Financial advisors offered tips on how they use mutual funds to help their clients stay on track to meet their financial goals.
Interviews with National Underwriter, suggest that the top 5 pointers offered by advisors are:
1-get a lay of the land–understand how mutual funds will help a clients achieve their goals;
2-connect goals with what is actually being saved; Make the connection by sticking to the numbers, the dollars and cents that don’t lie;
3-focus the client on funds and not individual stocks;
4-watch the pennies: costs count; and,
5-diversify and think about what diversification means in a global world.
“The most effective method for getting clients to save more is to do a financial plan for them,” according to Jeff Broadhurst, a financial advisor with Broadhurst Financial Advisors, Lansdale, Pa. Usually, they are not saving enough to meet their goals, he continues. “So after they see that they are going to have a poor retirement, they are more willing to put additional money into mutual funds or other investments,” according to Broadhurst.
John Ritter, a certified financial planner with Ritter Daniher Financial Advisory, Cincinnati, Ohio, says that says that he starts with a client’s comprehensive financial plan and then looks at whether there is enough money to reach those goals. “We try to take the emotion out of the question. The numbers are the numbers.”
Once there is a grasp on the numbers, Ritter says that based on age and fact pattern, his firm will look for low expense ratio funds, particularly if the investor is going to be contributing on a monthly basis. The reason, he explains, is that he does not want his clients to have monthly transaction fees. Funds with institutional class shares that give back 12(b)1 fees are used, he continues.
Michael Garry, a certified financial planner with Yardley Wealth Management, Newtown, Pa., also notes the importance of going through the financial planning process before any decisions on mutual funds are made.
For instance, he says, that if he is discussing retirement planning, the discussion will usually uncover a shortfall and how that shortfall can be eliminated. Mutual funds and exchange traded funds are ways he says that that shortfall can be eliminated.
Once agreement is reached that more savings is needed, Garry says that he typically recommends index funds which he says are cheaper and more tax efficient.
Most clients understand the value that mutual funds can bring, says Garry. But, there are one or two clients that were at first reluctant, preferring individual stocks.