Retired and burned by previous investment advice

[DesertDweller]

Greetings from Palm Springs, CA!

I am almost 62 and retired. I do have separation pay from my employer for about a year and want to work now on picking investments for retirement income. Liquid assets are about $1.5M and I also will have a pension (my company will buy an immediate annuity to fund it).

Like many, many others, I got really hurt by the financial crisis. Lost a few hundred thousand in bank preferred stocks and Fannie/Freddie investments recommended by my former advisor (she picked these "safer" investments because I told her I was nervous about investing in stocks).

I also own two homes, one of which I am renting until housing recovers and I can sell without a huge loss.

My current advisor is with my bank. He has recommended dividing my assets between two variable annuities and one moderate growth ETF fund to generate $130K a year and last 20 years (my health is not great, so that is a reasonable period).

But when I read the annuity literature, I have great difficulty sorting out what I am really getting and what the fees are. Also, there is a heck of a lot of negative info on the Net concerning annuities. Finally, I don't really have the knowledge or the temperament to manage my own portfolio.

Any advice on how to proceed would be welcome. Perhaps having another advisor give me a second opinion should be part of that?

The heavy losses on those "safe" preferreds really spooked me. Plus, the decline in the value of my homes is a another concern. I have mortgages on both.

Thanks everyone for any advice you feel you may be able to offer.

 

[braumeister]

Step one is to ditch your current advisor. Recommending variable annuities is generally a danger signal, and that's compounded when you say you can't easily get a crystal clear understanding of how they work. MY suspicion is that your advisor is steering you to instruments that will give him or her the best commission.

Start with the Fidelity and Vanguard websites, and spend some time with them.

 

[REWahoo]

Step one is to ditch your current advisor. Recommending variable annuities is generally a danger signal...

+1

Experts also say retirees -- should avoid variable annuities altogether.

"Low-fee variable annuities may work for some people who are building a retirement fund, but don't make much sense for people already in retirement," says Ken Little, author of "The Idiot's Guide to Annuities." The reason, he says, has to do with the fees that come with variable annuities.

"Variable annuities carry high fees that will eat up a big chunk of any potential gain from the subaccounts, which are just mutual funds with a different name. Should the subaccounts not perform well, the retiree takes a double hit with the high fees and market loss. If they try to get out of the variable annuity too early, many charge a hefty surrender fee that will take another bite out of their nest egg."

Avoiding abusive variable-annuity sales practices - Robert Powell - MarketWatch

You say,"I don't really have the knowledge or the temperament to manage my own portfolio", so you'd rather trust your nest egg to a "professional"? Even after your initial experience and now having someone try to line their pocket with big commissions by selling you a product considered inappropriate for retirees?

Sounds like you need to pull up your socks and get a little investment education. It really isn't rocket science - you can keep it fairly simple and straightforward without a great deal of effort.

In addition to reading the Vanguard and Fidelity sites braumeister recommended, pick a couple of investing books from this list and do your homework. Investing in your personal financial education is time well spent. Even if you don't end up comfortable in managing your own nest egg, you'll be in better position to protect yourself from an ill-advised advisor.

 

[LOL!]

Here is where your financial advisor learns about the best investments to recommend to clients: http://www.registeredreps.com/
Then to read about what registered reps think about you, go to this site: Registered Rep Forums |

Another place for do-it-yourself investment advice is Bogleheads Investing Advice and Info , but be prepared to read 3 to 6 books before you ask for advice. But reading books should be no problem since you are retired.

 

[Chester_A._Riley]

Bogleheads Wiki also provides a way to get some consolidated information.

Bogleheads

 

[Nords]

Welcome to the board, DesertDweller.

Finally, I don't really have the knowledge or the temperament to manage my own portfolio.
Any advice on how to proceed would be welcome. Perhaps having another advisor give me a second opinion should be part of that?

Maybe two doctors are better than one, but I'm not sure that the same ratio applies to financial advisors.

Frankly you can gain enough knowledge to manage your own portfolio, and with that knowledge will come the confidence/temperament to do so. At the very least you could plug & chug through the process on the Bogleheads wiki and see how you feel about your resulting asset allocation: Category:Asset Allocation - Bogleheads

But if you insist on remaining blissfully ignorant (as quite a few people seem to do), then before you leap into the arms of an annuity seller you could try Flat Fee Portfolios. I had a 30-minute conversation with the CEO last week and he knows what market he's seeking... right now you're the kind of customer he wants to talk to.
Mark Cortazzo
Flat Fee Portfolios: Investment Solutions - Asset Management & Investing Solutions: Flat Fee Portfolios
MACRO Consulting Group
(tel) 973-451-9400

Keep in mind that I think you can do better. Paying $2400/year to have someone manage your money (and hold your hand) is only slightly better than waving your credit card in front of a mob of annuity sellers. But if you're not interested in taking the time to educate yourself, or at least following the advice of a group like Bogleheads, then you might as well go with a fixed fee.

Here's more thoughts on the subject at:
Would you like a financial planner with that? | Military Retirement & Financial Independence

I'm working on a post about the idea of Flat-Fee-type advice but even for me it's still a little snarky, and I need to tone it down before it goes public.

Other ethical financial advisers include Rick Ferri (Investment Management Using Index Funds, Exchange-traded funds, ETFs: Low cost investment manager, Portfolio Solutions) & Eric Haas (About Altruist). Rick is a Marine aviator (I think he's still posting on Bogleheads) and Eric is a former submariner. But please don't confuse "ethical" with "cheap", let alone "free".

It's been pointed out to me that I'm giving the impression flyboys and bubbleheads make good financial managers. That's not necessarily correct, but the military background of these two makes them less likely to exploit their customers.

 

[Coolius]

Step one is to ditch your current advisor. Recommending variable annuities is generally a danger signal.....

+2

I totally agree with the above. Fees and commissions paid by annuities to those who recommend them are incredibly high - because they know the products are poor quality and even detrimental to the financial well-being of the buyers.

If you still want to consider annuities, I suggest you make it a goal to understand what you are buying, and not trust the word of a salesperson, because that is what FAs are - salespersons in the disguise of an advisor.

 

[rescueme]

I have great difficulty sorting out what I am really getting and what the fees are.

If you can't understand it, than the annuity is not for you.

BTW, I/DW have an annuity - an SPIA (Single Premium Immediate Annuity) which is the only type I would ever suggest (but that's only my opinion ), and they are not offered by banks...

 

[sheehs1]

Recommend taking the advice of others that have already posted. In all seriousness DesertDweller...financial security is so important...leaving it up to someone who does not have your best interest at heart is...not the best approach.
Since you are retired perhaps you can carve out some time to get a few of the book suggestions here and learn. Once you've read some...you should feel more comfortable....AND you will be able to have an intelligent conversation with your broker....as well as the ability to question his advice with your own data points.

 

[freebird5825]

Here is where your financial advisor learns about the best investments to recommend to clients: http://www.registeredreps.com/
Then to read about what registered reps think about you, go to this site: Registered Rep Forums |

This thread was particularly enlightening.

"I haven't made any money in the market in 10yrs" | Registered Rep Forums

 

[Chuckanut]

Vanguard has lower cost annuities. I have heard this from others, but I have never purchased any annuity for myself.

 

[JPatrick]

You've been given a truck load of good advice here.
I'll add Fidelity as a good source for annuity info, and throw in this article that provides some pretty good info regarding what you should know before you shop for an annuity.
What to ask before buying an annuity - Robert Powell - MarketWatch

 

[redduck]

+1


Sounds like you need to pull up your socks....

OMG!!! I think I accidently skipped this step. Do I have to start over? (Boy, do I wish I could start over).

 

[pb4uski]

With the wealth that you have you would be eligible for complementary financial planning from Vanguard. I suggest that you give them a call, go through the process, educate yourself and then follow their advice.

The general approach that many retirees on this board use is to have 1-3 years of living expenses in excess of pension income in cash (for example in an online savings account that would earn 1% or so or in laddered CDs) and the remaining investments in no load, low expense mutual funds, generally 40-60% equity funds and 60-40% bond funds. The mix is based on each individuals appetite for risk, wealth relative to living expenses, etc.

Best of luck and welcome.

 

[obgyn65]

Welcome, DesertDweller. I agree with other posters : ditching your advisor may be a good start.

 

[easysurfer]

Hi DesertDweller.

I agree with the others. Should look to ditching the advisor.

Also, learn the most you can about doing it on your own. It's freeing (hopefully not fearful) knowing that you are calling the shots when it comes to your own money. Plus, it's also satisfying when things aren't working right to have no one to account for but yourself.

 

[Texas Proud]

+ whatever number is next on ditching your 'financial advisor' from the bank....


First... they are not independent.... they are pushed to sell bank proprietary items that generate big fees for the bank... NEVER... and I repeat... NEVER take investment advice from someone who works at a bank...

With the money you have... you can get a free or cheap reveiw by Fidelity or Vanguard and they will put you in some decent mutual funds and you can be blissfully ignorant of you investments and still feel like you are not being ripped off...


PS... if you go back before the crisis... I would bet that close to 100% of investment advisors would have said Fannie and Freddie were safe investments... including the ones you are talking to now....

 

[Sarah in SC]

NO one, and I mean no one, cares as much as you do about your money. Abdicating that role is never a good idea. That doesn't mean you can't hire advisors or money managers, but it does mean that you have to know what you are invested in and why. And that you are ultimately responsible for the outcome of those choices that you have made as regards your retirement money.

Educating yourself about suitable investments is not out of the realm of your understanding. Even if in the end you buy the annuity, it should be with the full understanding not only of what you are buying, but also (perhaps more importantly) what you are giving up to buy it.

I do wish you the best in your attempts to educate yourself about your options.

 

[FinanceDude]

Here is where your financial advisor learns about the best investments to recommend to clients: http://www.registeredreps.com/
Then to read about what registered reps think about you, go to this site: Registered Rep Forums |

More fake advisors on there than an online dating service!

 

[FinanceDude]

Vanguard has lower cost annuities. I have heard this from others, but I have never purchased any annuity for myself.

AFAIK, still underwritten by AIG, which still owes us taxpayers $50 billion or so. I wouldn't buy an annuity from AIG if I was at gunpoint......

 

[67walkon]

If somebody was a really good financial advisor, would he or she be working at a bank? Think about it. If they were really good, they would be doing it on their own and making a lot more money.

We had a mega bank taking care of our 401(k) and supposedly giving us fee based advise on that and our other investments. When my company switched the 401(k) to a small office of Edward Jones, it was amazing how much personal attention we started getting. We pulled our investment account from mega bank and stuck it with the EJ guy. Since our company has its 401(k) there and we have a seven figure account, they don't charge us except on a transactional basis. We buy and hold, so there aren't much in the way of charges. And we get all the info the backroom guys at EJ give their independent offices.

We have a plan and we asked the EJ to analyse it. My wife and I have talked about paying somebody a couple of thousand to go over the plan with us, but I think it works and the people at Edward Jones think it works, so we haven't gotten around to the truly independent advisor. We probably should, though. By the way, there are no annuities in the plan. Some muni bonds, AMT exempt, some stock and right now a fair amount of cash. Outside the EJ acccount, we've got a rent producing commercial property and another vacant commercial property that we've got listed and are in no hurry to sell.

 

[travelover]

........ When my company switched the 401(k) to a small office of Edward Jones, it was amazing how much personal attention we started getting............

Do they send you birthday cards?

 

[Nords]

When my company switched the 401(k) to a small office of Edward Jones, it was amazing how much personal attention we started getting. We pulled our investment account from mega bank and stuck it with the EJ guy. Since our company has its 401(k) there and we have a seven figure account, they don't charge us except on a transactional basis. We buy and hold, so there aren't much in the way of charges.

I understand that EJ doesn't charge you-- but out of curiosity, what's the expense ratio of the funds they have you in? And what's your overall expense ratio for your portfolio?

 

[Helen]

Then to read about what registered reps think about you, go to this site: Registered Rep Forums |

Wow, my blood is boiling reading the registered rep forums. But, I did get a chuckle over this thread:

Responding to the Do It yourself (DIY), passive, anti-fee investor | Registered Rep Forums


Thanks for the link, LOL!

-helen

 

[DesertDweller]

Thanks, everyone, for taking the time to respond to my post, and especially for your suggestions on gaining more knowledge about investing.

I think, however, I need to clarify a few points. First of all, the reason I got hurt by the advice to purchase bank preferreds and Fannie/Freddie stock was the financial crisis. My advisor at the time was trying to respond to my low risk tolerance. She could hardly have known that the banking system itself was in jeopardy. Nor could she have anticipated that Henry Paulson's "bazooka" in his pocket would be used against Freddie/Fannie shareholders. So I don't blame her for anything, and I do think she was committed to looking out for my interests and addressing my concerns.

Similarly, I believe the same thing about my current advisor. He seems to me a very knowledgable person who again is attempting to respond to my need to sleep at night rather than worry about my assets. I'm the one who suggested annuities, although at the time the only kind of annuity I knew about were SPIAs. Over the last two years he has spent many hours with me at no charge whatever, and if he makes a commission on anything I can hardly begrudge him that, if what he recommends does in fact meet my stated needs.

I generally believe that most people try to do the right thing, including financial planners and investment advisors.

What concerns me is this unprecedented, unstable market environment, which dramatically increases my anxiety about risk. I did read one book recently, which I believe was called something like "Investing Made Simple", which made the case for a DYI approach using Vanguard funds. Following the advice with respect to one of the suggested portfolios in the book would have netted one exactly zero gains between 1997 and now.

Thanks again for your help.