Choosing Among Investment Companies

Most retirement investors don’t have to choose among investment companies. They join a 401k plan at work and the advisor for that plan is set.

Often, they can’t even choose the investments, just from a selection of overly expensive mutual funds.

If you have a personal IRA or a rollover from a past 401k, however, you are in a better position by far. There, choosing an investment company becomes a paramount decision. It helps to understand the differences in investment companies — what they offer at what prices and why — before you act.

Here’s a checklist to help you make the call:

1) Traditional brokerages

These are the big, well-known consumer brokerages that advertise the most: Fidelity, Vanguard, Schwab, TD Ameritrade, E-Trade and the rest. Some pursue narrow niche markets (wealth management, for instance) but most aim right down the middle at the mass of retirement savers.

Pro: Cheap, easy to trade online, 24/7 access.

Con: Advice costs extra, built-in conflicts of interest.

2) Your bank or credit union

Sometimes called “relationship banking,” your corner bank or credit union probably has an investment advisor in the main branch. He or she can help you set up an IRA, build a portfolio perhaps and advise you on insurance and other matters.

Pro: Personal attention.

Con: Limited scope of products, possible conflicts of interest.

3) Insurance companies

People often view insurance as a necessary expense, not an investment. But many policies do have investment features, and there are annuities. Also, you are very likely to already have a trusting relationship with your insurance agent.

Pro: Simplicity, attention.

Con: High costs kill long-term return.

4) Independent advisors

As the baby boomers have aged into retirement, there has been an explosion in demand for personal advice from full-time financial advisors. Often, they operate through national chains in storefront offices and build their businesses through local networking and marketing.

Pro: Direct financial advice, investment monitoring.

Con: Advisor fees can demolish returns over time.

5) Online investment services

The Internet has been part of the answer for many investors. A variety of webs sites have sprung up offering a range of investing advice, from active trading forums to broader retirement planning and everything in between.

Pro: Do-it-yourself investors can access top-notch advice for cheap.

Con: Less face-to-face attention.

There is no “right” answer in many cases. You might use an online service to build a retirement portfolio but also decide to use your banker for other types of investing and even layer in an insurance product. The truly important decision in all cases is getting the best value for the fees you are likely to pay for each service.