Free Stuff, Save $195, and (Maybe) Improve Your Investment Returns (A Great Offer Exclusive to Free Money Finance)

As most of you know, I'm primarily an index fund investor. But I do invest in managed mutual funds and individual stocks, plus I have an interest in investments of all sorts. So when I got an email from Money Masters explaining their new program, I was intrigued (FYI -- I am NOT receiving any financial incentive to post on this topic -- though you get one. Keep reading.) Here are the details of their program they sent to me:

So how many of you believe that mutual funds are good investments but never get them right? Did most of you say yes? That is not surprising. How many of you feel that you need a lot of money to be able to afford good investment advice? Again, not surprising if most you nodded in the affirmative.

Here’s a new approach that levels the investment playing field and is worth trying.

Retirement Corporation of America, a SEC registered investment advisory firm, has recently launched Money Masters Investment Portfolios, a fully managed, online investment account that provides access to the country’s best mutual funds (and advice) irrespective of the amount of money you have to invest. It is different from the products/services already in the market for the following reasons:

1. Access to a Registered Investment Advisor: Until now, such access was typically limited to only those with substantial account balances-$250K or greater. Money Masters is available to every American – with no minimum balance requirement.  And because it is offered by a Registered Investment Advisory Firm, they take the responsibility of managing clients’ money.  They have a team of professionals constantly looking over their portfolios to maximize performance.

2. Performance Potential: Many of the funds currently approved for inclusion in Money Masters Investment Portfolios are no longer available to the average investor because the fund is either closed to new investors, has a large minimum deposit requirement, carries substantial commissions, or is not available for direct purchase by retail investors.

3. Independence and Transparency:  The firm places a premium on independence and transparency and has gone beyond average fiduciary duties to merely disclose conflicts of interest – and eliminated the conflicts entirely.  For example, it does not accept commissions or payments of any kind from the financial services industry, including 12(b)-1 fee.  This clear impartiality gives them the freedom to select investment funds and managers that they’ve identified as the “best-of-the-best” without bias or influence.  Everything they do is openly disclosed to clients (through web site, the application process, online ClearView Reporting and form ADVs). 

OK, that's the "official" version of their pitch. But here's the layman's version that I received via email while we were talking back and forth:

[We have] a new type of mutual fund that...differs from other mutual funds in the market in several ways:

1. Fund is managed by 15 of the world’s top performing mutual fund managers - chosen from more than 8,000 mutual fund managers based on a strict set of criteria including long term performance and tenure.

2. No minimum account balance, commissions, transaction fees and exit penalties (management fee of 1% or less).

3. Asset allocations per each "Master's" fund are customized based on individual’s objectives and risk tolerance.

What's interesting to me is that they've selected the best mutual fund managers -- people who have proven, great returns -- and have them managing the money. The reason I go with index funds is that most money managers can't beat them (once fees are subtracted). But if you can get the top money managers to pick stocks for you, then maybe you can consistently beat the index funds. Of course, past performance is no guarantee of future returns, so maybe the money managers who are tops this year will crash and burn next year. That's the rub.

But for those of you who may be interested in the Money Masters program, I've negotiated a deal (for you -- not for me -- again, I get nothing out of this deal) where you can get the following:

• Free Financial Freedom Plan
• Free article on Top 10 Mistakes that Investors Make
• Free account set up: Those customers entering this code when completing the signup process will also get the $195 set up fee waived.

Here's how you can take advantage of this offer:

1. Go to the Money Masters site www.moneymasters.com

2. Your invitation code (as they refer to it on the site) is FMF1.  If you enter this code when prompted in the free Financial Freedom Plan/Top 10 Mistakes section, you will be identified as having come from Free Money Finance and offered free account set up (waive $195 fee).

Sounds pretty simple, huh? What's not to love about "free?"

I'm undecided whether or not I'm going to sign up. If any of you do, please come back and let us all know what you think of the service/plans. I'd be interested in hearing your opinion.

Comments

[SB]

I think you are right to be suspicious and proceed with caution. I spent some time looking over their website. These are my thoughts:
1. All there wonderful managers were chosen based on past performance. This is nothing more than an extreme case of data mining.
2. All the results they show for their portfolios do not include the asset management fees and transaction fees. These are sure to take a massive bite out of your actual returns.
3. The comparison benchmarks are not valid - they consist of only the S&P 500 combined with Lehman Brothers Bond and a money market fund. The actual portfolios contain international funds and seem to have a significant tilt to large cap value, an asset class that has outperformed the S&P 500 quite significantly over the past few years.
4. The portfolio is managed by a Registered Investment Advisor - so what? You don't need any qualifications to become one, just need to register with the SEC.
I would stay away from this. You are better off using a Target Retirement fund or a LifeCycle fund made up of index funds and have no management fee.

[AWA]

SB (8/22/06) makes some good points. Though as a RIA I'm not sure I'd agree with item 4). Here are some things I noticed about Money Masters.

Because they are a related firm of Retirement Corporation of America, Money Masters has been permitted to register with the SEC with only $2 million under management (not the usual $25M). Check out the following address for more details (on any RIA). http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx

A couple of comments on the informal pitch in the FMF e-mail.

1) Money Masters isn't offering a mutual fund, but a portfolio of funds constructed to match a risk profile. Probably better than offering a single mutual fund, but an interesting misstatement.

2) Misleading fee language. Their management fee is shown as a quarterly figure 0.25% (yes, that's 1% per year) for smaller accounts. And they mention no 12(b)1 fees several times. However, their literature library, lists the individual funds they use – here are some samples:

Pimco Low Duration PLDAx: expense ratio .68%, 12b-1 .25%
Baron Growth BGRFx: expense ratio 1.31%, 12b-1 .25%
(expense details from Morningstar)

And I’d be stunned if Fidelity is handling the custody and transactions for free. Some type of transaction fee/commission or account fee seems highly likely.

3. You choose the best fit from our available models seems more accurate than customized.

This program isn't much different from other target date or lifecycle funds. The components may have improved, but the choice of allocation is still up to you.

[Brian Devery]

I've read your comments and have a couple of things to add. Fidelity's RIA side does have a large list of non-transaction fee funds. These are institutional share class funds for the most part.

As to the value lean - I would want more money there going forward, wouldn't you? If all of your domestic funds beat the index over the time period doesn't that mean something?

As far as a lifecycle fund is concerned, wouldn't you rather have somebody actively manage the allocation as well as the investment? A lifecycle fund is about as proactive as the typical broker.

I think their performance numbers are after fees.