Bustamante & Co Fee Comparison

8/18/2019 Bustamante & Co Fee Comparison

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BUSTAMANTE & Co.

Financial Report:

Evaluating Fees & Conflicts


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Advisory Fees & Conflicts

When exploring the advisory eco-system new investors can become downright confused with finding the right

advisor for their particular needs. Having various titles such as ‘financial advisor’, ‘investment advisor’, ‘financial

planner’, ‘financial solutions advisor’, etc. is enough to scare away the most astute investor.

This has become such a major issue for investors that recently the DOL (Department of Labor) enacted a new rule

which will take affect at the end of the year to have all financial advisors “put the client’s interest above their

own”. This may come as a surprise to many investors who have assumed financial professionals put their

client's first regardless. This is not the case.

If you’ve ever worked with a financial advisor who was an employee under the parties named below then they’re

under the “suitability rule” and defined as ‘investment brokers’. This means they only need to have a basic

understanding of your financial situation to place assets in products which may or may not be suitable for you.

Also, they don’t need to disclose certain compensation they received from commissions or other forms of

payments. A short example would be a purchase of a mutual-fund where the ‘share’ cost would only have to be

disclosed not the internal fees.

1. The Retirement Gamble: A look at high cost mutual funds and the conflicts investors face http://to.pbs.org/1VxTCNr

2. The White House Office of the Press Secretary. (2015, February 23). “FACT SHEET: Middle Class Economics:

Strengthening Retirement Security by Cracking Down on Backdoor Payments and Hidden Fees”. Retrieved from

https://www.whitehouse.gov/the-press-office/2015/02/23/fact-sheet-middle-class-economics-strengthening-

retirement-security-crac

https://www.whitehouse.gov/the-press-office/2015/02/23/fact-sheet-middle-class-economics-strengthening-retirement-security-crachttps://www.whitehouse.gov/the-press-office/2015/02/23/fact-sheet-middle-class-economics-strengthening-retirement-security-crachttps://www.whitehouse.gov/the-press-office/2015/02/23/fact-sheet-middle-class-economics-strengthening-retirement-security-crachttps://www.whitehouse.gov/the-press-office/2015/02/23/fact-sheet-middle-class-economics-strengthening-retirement-security-crac


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"

Working With A True Fiduciary

First and foremost there are two “financial advisor” types that are held to two different standards when it comes

to compensation and level of client involvement.

Investment Broker:

In its simplest form an investment broker works for a broker-dealer firm such as a Merrill Lynch, UBS, Morgan

Stanley, etc. or any firm that is also registered as a broker-dealer. These advisors are under suitability rule

standards which means they’re only obligated to assess your financial situation and place you in a suitable

recommendation of investments which may or may not have high fees attached to them. Compensation receivedfrom commissions for the sale of annuities, mutual funds, and other investment products doesn’t need to be

disclosed to clients which is a conflict in itself.

Investment Advisor:

Investment advisors are held to higher standards by law to “act in the client’s best interest over their own”. This

means they tend to be fee only advisors who doesn’t participate in commission based products. Their

transparency is held to a higher standard than the broker-dealer model simply because they’re registered directly

with the SEC or state.

There are generally two ways to find out what type of advisor you’re hiring:

Do research by visiting finra.org or sec.gov and learn about the advisor and how they're compensated.

Just ask! Advisors may say they're fiduciaries but in reality if they work under broker/dealer firms this is not thecase. Make sure to do your due diligence and interview the investment professional about how the y're compensated


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Survival of The (Un)Fittest

Despite what movies portray, most financial advisors aren’t sitting in front of monitors watching markets move on

a minute-by-minute bases while also trying to build customized financial plans for their clients. Investors would be

surprised to find out that the industry as a whole generally “outsources” the hassle of picking investments for

clients and even building the financial plans. This is done simply because the advisor may not kno w the financial

markets very well, or they want to service more clients and not deal with the details of daily investments or

planning.

There is generally nothing unethical about this practice provided the advisor doesn't charge an exorbitant fee by

passing off this 'customized' solution to clients. Unfortunately, the state of the advisory world is littered with what I

like to call pretender advisors. They're great at sales but never invested their own money for a living. They can read

from brochures about financial planning concepts but can't perform basic excel sheets on cash-flow analysis.

Mediocrity is alive and well and that is why potential investors who shop around for financial expertise needs to

ask what services does a financial planner provide in-house.

Brokerages examined in this report are listed in order of average total fees from highest to lowest. The brokerage

firms represented in this account include those that are tracked by Bustamante & Co., but is not inclusive to all

brokerages.

Ameriprise

TD Ameritrade

E*Trade

Fidelity

Merrill Lynch

Morgan Stanley

Scottrade

UBS

USAA

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20/23

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Bustamante & Co. Comparision

Our tranche-based fee structure is based on getting paid only if we

perform. With 3 tranches, our 1st fee tranche is lower than any other in

the dataset of the eleven selected brokerages, With Bustamante & Cos

tranche 1 fee percentage at 0.60% a $500,000 portfolio holder would

payout in fees $291,760. Along with our unique fee structure, clients are

not subjected to paying for account fees, service or maintenance, and

trading fees.

Bustamante & Co. Tranche 1 Fee Breakdown

0.10%

45608

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Average Total Fees After 30 Years

Bustamante & Co. has 3 tranches paid out annually. Tranche 2& 3 are not paid out unless our firm meets performance metrics

and the capital base does not drop below tranche 2 & 3 levels.


21/23

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Based on the findings of this report, the difficulty for investors in finding the right financial professional to work

with boils down to what their fees are, and what conflicts advisors have that could hinder the advice th at

potential clients may receive. It is well known that the cost of fees associated with investment accounts varies by

firm, but the numbers show that over time fees can really cut into retirement savings over the long haul. The

results show that fees based on a fraction of a percentage may seem trivial at the outset, however, they balloon to

enormous proportions over the life of a long-term investment program.

Our view is very simple when it comes to fees and working with clients. If we underperformed in our portfolios

on behalf of our clients, and if they don't meet certain planning milestones we set out for them, then we shouldn't

be compensated. We are the only firm in Arizona who bases their fees on underlying metrics that can be

measured in real-time so clients know exactly why they pay us.

The summary shows that at 1.98% in average total fee percentage, Merrill Lynch had the highest overall average

total fee percentage of the eleven selected brokerages, representing the worst offender in costs related to fees on

investments.

At 1.06% in average total fee percentage, USAA had the lowest overall average total fee percentage of the eleven

selected brokerages, coming in higher than Bustamante & Co. tranche 1 fee at 0.60%


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To uncover fees associated with investments, Bustamante & Co. employed machine learning and human

training to calculate both the average advisory fee for managed accounts and average fund related fees.

Bustamante & Co. created a dataset for each financial institution and analyzed a total of 9,365 advised

accounts and 146,559 accounts with fund related fees across the 11 financial institutions. Data from the

3rd Quarter of 2014 were used to examine the range of each fee type and calculate the average total fee

of each financial institution and the data include a 10% trim to remove outliers. The 30-year projected

fee metric is based on an account annual growth rate of 7% and average total fees remaining consistent

to the derived rates over the 30-year period.

Advisory Fee Calculation Example:

Total Portfolio = $100,000

Annual Advisory Fee = $1,500

Advisory Fee % ($1,500 / $100,000 = 1.5%) = 1.5%

Mutual Fund/ETF Fee Calculation Example:


Annual Mutual Fund/ETF Fee = $1,000Expense Ratio (unweighted) ($1,000 / $100,000 = 1.0%) = 1.0%

Total Fee Calculation Example:


Total Fee (Advisor + Fund) = $2,500

Total Fee % ($2,500 / $100,000 = 1.0%) = 2.5%


23/23

!"#$%'()#

This communication and all data are for informational purposes only and do not constitute a recommendation to buy or sell securities. You should not rely on this information

as the primary basis of your investment, financial, or tax planning decisions. You should consult your legal or tax professional regarding your specific situation. Third party data

is obtained from sources believed to be reliable. However, Bustamante & Co. cannot guarantee that data’s currency, accuracy, timeliness, completeness or fitness for any

particular purpose. Certain sections of this commentary may contain forward-looking statements that are based on our reasonable expectations, estimate, projections and

assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is

not a guarantee of future return, nor is it necessarily indicative of future performance. Keep in mind investing involves risk. The value of your investment will fluctuate over

time and you may gain or lose money.

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Bustamante & Co Fee Comparison