New Folios Blend Mutual Funds, SMAs

Owing to the increasing mutual fund scandals and surging management fees, Wade Financial Group Inc. recently launched Wade Folios, a mix between traditional mutual funds and separately managed accounts, or SMAs, according to Dow Jones.

Investors own a basket of stocks, just like they do in a mutual fund, in addition to paying an all-inclusive fee, as in an SMA, but without the customization. Jerry Wade, who runs Wade Financial, said he introduced this product after seeing fees soar.

"I was getting fed up with the lack of disclosure, hidden fees, and boards of directors who weren't actively engaged in what is truly going on in the trenches of the fund," Wade said. Wade Folios, which requires investors to have a minimum account size of $200,000, doesn't conduct its own research. Instead, "we depend on outside research providers to supply the research," Wade said. Wade then uses the research to identify which stocks to include in the portfolio.

Wade pays institutional research firms such as Standard & Poor's, Zacks, Barclays, and Value Line, to send him their top stock picks each week. The research costs Wade $50,000 to $100,000 a year, a fraction of his total expenses. That way, he cuts down on the expense and trading fees associated with mutual funds and SMAs, bringing down client overhead.

Still, not everyone agrees that investing in Wade Folios is cheaper than investing in a mutual fund. For instance, the annual cost to investors in Wade Folio is 1.5%. Don Phillips, managing director at Morningstar, figured that 1.5% is the expense fee at a retail mutual fund, as well.

Wade, however, said that because of the quality of institutional investment research he uses, his product is more comparable to an advice-driven SMA than to a traditional mutual fund.