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Financial Services Ads: Look Beyond the Hype

Roger Wohlner

Like many of you I love the E-Trade Baby portrayed in many of the firm's television commercials. He cracks me up, though I must admit my wife only finds him mildly humorous. She claims that I am more into "guy humor." Guilty as charged.

E-Trade's Super Bowl ad derided financial advisers who charge upwards of 2 percent for their services and suggested they have a better solution. Below are some questions that were prompted by the E-Trade ad and some others. They're the types of questions that you the consumer should be asking of any firm before doing business with them.

The E-Trade Ad

E-Trade is at best vague about advisers who charge 2 percent (of net assets under advisement) for their advice, I don't know of any at this level but I'll give E-Trade the benefit of the doubt here in terms of having done their homework. If you are considering E-Trade's advice services here are some questions to ask:

--What do you charge?

--What do I get for this fee? Investment advice only? Financial planning? Wealth management services?

--Are the mutual funds and ETFs utilized by your two advice platforms required to pay for inclusion on your platform and/or inclusion in these programs?

--Who will be managing my money? What is their track record, experience, and expertise?

I wrote on my blog about this ad recently based upon my research of their two advice platforms. Today my friend Chris Carosa also wrote a post about the E-Trade commercial at his popular blog Fiduciary News and was kind enough to quote me:

"Watching the E-Trade fee commercials prompted me to research their advice options. What I found were fees that were reasonable to high for services that appear to be nothing special. While I applaud E-Trade and anyone who focuses attention on high fees for financial advice and/or for investment vehicles such as mutual funds, in my opinion the E-Trade Super Bowl commercial was quite vague and a bit misleading." And I noted that, "Investors should also ask if the funds and ETFs used in these programs are restricted to any particular E-Trade program or platform and if the participating funds and ETFs pay E-Trade a fee for inclusion."

This isn't about picking on E-Trade but it is about urging consumers of financial services to be diligent and skeptical of financial services ads. Here is a look at a two other recent ads:

Charles Schwab's ETF One Source

Schwab teamed with some outside providers, in addition to their own ETFs, to offer over 100 ETFs that will trade commission free. What's wrong with this? Absolutely nothing However, is it the great event that Schwab is hyping it to be? I'm not so sure. As an adviser, I'm not going to use an ETF on the platform just to save roughly $9 on a trade. That said, the trades that I make are generally of a size where I'd rather buy the ETF that I feel is best for the client's portfolio versus one that will save a small transaction fee.

On the other hand I have been using some of Schwab's ETFs in smaller accounts after performing due diligence on these particular funds.

For individual investors, especially those with smaller accounts, this might be a good vehicle for you. Just make sure that you check out any ETF you are considering, as avoiding a small fee is not worth buying the wrong investment vehicle. Additionally, consider the many no-transaction-fee mutual funds on the Schwab platform, including some of Schwab's own low-cost index funds. Beyond all of the hype from the media, ETFs are not the end-all, be-all investment vehicle.

Chuck Jaffe noted in a recent column at MarketWatch that many of the ETFs offered on this platform are ETFs looking for greater distribution in the market. Since ETFs are bought and sold like stocks, you want to look at the trading volume, the liquidity, and the bid-ask spread of the ETFs on the platform before trading. Additionally, like Schwab's popular One Source for mutual funds, I'm guessing the non-Schwab ETFs pay to be included. (Full disclosure I custody the majority of my individual client's assets at Schwab, but have no financial relationship with the firm. I am a huge fan of the firm based upon my experiences with them and the great service they provide to my clients.)

John Hancock's different approach

As I understand it John Hancock provides financial products such as life insurance, annuities, and mutual funds. Yet the commercial that I saw portrays baby boomers who are confused and concerned about their retirement. Some questions that I would have include:

--Does John Hancock offer retirement and financial planning advice?

--If I work with John Hancock are you going to offer me John Hancock products exclusively?

--How do John Hancock products stack up against the competition in terms of fees, expenses, and returns?

Being a financial adviser, maybe I ask more questions and am more skeptical than most folks when I see these commercials on TV. You know what, you should be just as skeptical as I am. It's your money, you need to fully understand the pros and cons of any financial product or service you are considering up-front. This can save you a lot of heartache and perhaps many extra years in the workforce.

Roger Wohlner, CFP®, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides financial planning and investment advice to individual clients, 401(k) plan sponsors and participants, foundations, and endowments. Roger is active on both Twitter (@rwohlner) and LinkedIn. Check out Roger's popular blog The Chicago Financial Planner where he writes about issues concerning financial planning, investments, and retirement plans.

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