McLarty & Co

Watch Your Cost of Investment

Ross McShane, CGA, CFP, RFP

As we all know stock markets have been more or less flat for the last 5 years and interest rates are at all time lows. These factors have left many investors pondering their options and their ability to retire as planned. Now is the time to focus on controlling what you can - such as the fees that you are paying for investment services. Do you know how much you are paying to have your portfolio managed? Many clients are unaware of their costs because the fees are hidden inside their mutual funds. This lack of transparency is an issue that the regulators are working to address. In the meantime it's investor beware. The average annual fee on a balanced portfolio of mutual funds is usually in the 2 -2.25% range. If you want to know how much of a fee you are paying you may need to read the mutual fund's prospectus, search for it online or ask your advisor.

I recently reviewed a couple's $1.3 million mutual fund portfolio and found that their average fee was over 2% - a whopping $27,000 - each and every year. The couple was not aware of it because investment companies are not required to produce statements for fees that are not tax deductible. By shopping around, the clients were able to lower their cost by 1% per year for an annual savings of $13,000! On top of that the fees are tax deductible because they moved away from mutual funds to our discretionary money management service. With returns as low as they are these days, saving 1% in fees can significantly improve your net returns and improve your odds of retiring according to plan.
 

Beware of Fraud

Karen Blanchard, CA and John Wright, CA, CMC

Over the past year we have become aware of more instances of fraud than we had in the previous five years combined.
What we've seen and, what studies have confirmed, is that major fraud is often committed by a senior, trusted individual who has worked in an organization for a long time.
Fraud can go undetected for many years, especially if red flags are ignored. We thought it would be prudent to remind clients to be vigilant and to look into suspicious circumstances whenever they occur.
So what are some situations that might arouse your suspicions?
• Can you think of someone who is reluctant to change their position even when offered a promotion?
• Is there someone who is surrounded by people who never challenge them?
• Does that person respond negatively when they are challenged?
• Is there excessive secrecy in a department and reluctance to provide information when requested?
• Does someone have a "less than cordial" relationship with auditors or outside accountants?
• Does that person seemed overly stressed for no apparent reason?
• Do they have the opportunity to manipulate payroll, expenses, banking transactions or other financial information?
What we recommend is that you be vigilant, ask questions and don't be intimidated. Shake things up. Be assertive when reassigning work, reviewing procedures and asking for information.
Review your internal controls to ensure they are working. Obtain outside help if you need it. Don't think fraud can't happen to you, because it can happen to anyone.