.<\/p>\n With fees included, the average actively managed fund in each of 29 asset categories \u2014 from those that invest in various sizes and styles of stocks to those that hold fixed-income instruments like government or municipal bonds<\/a> \u2014 underperformed its benchmark over the decade through December. In other words, index funds outperformed the average actively managed fund in every single category.<\/p>\n But part of the problem for actively managed funds is their fees. When Ms. Soe eliminated the impact of fees, more funds managed to beat their benchmarks. For example, in the real world, more than 80 percent of large-cap funds trailed their benchmarks. But when Ms. Soe\u2019s calculations removed the negative effect of fees from fund returns, only 69 percent underperformed. That\u2019s still a poor record \u2014 and still argues for cheap index funds \u2014 but it\u2019s much better.<\/p>\n What was striking, though, was that in some categories, fees were responsible for the actively managed funds\u2019 mediocrity. This was true for large-cap value stock funds and international small-cap stock funds, as well as for global, general municipal, California municipal and New York municipal fixed-income funds. The average fund in these categories actually beat its benchmark when the impact of fees was removed from fund returns.<\/p>\n In other words, over the long run, the odds that a talented manager will beat an index fund improve when fees are low \u2014 though those odds are still quite low, and a low-cost index fund remains a safer bet.<\/p>\n One outcome of this analysis is very clear, Ms. Soe said. \u201cFees matter a great deal,\u201d she said. \u201cHigh fees should be avoided, and investors need to have enough information to understand that.\u201d<\/p>\n What is a reasonable benchmark for fees? Note that according to Morningstar, the median expense ratio for actively managed mutual funds is 1.2 percent. For index funds it is about 0.5 percent. The data suggests that, for the most part, the less you pay the better off you will be.<\/p>\n Do-it-yourself investors can assemble a broad, diversified low-cost portfolio with help from websites like Morningstar and services like the Financial Industry Regulatory Authority\u2019s fund calculator<\/a>, which compares the expenses of individual mutual funds. Fee-based advisers who are committed to upholding a fiduciary standard<\/a> already exist, and ought to explain all of this, too. It is possible that, at least for retirement accounts, all advisers will soon be required to do so. Advisers who have a history of running afoul of regulations can be identified through BrokerCheck<\/a>, which is also provided by Finra, the self-regulatory organization of the financial services industry.<\/p>\n Investors who believe they have found honest and skillful advisers may still want to understand all of this. Not everyone truly has your best interest at heart.<\/p>\n In recent ads, Fidelity is promoting its low cost index funds against Vanguard’s low cost index funds.<\/p>\n Which are cheaper?<\/p>\n Allegedly Fidelity.<\/p>\n P<\/strong>rilosec and dementia (aka Alzheimers)<\/strong> Part 2<\/strong><\/span> Readers inundated me with advice:<\/p>\n + Stay away from as many drugs as you can. They ALL<\/strong> have horrible side effects, many long-term.<\/p>\n + Stay away from dietary supplements. They’re not regulated. Their manufacturing quality control is gruesome. Their claims are dubious. They are not benign. Many have horrible side effects.<\/p>\n + Lose weight. Get exercise. Stand straight. Eat at least thee hours before you sleep. Avoid fatty and spicy foods.<\/p>\n \u00a0Frequent stayer and Frequent car renter clubs are a ripoff. <\/strong><\/span>You’re better off renting cars and hotel rooms through Priceline andHot Wire. Any “discounts” achieved through “loyalty” are minimal. Think of “loyalty” programs as exactly what they’re called — to make you feel good about paying more.<\/p>\n Suicide counseling, Australia-style<\/strong><\/span>
\nTwo days ago I wrote about evils of using Prilosec (which I had been taking for heartburn) and other proton pump inhibitor drugs including Prevacid, and Nexium.<\/p>\n
\nA desperate woman stood poised on the edge of a high cliff about to jump.<\/p>\n
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