Hutchins Allen & Company, PA-It's Not What We Do, It's How We Do It

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Operation: Restore Balance

The performance of the stock market over the last 30 months has left many of us in a quandary about what to do with our declining brokerage account balances. Here are a few tips to ensure that you are making the best possible use of the money that remains.

First, you need to consider if your life has fundamentally changed in anyway to determine if you are willing to except more or less risk than in the past. If a change has occurred, you need to consider adjusting your asset allocation mix. For example, hold more fixed income investments, like government bonds or money market funds, if you are willing to accept less risk than in the past. If your risk tolerance has not changed, some adjustments are still warranted. The market's performance has thrown most allocations off by more than a few percentage points, requiring the rebalancing of your portfolio to comply with your original strategy.

Step two is looking at the individual investments that are held in your accounts. You should not accept returns on your investments that are less than those of the market. Although some fluctuation should be expected, it is best to concentrate on long-term trends. Compare your investments to the index (S&P 500, NASDAQ, or EAFE etc.) that they most resemble, since an apple to apples type comparison is the best way to measure performance. If they have consistently under performed, it's time to make some changes.

Next, you should review what you are paying for the services you are receiving. The firms where your accounts are held all have one thing in common; they have developed ways to make-up for the revenues they have lost due to reduced trading activity and lower mutual fund balances. The increases seem to be across the board, from banks to full service brokers, even the discount brokers. The fees range from extra commission costs to higher account maintenance expenses. I have read about a $45 per quarter account maintenance fee for accounts with balances below $10,000 at one brokerage and two others that have implemented $3.00 order handling charges for customers who are not active traders. It doesn't stop there. Most fees that have been in place for years have suddenly increased at alarming rates. Examples of such are IRA's that have charged a $30 annual fee in the past, now charge $40, and account transfer fees that have risen from $50 to $75. As an investor, you need to monitor these changes since any fees reduce your return on investment.

Consider consolidating your accounts at a single firm to meet minimum balance requirements imposed by many investment firms and to qualify for better rates. Also, reduce the number of mutual funds that you own if you discover that your fund company charges a fee for small positions. Be sure to let your brokerage know if other members of your household have accounts at the firm. Some discount brokers will count all accounts held by members of your household when determining commissions and fees, they will even include 401K retirement plans administered by the company. Indeed, these suggestions may do more than save you money; they could even simplify your life.