Question:
My brother-in-law and I have both attended your workshop. We want to be exposed, as you have suggested, to all corners of the market: micro to macro. He has been investigating Fischer Investments, and the question came up about fees that Fisher would charge. My contention is that with Merriman, the total charge is the maximum 1  to 1.5 percent per year on the total value of the account and there is no additional expense charged from each of the DFA funds in the portfolio. My brother-in-law says that all mutual funds, even index-like funds, charge continuing expenses. Who is correct here?
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MARK METCALF:
Your brother-in-law is correct.  While I am not sure what Fisher’s fee schedule is, Merriman’s is 1.0 percent on the first $1 million of managed assets, 0.5 percent on the next $1 million and 0.25 percent on any balance over $2 million.  

Whether or not you have an investment advisor, if your portfolio includes mutual funds, you will pay expenses to cover the fund’s own costs. Those expenses are usually expressed as an annual expense ratio; they are pro-rated and built into the fund’s price so that shareholders pay them for every day they own the fund. The total return of each fund is calculated after subtracting these expenses.

While we use very low cost, no-load mutual funds from Dimensional Fund Advisors (DFA) and Vanguard in our portfolios, those funds do have expenses that are charged to their shareholders. These expenses for our blended client portfolios range from approximately 0.48 percent for some of our all-equity strategies to a low of 0.29 percent in our more balanced portfolios that include fixed-income funds.

Our clients pay a third layer of costs that we cannot avoid. Our custodians (Schwab and Fidelity) charge $25 for each transaction we make in clients’ accounts.  Because we trade  very infrequently, this cost is quite small.

Keeping expenses low is very important. Perhaps even more important in our view is the need to maintain a globally diversified and passively managed portfolio that seeks to capture a wide range of relatively uncorrelated asset classes, without relying on gurus or prognosticators who try to foresee or pretend to know what will happen to national economies, markets, stocks, sectors or asset classes.  

Implementing and maintaining a portfolio like this is very challenging for most investors. Even though it costs money to put your portfolio in the care of a professional advisor, we think that expense can be worthwhile. To learn more about why we think that, I suggest you go to read a recent article by Paul Merriman called “Ten years of superior performance was no accident .”

If you are seriously considering hiring Fisher Investments, I’d be interested to know how they would respond to that article. What was Fisher recommending 10 years ago, and how did those recommendations fare?      

Mark Metcalf is a financial advisor at Merriman