Advisor 1	Advisor 2	Advisor 3
Commission	Fee	Fee + Commission
4% initial cost to purchase investments	1% annual fee of asset under management	$7,500 first year planning fee
Annual management fee beginning in second year		2% cost to purchase investments
0.5% Annual Management Fee beginning in second year		0.10% Annual management fee beginning in second year
8.50%	8.0%	7.50%

Compensation Method

QuotedCosts

Average historical rate of return on similar accounts

Instructions

Use this information to answer the following questions.

1. Calculate how much Cheyenne and Scott will pay in first-year expenses for each advisor
2. Assume that Cheyenne and Scott pay the commissions and fees directly from their $350,000. If they hire an advisor and invest their savings on January 1, how much will they have in their account at the end of the year, assuming they can earn the advisors average historic rate of return?
3. Calculate how much Cheyenne and Scott will pay in second-year expenses for each advisor (base your estimate on answers to part b).
4. Assume that Cheyenne and Scott pay the annual management fee on January 1 of each year directly from their account. Determine which advisor they should choose if their goal is to maximize the value of their investments after 7 years. What does your analysis indicate regarding initial expenses and ongoing management fees?