ETF Investing Guide: What to Do With What's Left

I mentioned earlier that there are some areas where customization and personal service are genuinely valuable. But your need for those services should not affect the way you manage the core of your investment portfolio. If you need planning and asset allocation advice, look for a financial advisor who charges by the hour and isn’t compensated with commissions on financial products.

If you think you need customized portfolio services and access to alternative investments from a brokerage’s private client group, then don’t hand over all your assets. Instead, split your assets between the money manager and an online brokerage. Manage the core of your portfolio in the online account using ETFs and closed-end funds; that way, you’ll minimize the overall fees you pay.

And for the part you’ll entrust to the money manager for services unavailable from an online broker, make sure you follow 3 principles:

1. Remove all conflicts of interest

   Never accept advice from someone who is paid more if you to choose one option over another. Separate out payment for advice for payment for execution. In practice, that means that you should find an independent financial advisor who charges you based on an hourly rate, without receiving commissions from products that you select. And then you can shop around for the cheapest way to implement your investment strategy. This isn’t as disruptive as it seems. Some traditional brokers are not qualified to give sophisticated tax and estate advice, so you’ll probably pay a separate lawyer and accountant in any case. And lawyers and accountants, of course, charge by the hour.
   

2. Demand transparency about fees and commissions

   Once you have unbundled payment for advice from payment for execution, it is much easier to obtain clear information about fees and commissions. Payment for advice by the hour is transparent. For brokerage services, demand a full accounting for all fees that you pay. Brokerage reports that bundle the fees into the price of the security you purchased are not acceptable. Demand a report of the commission and the spread for each trade.
   

3. Demand transparency about investment performance.

   If an advisor recommends a particular investment vehicle, demand to see its historical performance compared to its benchmark. And while you’re at it - ask any potential financial advisor to document her performance too.
   

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