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        Investor's Insight - December 1, 2006           
          "A Digest of Investment Opinion From the 
             World's Leading Financial Advisers"


by Scott Burns

Q: Our financial adviser, with First Command financial 
planning, is suggesting we move all of our current in-
vestments to its version of the wrap account, Select 
Investor Profile.

We are investing $500 a month in Pioneer Midcap Value 
Fund A (value: $275,850), $400 a month in Pioneer Value 
Fund A (value: $327,800), and $700 a month in Templeton 
Growth Fund Class A (value: $321,500). We also have 
regular and Roth IRAs with Pioneer Growth Fund A valued 
at $187,885.

We are retired with pensions totaling about $60,000 per 
year. Our capital gains last year were about $60,000, 
and interest income was around $20,000. My concern is 
the management fees of 1 percent on its Select Investor 
accounts. Does this make sense? -- N.S., San Antonio

A: Your adviser will be increasing his income nicely. 
So if your primary concern is your adviser's welfare, 
this is a really good idea.

But if your concern is your investments and your retire-
ment, then you should consider alternatives. With $1.1 
million in financial assets, you have lots of choices.

Let me explain. 


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Unless there is a major change in the quality of advice, 
what you are being offered is an opportunity to pay more 
money for a poorly constructed portfolio in which three 
out of four fund choices are bottom 50 percent perform-
ers. Your adviser, on the other hand, will be increasing 
his income from the 0.25 percent 12b(1) marketing and 
distribution fee on each of your current funds to his 1 
percent wrap fee, an increase of 400 percent.

What your adviser provided in the past was an opportunity 
to pay commissions. There is no sin in this. Financial 
sales people should be compensated for their effort.

The difference between a person who merely sells and a 
real financial adviser, however, is that a financial 
adviser actually helps you do two things. 

First, make good investments.

Second, build an appropriately diversified portfolio 
with those investments. 

Others may differ, but I would give your adviser an F 
on the first count and a C-minus on the second. 

Let me tell you why.

The three Pioneer funds have consistently ranked in the 
bottom 50 percent of their peer groups for performance. 
Morningstar gives them a rank of two stars (below average). 
About 71 percent of your money is committed to these sub-
par funds.

Only the Templeton Growth fund has provided performance 
in the top 50 percent of its peers. It has a Morningstar 
rating of four stars (above average).

Here are the facts on appropriate diversification: The 
good news is that you have equity diversification -- 
domestic large-cap growth, large-cap value and small-cap 
value plus international equity.

The bad news is that you are 100 percent invested in 
equities. There is no allocation to cash, fixed-income 
or REITs. Not a dime. Greater diversification would re-
duce risk of loss. It could also produce the same, or 
better, return with less risk.

I am not just shooting from the hip here.

The annualized 10-year return on your portfolio is about 
8 percent, and the funds have 10-year standard deviations 
(according to Morningstar) ranging from 14.9 percent to 
17.57 percent. Standard deviation is a statistical meas-
ure of the volatility of returns. In this case, your 
portfolio earns about 8 percent plus or minus about 16
percent, most of the time.

Vanguard Star fund, a low-cost asset-allocation fund, 
earned 9.3 percent annually over the same time period. 
It did this with a standard deviation of 9.4 percent. 
It got a better return with nearly half the risk.

According to its Web site, First Command uses funds 
from AIM, Allianz, Fidelity, Franklin Templeton, Pioneer 
and Western Reserve Life. If the current funds are wrapp-
ed, your total expenses will exceed 2 percent a year.


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That's never a good sign. 

If the current funds are replaced with new funds, your 
expenses will still likely exceed 2 percent a year. 
With some luck (or a new adviser), you might get better 
funds than you now have. But I wouldn't count on it.

What are your alternatives?

You have many. Here are a few:

Visit USAA. Like First Command, it has a long history 
of service to the military, but at relatively low cost. 
Many asset management firms will manage a $1 million 
account for a total expense of 1 percent or less. You 
could also invest your money in a low-cost asset-
allocation fund such as Vanguard Star or Fidelity Four 
in One Index.

You can discuss this issue or any other topic in the new 
Investor's Insight forum. Check it out here...

Investor's Insight Forum

(Investor's Insight reflects the opinions of experts. It does 
not recommend any specific investments, and no endorsement is 
implied or should be inferred. For more information, contact 
the individual firms cited).



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