IFA Fee Page
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" A decade
ago, I really did believe that the average investor
could do it himself. After all, the flesh was willing,
the vehicles were available, and the math wasn’t
that hard. I was wrong. Having emailed and spoken
to thousands of investors over the years, I’ve
come to the sad conclusion that only a tiny minority,
at most one percent, are capable of pulling it off.
Heck, if Helen Young Hayes, Robert Sanborn, Julian
Robertson, and the nation’s largest pension
funds can’t get it right, what chance does
John Q. Investor have? " |
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" The investor’s
chief problem - and even his worst enemy - is likely
to be himself. " |
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Benjamin
Graham (1894-1976) Legendary American investor, scholar,
teacher and co-author of the 1934 classic, Security
Analysis |
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" It is unwise
to pay too much, but it's worse to pay too little. " |
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John
Ruskin (1819-1900) |
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Index Funds Advisors, Inc. (IFA) is a fee-only Registered Investment
Adviser. Our account minimum is $100,000. We will provide our ADV
Part II and client agreement prior to you becoming a client.
A. What
does IFA do to add value to your portfolio?
In order for us to answer this question, you need to examine four
questions about your current portfolio.
 What
is the expected risk (standard
deviation) of your portfolio based on twenty-five
years of historical data?
 What
is the expected return of your portfolio based on twenty-five
years of historical data?
 What
are your total annual fees and expenses as a percentage of your total
investments?
 What
are the taxes associated with your investment strategy as a percentage
of your total investments?
The Portfolio
Simulator is the only way to thoroughly
analyze the value IFA can bring to your financial planning.
According to the Prudent
Investor Rule, risk and time are so directly related
that all investors have a duty and responsibility to analyze
and make conscious decisions concerning the levels of risk
appropriate to their individual situation. The chart below
shows the results of the average equity mutual fund investor
over the last seventeen years.
A study released by Dalbar in 2009 indicated that during the
20 years from 1989 to 2008, the average stock fund investor earned
returns of only 1.87% per year, while the S&P 500 returned
8.35%. On an inflation adjusted return, the average equity fund
investor get a return of $82,288 on a $100,000 investment made
in 1989, while the inflation adjusted return of the S&P 500
would have been increase in value to $292,329, as shown in figure
below . 
Dalbar,
Inc. Investor Behavior Studies 2001 - 2002 - 2003 - 2004 - 2005 - 2006 - 2007 - 2008
(Past IFA
Dalbar Quantitative Analysis of Investor Behanvior (QAIB) Charts)
The Dalbar studies reveal that the behavior of
average fund investors is an obstacle to reaching the published
performance of the financial markets in which they are invested.
Clearly, investor behavior can have a far more negative impact
on investment performance than investors realize.
Some investors can benefit from enlisting an investment educator,
coach or mentor who will focus on changing their investing behavior,
encouraging long-term investing, and discouraging the gambling
practices of trying to beat a market. Active investors are constantly
on an emotional roller coaster ride, which leads them to negative
returns on average, after all expenses and taxes. The information
in the Emotions of Investing Chart looks sadly
familiar to many investors. As the value of their investments go
through their eventual ups and downs, investors wait until they
feel excitement that their investments are on the rise. Once they
buy and the price takes a downturn, they then become fearful and
sell. This cycle of buying after the price has gone up and selling
after it has gone down leaves investors with losses, doubt and
regret. The lessons in this 12-Step Program should allow investors
to resist the behaviors that have caused them such despair and
poor results in the past.
Ten reasons to
hire an index funds advisor:
1. Just
like other competitive fields in which professionals dominate,
the amateur investor is not likely to enjoy success. The
study above confirms this point. The average amateur investor
only gets 18% of the overall market returns and only 16% of
the DFA mix of indexes. This is due to their lack of knowledge
about how risk and return are related. There is also an emotional
bias that forces investors to avoid risk instead of buying
and holding the proper amount of risk. The advisors
at IFA are professionals who have invested years of research
and study into modern portfolio theory. The content and design
of this website provides the most comprehensive presentation
of investment information available for the purpose of educating
the prospective IFA client. Current academic research on financial
markets is constantly applied to our clients' investments.
The majority of investors do not have the resources, time or
interest to do this.
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2. Our
fee may be considered a casualty insurance premium with our
role being to protect investors and their capital from themselves.
As Benjamin Graham (1894-1976), the legendary American investor,
scholar, Warren Buffet mentor, teacher and co-author of the
1934 classic, Security Analysis, stated, "The
investor’s chief problem - and even his worst enemy -
is likely to be himself." According to behavioral
finance author and professor, Mier Statman, "When the
market drops, our instinctive fear to flight is so strong, even
the most rational investors find themselves caving in to their
own demise." IFA takes the emotions out of the decision
making process.
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3. The
main concern with amateur investors is that they do not
know the facts about the financial markets. This is clearly
demonstrated by survey after survey. In a recent one by Money
Magazine, the average score of 1,500 investors on twenty
basic financial questions was a mere 37% correct. You will
pay a high tuition for your lessons if you do not understand
the potential risk exposure of the stock market and the efficient
market theory. Amateur investors suffer from emotional swings
of irrational exuberance for risk and subsequent irrational
avoidance of risk. Remember that every trade, mutual fund,
or stock has someone on the other side that probably knows
more than you. Nearly 80% of trading volume is handled by professionals.
The alarming fact is that many of these "professionals" have
little understanding about the way the market works. In two
different studies of ten year periods, 97% of stock pickers
and 100% of market timers under performed a simple index fund. Investment
policy is the only thing that matters. IFA will create,
maintain, and add discipline to that investment policy.
We act as your Chief Financial Officer and coordinate
your financial management team of lawyers, accountants and
insurance agents.
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4. IFA
provides extensive investor education and access to low cost,
pure style, customized, and risk concentrated institutional
index funds. These funds are not available to amateur investors.
They are created by the number-one rated mutual fund company,
Dimensional Fund Advisors. They are building blocks of risk,
offering worldwide diversification in the risk factors that
explain virtually all of stock market return levels. (See Step
8, page 5 and Investment
Policy.)
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5. IFA
refines your Risk Capacity™ survey to insure that you
are optimizing the maximum level of returns for your level
of Risk Capacity™, based on long-term historical data
of indexes. For example, Portfolio 90 has provided $371,000/unit
of risk (14.6 units or Std Dev.) on a $100,000 investment
for the last 33 years. These are index returns after IFA
and DFA fees, but before taxes and transaction costs. Past
performance is not an indicator of future performance. If
this fact is missing from your current strategy or the concept
is foreign to you, we can add significant value to your
investment policy. Your Risk Capacity™ survey is only
accessible by IFA and its approved affiliates and is stored
for your password access through the web.
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6. We
have a very high level of customer service and contact due
to our implementation of technology. You can talk or chat
live with one of our advisors, while viewing a streaming
video of them. With more than one advisor, we have coverage
for times of absence. The ability to video conference with
your advisor brings about an entirely new level of communication.
Our team will provide the highest level of service to maintain
your trust and confidence.
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7. IFA
will provide additional quarterly reviews of the performance
and rebalance status of your accounts. We maintain our own
portfolio management software that provides virtually any
type of analysis of your investments. We choose what we believe
to be the most relevant information and send it to you with
our invoice at the end of each quarter.
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8. IFA
will monitor the balance of your current portfolio compared
to the investment policy target portfolio and insure that
your risk exposure is kept constant. We provide the complicated
process of rebalancing the portfolio, minimizing trading
costs and taxes, and maintaining investment policy. The
time, computer hardware and software, data maintenance, and
expertise are of significant value to our clients.
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9. IFA
provides the opportunity for you to spend your precious time
on endeavors of interest to you instead of worrying
about your investments. We want you to be well educated
about the way the market works, allowing you to relax and
enjoy the investment process even in times of market declines. |
10. Finally,
this quote is important to remember when deciding on whether
you should hire an index funds advisor. "It is unwise to
pay too much, but it's worse to pay too little."
- John Ruskin (1819-1900) |
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It’s Unwise to pay too much…
But it’s worse to pay too little. When you pay too much, you lose
a little money – that is all. When you pay too little, you sometimes
lose everything, because the thing you bought was incapable of doing the thing
it was bought to do. The common law of business balance prohibits paying
a little and getting a lot – it can’t be done. If you deal
with the lowest bidder, it is well to add something for the risk you run. And
if you do that, you will have enough to pay for something better.
- John Ruskin |
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B. Index Funds Advisors Management Fees:
Our recommended account
minimum is $100,000. According to the August 2001 issue
of
Money Magazine, the average investment advisor charges 1.4%
on the first $500,000; 1.2% on $500,000 to $1 million; and 0.9% on
$1 Million to $3 million of your assets, annually.
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Index
Funds Advisors Management Fees* |
Tier |
Step
Amount ($) |
Quarterly Fee (%) |
Annual
Fee (%) |
1 |
on
first $500,000 |
0.2250% |
0.90% |
2 |
on
next $500,000 |
0.1875% |
0.75% |
3 |
on
next $1 million |
0.1500% |
0.60% |
4 |
on
next $2 million |
0.1125% |
0.45% |
5 |
on
next $2 million |
0.0750% |
0.30% |
6 |
on
next $4 million |
0.0625% |
0.25% |
7 |
on Assets in Excess of $10 million |
0.0500% |
0.20% |
*The blended annual fee at $1 million in assets under management
is 0.825%, at $2 million is 0.7125%, at $4 million is 0.581%,
at $6 million is 0.4875%, at $10 million is 0.3923% and at
$20 million is 0.2961%. Due to a limitation of only five tiers in our billing software, clients with $6 million or more in assets will receive an invoice with the first 3 Tiers compressed into one Tier, so that on the first $2 million the rate is 0.7125%. Then, from Tier 4 down, the above schedule will be the same. For a precise calculation of your
fee, see this fee calculator. Please call 888-643-3133 to obtain
a copy of the IFA Client Agreement and Form ADV Part II.
In certain situations,
our fees are negotiable.
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C. Schwab Transaction Fees
Table
3A
Call IFA (888-643-3133) for Fidelity and
TDAmeritrade Transactions Fees
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| Charles
Schwab and Company, Inc. Transaction Fees: |
Transaction
fees may apply to certain no-load and low-load funds which
do not participate in the Schwab Mutual Fund OneSource
service, such as DFA mutual funds. Such funds are subject
to Schwab's standard transaction fees in addition to any
redemption fees, if imposed by the fund.
None of this fee is paid to Index Funds Advisors, Inc. (IFA.)
PLEASE NOTE:
The reason you pay a transaction fee for DFA fund transactions
is because DFA funds do not charge ongoing quarterly fees
(12b1 fees) from your mutual funds. Instead, you pay a
one time transaction fee for Schwab to perform the trade.
This will cost less over the long term because it is a
one time fee, as opposed to an ongoing quarterly fee of
approximately 0.25% annually. |
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Transaction
Fee* |
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0.36%
of principal ($25 min, $49.95 max) |
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*These
fees are subject to change by Charles Schwab and Company,
Inc. These Schwab fees reflect IFA's institutional
discount. IFA does not receive any of these fees.
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Table
3B |
| Schwab
Transaction Fee as a % of Initial Investment |
| (Based
on Portfolio
70) |
| Initial Investment |
Schwab Transaction Fee |
Transaction Fee (%) |
| $100,000 |
| $250,000 |
| $500,000 |
| $750,000 |
| $1,000,000 |
| $2,000,000 |
| $5,000,000 |
| $10,000,000 |
|
| $439.45 |
| $628.92 |
| $735.26 |
| $749.25 |
| $749.25 |
| $749.25 |
| $749.25 |
| $749.25 |
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| 0.44% |
| 0.25% |
| 0.15% |
| 0.10% |
| 0.07% |
| 0.04% |
| 0.01% |
| 0.01% |
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D. Comparison
of Transaction Fees Between Three IFA Custodians
Table 4 |
| Custodian
Transaction Fees |
Custodian |
Fee
Rule |
Schwab |
0.36% of trade value with a min of $24.95 and
max of $49.95
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Fidelity |
$29.00 trades at
or below $9,999 and $45.00 trades above $9,999 |
TD Ameritrade |
$19.00 flat fee for all trade sizes |
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E. DFA
Annual Expense Ratios
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F. Morningstar
Expense Ratio Comparisons
Table
8 |
Fund
Expenses of the Morningstar Mutual Fund Universe - December
2009 |
Mutual
Fund Categories |
Morningstar
Category Average |
DFA
Average
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DFA
Savings |
US
Large Company Funds |
1.18% |
0.23% |
0.95% |
US Small Company Funds |
1.47% |
0.41% |
1.06% |
| Real Estate |
1.51% |
0.47% |
1.04% |
International
Stock Funds |
1.42% |
0.55% |
0.87% |
Emerging
Market Funds |
1.73% |
0.69% |
1.04% |
| Fixed
Income Funds |
0.98% |
0.24% |
0.74% |
Fees
are only a glimpse of the overall picture. Consistent exposure
to the risk factors are the real value of a portfolio of DFA
index mutual funds. Exposure to these particular risk factors,
which were discovered through research
going back to 1928, translates to higher expected returns
over the long term. |
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Copyright © 1999-2008 Index
Funds Advisors, Inc. All rights reserved. |
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This site is for the use of clients and potential clients of Index
Funds Advisors, Inc. and the IFA
Network Members. It is not to be used by any other investment advisor or investment
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DISCLAIMER: THERE ARE NO WARRANTIES,
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FROM ANY INFORMATION POSTED ON THIS OR ANY LINKED INTERNET SITE. At certain places on this Index Funds Advisors Internet
site, live 'links' to other Internet addresses can be accessed.
Such external Internet addresses contain information created, published,
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and does not guarantee or assume responsibility for the accuracy,
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or otherwise does not constitute or imply endorsement, recommendation,
or favoring by Index Funds Advisors.Your use of this site is acknowledgment
that you have read and understood the full disclaimer. Past performance does not guarantee future results.
WARNING: Past performance does not guarantee future
results. Investment returns and principal value will fluctuate,
so that investors' shares, when sold, may be worth more or less
than their original cost. Investing in any mutual fund, index or
actively managed, does not guarantee that an investor will make
money, avoid losing capital, or indicate that the investment is
risk-free. Actively managed funds sometimes outperform index funds.
You just don't know in advance which actively managed fund will
outperform the appropriate index. Just because a mutual fund is
an index mutual fund, it does not guarantee a performance superior
to an actively managed mutual fund. There are no absolute guarantees
in investing. When reviewing any backtested performance information
on this internet site, please read the Disclosure for Backtested
Performance Information ( click
here to read the Disclosure for Backtested Performance Information.) |
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IFA US Large Company
Index 
IFA US Large
Cap Value Index 
IFA
US Small Cap Index 
IFA US Small Cap Value Index 
IFA Real
Estate Index 
IFA International Value
Index 
IFA International Small Company Index 
IFA International
Small Cap Value Index
IFA Emerging
Markets Index
IFA Emerging
Markets Value Index
IFA Emerging
Markets Small Cap Index
IFa One-Year
Fixed Income Index 
IFA Two-Year Global Fixed Income Index 
IFA Five-Year Government
Index 
IFa Five-Year Global Fixed
Income Index