CHET CURRIER — Investors Prefer to Purchase Advice and Not Go It Alone

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It’s time to admit defeat.

Like quite a few other financial writers, for years I’ve carried a banner advocating do-it-yourself investing in mutual funds, rather than paying a broker or other adviser to make choices for you.

As investors gained experience and knowledge, I felt sure, more and more of them would deal directly with no-load funds and save themselves the price of advice.

That isn’t the way it turned out. The share of fund sales made directly to investors actually has declined over the last seven years, according to the Investment Company Institute.

More than four out of every five dollars that goes into funds these days gets there via the “advice channels,” including employer-sponsored retirement plans, the mutual fund trade group reports.

A new survey by the Mutual Fund Education Alliance, which represents no-load fund firms, found that even in that bastion of self-reliance, “a new breed of no-load investor is emerging” who “wants more assistance.” Though these investors buy funds that don’t charge sales commissions, they pay an adviser to help them anyway.

Case closed. While there will always be independent-minded fund investors who plot their own course, they will remain a minority. Long live the brokers, dealers, advisers, planners, accountants and consultants who steer the ship for everybody else. I never had anything personal against these people, honest. I just thought it was redundant to pay for help investing in a vehicle that was itself diversified and professionally managed.

Why do so many investors do this? Funds aren’t hard to understand, and there’s plenty of information within easy reach. So much information, evidently, that people are put off by the thought of sorting through it all.

Sheer prosperity also plays a role. It’s one thing to call your own shots when you’re investing $5,000 or $10,000, quite another when you’re dealing with six figures or more. “People have more assets today than they ever thought they would have,” says Bernie Gacona, head of mutual funds marketing at the brokerage firm of Advest Inc. in Connecticut.

It’s very strange, though, that this has happened simultaneously with the movement into direct trading of individual stocks. Investors think they can day-trade their way to riches on the Internet, but they can’t pick a mutual fund for themselves? However you try to figure people, never expect them to be consistent.

If you must have an adviser, there’s an art to picking a good one. While you seek out a hard-working, trustworthy, wise and sympathetic soul, it also helps to know what you’re not looking for. To wit: Be leery of anybody who claims some special insight into the markets, or offers some secret system to beat the game. The future is uncertain, and any good investment plan takes humble account of that fact.

A system? As racetrack sage Harvey Pack used to say of a set of figures that purported to solve the mysteries of the turf, “If these numbers are so good, why are they for sale?”

Steer clear, too, of Hot Funds Herbies who promote themselves as astute fund-pickers. You can look up top-rated funds yourself with no trouble in the Morningstar Inc. or Lipper Inc. rankings, published in newspapers, magazines and Web sites far and wide.

The adviser’s job is to set up an asset-allocation plan for you, in which the kind of funds chosen is more important than the individual funds used. In many cases, “hot” funds won’t suit your purpose at all.

Be suspicious of too much busyness. If an adviser constantly shuffles things around, where’s the long-term plan? Most good financial strategies involve long, boring stretches that allow plenty of time for the other pleasures of life.

Finally, watch out for formulaic, cookie-cutter setups designed primarily to bulletproof the adviser from complaints or lawsuits. Look for advisers who listen closely when you describe your personal circumstances, not somebody who waves a hand and says, “I know what’s best.”

Yes, fiduciaries have to be careful how they do things. But why should you pay for a plan whose only purpose is to cover the planner’s backside?

You know, by the time you finish beating the bushes for just the right adviser, keeping all these caveats in mind, you could have done a lot of the planning yourself. But I’m not going to pursue that argument. I said it was time to surrender, didn’t I?

Chet Currier is a columnist for Bloomberg News.

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