My Goal: No more financial advisor rip-offs

[SamHouston]

Hi, folks.

A recent rude awakening about what my "financial advisor" has REALLY been costing me has helped focus me in on taking a more direct hand in my own future. I came to find out that he was much more interested in his own financial future then in mine when it came to making use of the funds I have available for investment purposes...I guess I shouldn't really be surprised there, of course.

The guy recently changed companies and asked that I follow him. In the process of reviewing the details of my account with him (which I neglected to do before in detail because of my trust in him...stupid, I know, I know) I found that he has consistently maximized his commission in every way possible. I'm now stuck in some things that will cost me money for as long as the next 8 years unless I want to pay huge "surrender fees."

So, anyway, that's why I'm here. I've been lazy. I got an expensive education from my advisor, and now I'm in the process of becoming as "self-directed" as possible as soon as I can.

I'm here to learn from folks who are ahead of me on that curve, and I look forward to reading and learning. Thanks for being here.

 

[LovesLife]

"I'm now stuck in some things that will cost me money for as long as the next 8 years unless I want to pay huge "surrender fees."

Sounds like an annuity. IMHO, the surrender fee is a sunk cost. The internal expenses over the next eight years are probably going to make your head spin. Plus, not to mention the aggravation every time you revisit the investment. . Been there, done that

Good luck

 

[SamHouston]

You are spot on.

I'm hoping to "minimize" the fees by paying more attention to the investments within the annuity package than I've done in the past two years. I realize that my costs will still be ugly because of the fees I'm paying on top of fees...by paying expenses to the funds themselves and to the insurance company for their "service," but I'm having a hard time giving in just yet. Maybe I'm being naive, but I'm finding it hard to take an $8000 hit on the surrender fees while I'm still making a decent net return on an annual basis despite the other fees involved.

My biggest fear is that my disgust with the whole situation with the annuity and the advisor causes me to be more aggressive with the investments in the annuity than I would be otherwise just so that I can feel like I'm at least making my "share" of the returns. That could really backfire on me.

You are definitely right about the aggravation factor involved. It still ticks me off every time that I think about it, and I'm sure that it will continue to do so no matter how the actual investments inside the annuity do.

 

[TromboneAl]

Don't feel bad, Sam. A lot of us went through this at the beginning. I totally lost about $8,000 back in 1982 or so by following a financial advisor (limited partnerships). That was when $8,000 was most of our net worth.

 

[Helen]

Hi Sam, If you haven't already, check out the Vanguard Diehard foreum:

http://socialize.morningstar.com/NewSocialize/asp/AllConv.asp?forumId=F100000015

Good sound investment advice if you like Vanguard funds.

-helen

 

[SamHouston]

Thanks for the link, Helen.

Vanguard was the first company that I thought of, followed closely by T. Rowe Price and Fidelity, when all this came clear to me.

I received some forms in the mail just yesterday morning from Vanguard, in fact, and I'm going to start the process of moving some money over to them. The only thing that throws me a bit is that Ameriprise seems to require a "medallion signature" from me and my wife in order to put all of this into motion.

Does anyone know if most banks and/or credit unions provide this service...and what the cost might be? Thanks.

 

[grumpy]

Does anyone know if most banks and/or credit unions provide this service...and what the cost might be? Thanks.

My bank, Bank of America, provided medallion signature guarantee for free when I needed it.

Grumpy

 

[SamHouston]

Thanks...that's a new service to me, although it sounds much like what a notary normally does. I'll call my bank and credit union in the morning to see if they will provide the service. I'm with Chase Bank now that they've taken over Bank One here in Texas.

 

[Martha]

Thanks...that's a new service to me, although it sounds much like what a notary normally does. I'll call my bank and credit union in the morning to see if they will provide the service. I'm with Chase Bank now that they've taken over Bank One here in Texas.

The difference is that a notary doesn't actually guaranty the signature. If you signature is guaranteed, then the brokerage company can come after the guarantor if it turns out someone was impersonating you.

 

[SamHouston]

Ah, HUGE difference. I understand the process now but it does strike me as just another way to slow the whole transfer process down. Of course, I'm more than a bit cynical about Ameriprise's motives and practices at the moment.

 

[audreyh1]

Wow - Sam. So sorry you had to learn that expensive lesson.

I also recommend the forums over at www.morningstar.com. I learned most of what I needed to know to confidently manage my own investments there.

Unfortunately I also read quite a few horror stories like yours.

It's possible to set up a super simple investment plan - sometimes as simple as just buying a good quality no-load balanced mutual fund - and letting your money grow without too much volatility. Then you can really forget about it.

Personally, if I had it to do over again, I would have just bought Dodge and Cox Balanced (DODBX - unfortunately now closed to new investors). I have been able to beat the S&P annually since 2000, but I haven't been able to beat DODBX.

Audrey

 

[REWahoo]

Personally, if I had it to do over again, I would have just bought Dodge and Cox Balanced (DODBX - unfortunately now closed to new investors). I have been able to beat the S&P annually since 2000, but I haven't been able to beat DODBX.

I second your DODBX recommendation. It was a core holding in my 401k for many years and performed consistently well. It continues to be a substantial part of my portfolio after rolling over to an IRA.

 

[unclemick]

I thought DODBX was closed to new investors - caused the 'world rediscovered them' - one more time. Or have they reopened?

??

 

[REWahoo]

I thought DODBX was closed to new investors - caused the 'world rediscovered them' - one more time. Or have they reopened?

??

Still closed, as is their stock fund. Because I held it in my 401k I was grandfathered and allowed to get in when I rolled to an IRA.

 

[Texas Proud]

This is something that I am helping out a friend with... seems the 'financial advisor' put her in an annuity INSIDE her 403(b).... and it has a surrender charge for all purchases in the last 5 years... now have to determine how much this will cost to undo... (this is through VALIC, which is part of American General now owned by ING...)

THEN I found that my sister is in ING!! I asked her about the cost and she said 'the program has a maximum fee and everybody charges to the maximum'!! I ask, what is the maximum and she said 2.25% ARGGGGH... Now another one I have to work on to unwind...

But, as she said, I would not have the $50,000 in the account because I never would have opened it up if the guy had not come by my cube and made it easy for me.... so, it is a win - lose view and she is looking at it as a win, but can now win bigger if she moves...

 

[HFWR]

Get out the taser...

 

[Ginger]

SH -- go to your bank (they will only do it for free if you are their customer).
I would call first to schedule an appointment. Usually, it is the Bank Manager who handles the medallion signature signings

 

[SamHouston]

Thanks, folks, for the recent comments. I took care of all the paperwork on Tuesday morning over at my branch of Chase Bank...and it was a free service as you said it would be. I Fed-Exed the paperwork back to Vanguard on Tuesday afteroon, so the ball is rolling now.

Since this has happened to me, I'm hearing more and more stories of similar unethical behavior from "advisors." This annuity trick of theirs must be much more common than I would have ever dreamed, so I'm doing my bit locally to spread the word to friends and co-workers who may find themselves given this same "opportunity" by their own advisors. Maybe it's because I'm so painfully aware of this kind of behavior now, but it seems that everywhere I turn I hear another similar story from someone.

I haven't decided exactly what to do with my contract yet. I really hate to take an $8000 hit right now, but it galls me to think about having to face all the additional high fees wrapped into the contract for another 8 years or so. I need a good spreadsheet to calculate a break-even point for me, but that kind of thing is impossible. I'm well into the black on the contract after two years, but it's the fact that I could have done the same in a regular retirement account a whole lot cheaper that gets me...and I'd be much further in the black as a result.

 

[cute fuzzy bunny]

I liked dodbx and oakbx a while, owned both for many years. Until I discovered that I could get virtually the same performance with a lot lower ER from a number of similar vanguard funds. Oakbx is especially spendy...is it still over 1%? Dodbx was a more reasonable .54% when I owned it.

 

[grumpy]

Texas,

Some school systems have 403(b) plans that ONLY allow contibutions to go into an annuity type of investment. When my wife went back to teaching after raising the kids, her system's 403(b) was like that. I started a lobbying campaign to get more investment options. After about 5 years they opened up their system to allow investments through T.R. Price and Vanguard. She started contributing the maximum then. I had several interesting exchanges with the school system payroll office and had to send them IRS publication citations to get them to allow the catch up contributions. They also had a limitation built into their payroll software that was not in conformance with the tax laws that had to be modified!

There are a number of online resources on 403(b)'s. Just Google 403(b). Good luck.

Grumpy

 

[yakers]

The best resource: http://www.403bwise.com/

My wife teaches in a districe (Los Angeles Unified) that STILL requires the insurance/annuity structure despite systematic pitches from knowledgeable people. No Vanguard or other low fee index funds available. This wil not change as the financial "advisors" have too much influnce, must be approved by the union and the district does not use the same program for non teachers so they are not interested in fixing it.

 

[LovesLife]

Sam,
Does your annuity contract allow for a free 10% withdrawl per year? If so, you might want to look into that. If you are in the black there might be some tax consequenses though. IIRC, earnings come out first then principle so you might have to pay tax and/or penalty.

My annuity did not earn a darn thing for 2 years. I pulled mine out and took an overall 6K loss. Overall, I am just damn glad to be out of it.

LL

 

[SamHouston]

I'll have to check further into the contract to see if I have that option, LL. I don't recall anything like that, but the contract is so long and "legal" that it puts me to sleep after a couple of pages of wading through it.

The annuity is a tax-qualified IRA rollover from another account I had previously, so I wonder if that kind of partial distribution could just be rolled over into another IRA account with no immediate tax implications? Seems like that might be the case.

The only thing making this less painful and irritating at all is that I'm up, after all expenses and ignoring the surrender charges, something like 17% in the two years I've been in the contract.

 

[Nords]

The only thing making this less painful and irritating at all is that I'm up, after all expenses and ignoring the surrender charges, something like 17% in the two years I've been in the contract.

You've probably made almost as much money as the sales staff...

 

[SamHouston]

You've probably made almost as much money as the sales staff...

No, I think they're still ahead of me, easily when you throw in the surrender fees that I still face. But at least I'm not in the red while they make out like the bandits that they are. :