Experts Also Caution That 4 Steps Are Needed to Avoid Bigger Losses from Poor Advice

WASHINGTON, D.C.//November 18, 2003//Individual investors relying upon financial professionals should insist on action in the wake of the ongoing mutual fund scandals, rather than just focusing on mutual fund company performance claims, according to three leading investment advisors from across the United States who are members of the Zero Alpha Group (ZAG). The advisors also urged investors to take four steps to protect themselves against the danger of even bigger losses than what they may sustain from the current misdeeds on the part of mutual fund companies.

Savant Capital Managing Director Tom Muldowney said: “Investors need to snap out of being on autopilot and make sure their financial advisor is doing what he or she is getting paid to do. They should insist that their financial professional engage in ‘due diligence’ to be certain that fund complexes are not engaging in forbidden conduct. Too many people in the industry never look beyond the performance claims of mutual funds. Advisors should be urged to get policy statements from mutual fund companies on after-hours trading abuses and other problems. And this latest industry scandal makes it clearer than ever that investors should not allow financial professionals to shortchange diversification by using a single fund company as a ‘one-stop’ portfolio solution.”

“Right now, all the focus is on mutual funds, but the current industry scandal really casts a light on a related problem: investment advisors and other financial professionals who are failing to live up to their obligations as fiduciaries,” said Resource Consulting Vice President Kimberly Sterling. “Investors have to face the fact that they need to get more involved. Too many investors are simply rate of return ‘takers’ or ‘hopers.’ They hope for the best and settle for taking for whatever they can get. In too many cases, the early promises to ‘beat the market’ fade into actual returns that fall far short of the mark.”

AVOIDING THE DANGER OF BIGGER LOSSES

As serious as the current mutual funds scandals are, the ZAG experts warned that weak or poor financial advisory services could result in greater losses for investors due to increased risk from lack of proper diversification and other financial planning defects. To avoid such problems, investors are urged by the Zero Alpha Group to take the following four steps:

• Demand financial professional independence. The latest mutual fund scandal is only the latest in a long series of pointed reminders of the dangers of dealing with a financial professional who is “joined at the hip” with a specific mutual fund complex or has other conflicts of interest. Some brokerage firms have been caught providing greater rewards including commissions, bonuses and incentive trips to their brokers who sell proprietary funds instead of independent funds. Regulators have discovered a number of instances in which brokers who didn’t request breakpoints for their clients in order to earn bigger commissions for themselves and fatter profits for their firms. To research an investment advisor’s potential conflicts of interest, go to http://www.nasdr.com/2000.asp to determine how they are compensated.
• Remember that there is more to diversification than asset classes. If a broker places a large sum of money with one mutual fund complex, the investor may get a break on the commission, but end up “super-concentrated” in just one fund family. Alternatively, if the broker places the investor in several different fund families, the investor does not receive the reduced commissions. The large broker dealer complexes purchase the funds on a large scale and receive the commission breaks, but they charge the full retail commission to the individual investors. They use separate fund families to implement diversification and, in so doing, they also increase their coffers from the related commissions. The challenge for investors is to make sure that diversification that is being proposed by a financial advisor works for them – and not just the bottom line of the brokerage firm.
• Make sure you are getting a genuine financial plan. An individual investor who pays for financial advice deserves a principled and strategic approach to financial planning - not a “cookie cutter” method to building a generic portfolio. Investors should insist on understanding their investment advisor’s approach, philosophy and means of delivering a financial plan. If an investor is getting “off the rack” advice that is not custom tailored to their circumstances, they should consider finding a new financial professional.
• Look for an advisor who gets some kind of “peer review.” Blind faith and unquestioning trust are not good attributes for an investor dealing with any financial professional. Investment advisors who belong to professional groups – such as the Zero Alpha Group – compare strategies and financial plans in order to get feedback and to enrich their ability to deliver quality services. If an investor is dealing with a financial professional who does not strive to improve his or her services through such enrichment, it may be advisable for them to consider taking their funds elsewhere.

BHCO Capital Management Managing Director Steve Lugar: “We are not suggesting that investors overreact to the current mutual fund crisis. We are not saying all investors should consider dumping their current investment advisor. Instead, we are saying that investors who are used to playing a strictly passive role should think of the current mutual fund crisis as an opportunity to take control of their relationship with their financial professional. This is a wake-up call. Investors need to look at the mutual funds they’re invested in and scrutinize the financial advisor with whom they are dealing.”

ABOUT THE FIRMS

BHCO Capital Management (BHCO) focuses on maximizing after-tax returns, while serving as a fee-only financial planning and investment advisory firm. BHCO specializes in income tax and estate planning as well as tax-efficient investing for high net-worth individuals and business owners. BHCO Capital Management is on the Web at http://www.bhcocapital.com.

Orlando-based Resource Consulting Group is a fee-only financial planning and investment advisory firm established in 1988 to provide low cost, asset class investing for their clients, using the firm’s Systematic Financial Solution®. Resource Consulting Group’s Web site is http://www.resourceconsulting.com.

Located in Rockford, IL., Savant Capital Management was founded in 1986 as an independent, fee-only financial advisory firm. Savant provides financial planning and investment advisory services to financially established individuals, trust funds, retirement plans, non-profit organizations and fiduciaries, using the firm’s proprietary Wise Wealth Integrator™ and Wise Wealth Investment Solution™ processes. Savant Capital Management is found on the Web at http://www.savantcapital.com.

ABOUT THE ZERO ALPHA GROUP

Founded in 1995, the Zero Alpha Group, which is not an investment advisory firm itself, was created to serve as a nationwide network for seven independent fee-only investment advisory firms that manage approximately $3.5 billion in assets. Members of the Group are committed to providing objective, long-term private wealth management solutions to investors, focusing on asset allocation and a structured, quantitative approach to investing. The seven firms in the Zero Alpha Group network share a common philosophy about investing and client service - a commitment to passive, tax-managed investment strategies while providing an independent, fee-only financial planning solution for investors.

CONTACT: Patrick Mitchell, (703) 276-3266 or .