It has come to our attention that a number of PBCPBA members are invested in mutual funds with very high expenses (some more than 3 percent per year) and that are potentially underfunded. This could cause your retirement to be at risk. Here is a look at some of the funds:
| FUND | EXPENSE RATIO | TOTAL ASSETS | MORNINGSTAR RATING |
| Pacific Financial Core Equity Investor | 2.90% | $303.74 Million | * |
| Pacific Financial Explorer Investor | 2.64% | $225.65 Million | * |
| Pacific Financial International Investor | 3.13% | $59.94 Million | ** |
| Pacific Financial Strategic Cnsrv Investor | 2.85% | $95.95 Million | * |
| Pacific Financial Dynamic Alloc Investor | 3.38% | $103.91 Million |
Note: There are other Pacific Financial funds that have similar expense ratios and funding levels. Data was obtained from Morningstar as of Nov. 30, 2015. Morningstar rates mutual funds 1 to 5 stars based on a variety of criteria.
Simply put, if you’re invested in a fund in which expenses are 3 percent per year, in order to have a 6-percent annual return the fund must earn 9 percent. This could cause the fund manager to take excess risk with your money and in this scenario, you’re losing a third of your return. Mutual funds work a lot like the bank teller window, except they’re invested and not insured by the FDIC. They have to be redeemed on demand at the Net Asset Value (or value of the mutual fund at the close of business). The first ones to the teller window with their hands out get their money back.
In the investment world, your money is not sitting in cash. So when you redeem shares, this forces the fund managers to have to sell the stocks and bonds they hold in the mutual fund to pay you back.
In a fund with inadequate assets, this could cause a domino effect and rapid decline in value if enough investors try to redeem their shares at the same time – causing the manager to sell the holdings and causing the investor significant losses.
If you’re invested in these funds, please get a second opinion from another financial advisor.
Steve Olson, CFP ®, AEP®
CEO of Atlantic Wealth Partners | Contributor
Steve Olson’s experience spans over a decade of focued tax planing, legal strategy interpretation, investment management, and advisory services to wealthy individuals and families throughout the U.S. Over the course of his still young career, Steve provides counsel and management on individual assets and portfolios ‐ encompassing a combination of securiteis, real estate, privately held businesses and thoer altenative investments ‐ ranging in value from $5 million to over $400 million in value. Steve is currently the Founder and CEO of Atlantic Wealth Partners in Jupiter, FL.
