How Advisors Handle Mutual Fund Investing

In interviews with National Underwriter, financial advisors offered a number of tips on how they use mutual funds to help their clients stay on track to meet financial goals. (See chart.)

“The most effective method for getting clients to save more is to do a financial plan for them,” says 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 they are going to have a poor retirement, they are more willing to put additional money into mutual funds or other investments,” Broadhurst says.

John Ritter, a certified financial planner with Ritter Daniher Financial Advisory, Cincinnati, Ohio, says he starts with a client’s comprehensive financial plan and then looks at whether there is enough money to reach his or her goals. “We try to take the emotion out of the question. The numbers are the numbers.”

Once there is a grasp of 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 12b-1 fees are used, he says.

Michael Garry, a certified financial planner with Yardley Wealth Management, Newtown, Pa., also notes the importance of going through the financial planning process before making any decisions on mutual funds.

For instance, he says, discussions on retirement planning will usually uncover a shortfall and how that shortfall can be eliminated. Mutual funds and exchange traded funds are ways that a shortfall can be eliminated, he says.

Once agreement is reached that more saving is needed, Garry 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 some clients are reluctant at first, preferring individual stocks.

There is a disconnect between return in relation to volatility when individuals buy individual stocks, he adds.

Garry recounts a former co-worker whose husband was one of five analysts on a large fund and seemed to work around the clock at his job. He says it is “ludicrous” to think consumers can educate themselves on the Internet and then think they can beat that kind of effort.

Doug Taylor, a certified financial planner with Taylor Wealth Management, Torrance, Calif., says when a client insists on investing in an individual stock, he recommends putting aside a small amount, perhaps $10,000 to $15,000 out of a portfolio, which he dubs “Las Vegas money.”