Consolidate, Simply, Improve Your Finances

I have been helping a family member wrap her arms around her financial situation recently and thought I'd share my observations. Unlike the typical situation these days she has judicially salted away money every month for a very long time and therefore won't be wondering if she can maintain her lifestyle in retirement. But, her husband ran into some health issues two years ago and she had to take the reins of their finances for the first time in 20+ years. In their family, her accountant husband had a mind for numbers and had invested money with 15+ mutual fund companies, opening one or two funds at each. This caused paperwork nightmare for someone who is financially savvy, let alone someone who has problems balancing the checkbook.

The health situation opened her eyes and woke her up to the fact that if something happened again she wasn't sure she would even know where all their money was. Of course, having 20 different mutual funds doesn't mean you are diversified. It's also a huge hassle. I've been enlisted to help them consolidate their accounts, re-balance and simply things. They are also looking into working with a financial planner. I'm admittedly not an expert on equities, bonds, and the like, but as the financial meltdown of 2008-2009 has shown, neither are most of the people on Wall Street. I'll list the steps I have taken below. They want to take a mostly DIY approach to their investments so I've tried to not make things overly complicated while bringing their risk down.

STEP ONE. CONSOLIDATE

As noted above, my relatives had holdings at over 15 institutions. While they had some real quality companies working for them, I question whether each of the offerings at T.Rowe Price, Vanguard, and Schwab have significant enough differences to spread your money around everywhere. This is especially true with the number of non-transaction fee funds and ETF's available at most full service discount brokers.

a) Where to consolidate?

This is essentially a personal preference since many of the brokers have similar offerings these days. My personal favorite is Fidelity, though Schwab is a close second. Both have a solid offering of branded no transaction fee funds, charge no annual fee, have relatively low minimums, and charge lower trading fees than many of their competitors. There are cheaper options for trading and lower minimums elsewhere, but these two have very good customer service in my experience which is worth the extra dollar or two on trades (since they are mostly invested in mutual funds).

There are also some very good mutual fund companies such as Vanguard and T.Rowe which basically have a brokerage account tacked on as an afterthought to their fund offerings. Both are great companies, but have thin offerings outside their branded funds.

After laying out the options they have decided to go with Fidelity.

b) Making the Move

One of the reasons that we settled on Fidelity was that quite a few of their funds were part of Fidelity's NTF network, so they could be rolled and moved into the brokerage account essentially unchanged. A number of the other offerings will be liquidated and moved into a similar offerings from the Fidelity branded funds, NTF funds Fidelity offers, or comparable ETF's. The whole process can be initiated online and finalized by mailing some paperwork to Fidelity. It is a fairly pain free process, but takes a little while.

STEP TWO. SIMPLIFY

Asset allocation is the single most important factor in this process and I haven't been able to find any online tools that I feel confident with. This is especially true given the huge differences in allocations each recommended. My relatives are about 5 years from retirement, so they will need a more conservative allocation than someone like me. I have recommended that my relatives visit a financial planner who charges hourly and schedule an appointment to review their goals and get a plan figured out. A few hundred dollars is a small price to pay for solid advice.

STEP THREE. IMPROVE

While things haven't been finished yet. They are off to a good start. The final pieces will fall into place once they meet with the financial planner. I believe they will benefit a great deal from having the vast majority of their investments under one umbrella and just a few funds at another broker. Now, if something happens at least all their money will be in one place and accessible if necessary.

I'm interested to hear if you have had an experience good, bad or otherwise moving things under one roof. Do you have any other advice for them? If so, email me.

Image Credit: Ben30 @ Flickr

Free Stock Trades?

When I was checking my email last night I came accross an adsense ad for free stock trades. So what you say, I get about 150 of those a week in my spam folder. Well maybe so, but having some spare time I clicked it anyways and it turns out yet another company is trying to use the web to shake up tired business models.

Zecco promises to give you 10 free trades a day or 40 free trades a month for free. After you reach 40 it charges $3.50 per trade (which is still less than most online brokers). The company also does not charge a minimum account balance or maintenance fees unless you are trading on margin. The company has a matrix that lines its fees up against the competitors here.



The interface doesn't look like anything out of the ordinary or too spectacular, but you can't beat the pricing...

Has anyone tried this yet? I haven't used this service at all, but love the premise. I assume (which is always dangerous) that the way the company can keep costs so low is that it fills both sides of the orders clients place. In other words if at all possible waits to find another Zecco customer that is selling what you're buying before it closes the order. However, this isn't uncommon and every broker tries to do this.

I am guessing though that Zecco trades are less than instantaneous - although I haven't heard anything to the contrary, but for me it wouldn't be a big deal. I'm not a day trader and those of you who are day traders are probably using a more robust service anyways. Plus, if you are buying and selling you should be using the good ol' market limit so you can lock in the prices you want to buy or sell at anyways.

I'd love for this service to succeed or at least cause a little disturbance in the pricing structure of the bigger players. If you have used Zecco email me and let me know what you think.

Link:
Zecco.com

Poll 1: Results Are In

Charles Schwab has won the Golden Parachute's first online poll for reader's favorite online broker. Fidelity, OptionsXpress, and Other tied for second with 16% each.

Poll This Week: Which Online Broker is Best?

After reading a few articles recently reviewing which online brokers are best at Forbes and Smart Money, I wanted to know what everyone else out there thought. This week I'm polling everyone out there about which online brokerage they think is the best. I added all of the companies that I could think of off hand to the list. If you come up with another you think I should add, leave me a comment and I'll get it up there ... please choose which one you think is the best.

Links
Image - Flickr Hugovk (creative commons)

How to Size up A Broker

One of the many great things that the Internet has done is move the power from industry specialists to the average person (assuming they are willing to fire up google and put in some time). Now I'm not implying the internet will allow a person to become a specialist at anything, but it cuts down the risk that they will be taken advantage of when buying a car, home, or other big ticket item.

Fool.com has a list of questions to ask when interviewing financial planners. The questions fall into three categories 1) costs, 2) products, 3) service. Planners are all over the board when it comes to fees. Trading fees, minimums, and other fees all must be considered. You should take into account the portfolio of services your broker offers, research, and the different ways you can make trades. Finally will the broker give you the time you deserve. Some brokers will not give small investors the attention deserve because the commissions are much smaller. Then again, just because the planner will answer your call on the second ring doesn't mean he is any better at putting your money to work for you. Find someone you are comfortable with and that you are willing and able to move from if your money stops performing as it should.

Full article here

Choosing an Online Broker

The Motley Fool has a decent article describing the best places to invest if you have an extra $20, $100, or $1,000 lying around. I think the article is good because it gets people thinking about investing incrementally. It's easy to invest if you already have gobs of money in your pocket. It's much harder when you are starting with a pair of Hamiltons in your wallet.

The article operates under the assumption you have paid off all your high interest debt from credit cards and other not-so-favorable investments.

• If you have $20: The Fool says to consider investing in a DRP (a plan some large companies have allowing employees to purchase stock). That is good advice, but for those of us not working at a fortune 1000 company where else could that $20 be put to work? Regular visitors to the site know I'm a big fan of high yield online savings accounts. They won't make you rich, but are flexible, a good value, and generally have no minimums.
  
  
• If you have $100: The Fool says to consider investing in an index fund. The rub on this type of investment is that you may have that investment chewed up by broker fees. If you get charged $10 to buy the fund, then another $10 a year until your account meets the brokerage minimum, you will have to make more than 11% per year (on the $90 invested after commission) just to stay even. Again I think $100 is better spent in a high yield savings unless you already have a brokerage account up and running. In that case the index fund can start to make more sense.
  
  
• If you have $1,000: Here you have more options. The Fool says a good option is a discount brokerage account charging less in commission than 2% of portfolio value. I think another excellent option is a Roth IRA account. There are plenty of fund families that are no load and if you couple that Roth investment with additional funds each year until retirement you will have a nice little next egg when you turn 65.

Check out the article here for the full scoop