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Fee accounts another option for investors

Fraser Horn and Dudley IrwinVail, CO, Colorado

Today, a new generation of brokerage accounts is available to investors. This new type of account contrasts with a traditional brokerage account in one important way: The client doesnt pay commissions on individual transactions. Instead of commissions, the client pays a quarterly fee based on the size of the account.The fee generally covers all the services rendered by the broker and his or her firm including commissions, custodial services, and, when applicable, portfolio management. These new types of brokerage accounts are designed primarily for accounts of $100,000 or more and are available at many brokerage firms.While the differences between a fee-based account and a per-trade commission account may appear small, the fee systems benefits to the client can be substantial. Under the commission system, a financial adviser is compensated based on the number and size of transactions. With a fee-based account, a financial advisers compensation is based on the value of the account. Because fee-based accounts are size-driven, not commission-driven, the fee-based financial adviser has a greater personal stake in the success of each clients account.When a fee-based account is established at most brokerage firms, the financial adviser first develops a comprehensive investment profile for the client. The profile will define the clients risk tolerance, income needs, and overall investment objectives. This profile is usually completed before any investments are made. It serves as the blueprint for building a portfolio of stocks and bonds based on the clients specific needs.Then, as each quarter passes, the client receives a performance review. The fee-based client always knows exactly what the accounts returns have been, both on an absolute basis and compared to various indexes, like the S&P 500 or a bond index.One of the keys to successful investing is the ability to independently evaluate each investment opportunity. When a commission is charged on a trade, some investors find it difficult to objectively evaluate the investment opportunity. This concern is eliminated with fee-based accounts because no commissions are charged on individual transactions.Three types of fee-based accounts are generally available at most brokerage firms. The only difference is who is responsible for the portfolio.The most widely used type of account is one where an outside money manager is employed to make all investment decisions. With this type of account, the brokerage firm and the money manager may share the fee sometimes called a wrap fee because all expenses are wrapped into one fee.Another type of fee-based account is one for which the client makes all the investment decisions. This type of arrangement provides the client with added flexibility. For example, if the stock market becomes too volatile, the client may want to shift from stocks to bonds. Later, the client can move back into stocks all without incurring individual commissions.Finally, many firms offer an account for those clients who want to be somewhat involved in managing their account, yet want to turn the day-to-day responsibility over to the financial adviser. Most such accounts are closely monitored by the sponsoring firm, and at some firms only experienced financial advisers trained in managing portfolios are eligible to participate. With both these accounts and accounts managed outside the firm, the client gives the manager discretion to make all investment decisions on the basis of the clients stated investment objectives and risk tolerance.The cost of a fee-based account will vary depending on the size and investment objectives of the account. For example, the fee for managing a $100,000 equity account might run from 2 percent to 3 percent, whereas a fixed-income account the same size might be managed for as little as 1 percent. The fee percentage may be reduced when the size of the account reaches various breakpoint levels.Fee-based brokerage accounts are here to stay. In fact, many financial advisers believe that fee-based accounts may eventually overtake commission accounts as the most popular type of business. Fee-based accounts represent a more objective way for a client to have his or her assets managed. The financial adviser and the client can both concentrate on what is best for the portfolio – and not be worried about commissions.The next time your financial adviser calls with a stock or bond recommendation, ask him or her about the firms fee-based accounts.The accuracy and completeness of this material are not guaranteed. The opinions expressed are those of Fraser M. Horn and Dudley M. Irwin and are not necessarily those of Berthel Fisher or its affiliates. The material is distributed solely for information purposes and is not a solicitation of an offer to buy any security or instrument or to participate in any trading strategy. Provided by courtesy of Fraser M. Horn and Dudley M. Irwin , Investment Adviser Representatives with Berthel Fisher in Edwards. Registered Representative of and securities offered through Berthel Fisher & Company Financial Services, Inc. (BFCFS). Member NASD/SIPC. 1st & Main Investment advisers is independent of BFCFS.


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