Ameriprise?

[Lisa99]

Buffet is my idol. And if your FA could do what Buffet does he wouldn't be working for Ameriprise he'd be starting his own firm like Warren did when he was in his 20s

 

[target2019]

And in his defense, he's averaged 14%. I had omitted one account and some reserve cash in my previous estimate. Still almost 7% worse than my unmanaged 401k.

You'll be ok. As you do these comparisons of performance, it is a moving target. If you had unlimited time and all of the transactions for Ameriprise account, 401(k), and compared to a baseline of S&P500 or similar, you'd have the same problem in front of you: What next? It sounds like you're moving forward, and I wish you well with self-management.

 

[2B]

You'll be ok. As you do these comparisons of performance, it is a moving target. If you had unlimited time and all of the transactions for Ameriprise account, 401(k), and compared to a baseline of S&P500 or similar, you'd have the same problem in front of you: What next? It sounds like you're moving forward, and I wish you well with self-management.

Picking one index is a poor comparison with an actively managed account. You really need to look at blended index portfolios.

Trying to compare specific indexes with individual mutual funds are more difficult. A fund that calls itself "large cap" might have migrated into significant mid and small cap holdings.

 

[Snidely Whiplash]

1) If the broker gets compensated based only gains, then he would definitely have an incentive to take very aggressive bets. Hey, the worst that can happen (on that particular account) is that he makes nothing (while the customer loses a big %age of his money), and if he "wins", he gets a big payoff. Not well aligned with the customer's interests, IMO. I think it may also be improper/illegal.

Why would that be? Solely because of the incentive to make "aggressive bets"? In my mind, it seems a more fair arrangement (performance based) than a flat fee or loads would be.

 

[target2019]

Picking one index is a poor comparison with an actively managed account. You really need to look at blended index portfolios.

Trying to compare specific indexes with individual mutual funds are more difficult. A fund that calls itself "large cap" might have migrated into significant mid and small cap holdings.

I agree. Instead of writing "S&P500 or similar," I could have written, "S&P500 or whatever." But in discussing these types of successes, I think it is more common to hear, "but you could have put it all in Wellesley or S&P500 and done better."

In the case of OP, his FA is trading in some unspecified way, so what could we compare it to? I would think an index of S&P500 is a good as any other to benchmark the FA.

But that is all in the past. The OP can decide several benchmarks, and have a valid comparison in the future.

 

[Rustward]

Why would that be? Solely because of the incentive to make "aggressive bets"? In my mind, it seems a more fair arrangement (performance based) than a flat fee or loads would be.

Snidely, when you go to a doctor, do you pay only if you get cured, or do you pay to be treated?

 

[samclem]

Solely because of the incentive to make "aggressive bets"?

Yes, but I think that's enough. For example, let's say the FA gets nothing if the account breaks even or loses money, but 10% of gains. There are two FA's with this arrangement: Paul Prudent and George Grandslam. They both have 10 clients with $1 million each.

Paul Prudent puts his 10 clients in well-balanced and diversified portfolios, they each gain exactly 10%. He takes home $100,000, nobody loses any money.

George Grandslam has thought about this and realizes that his compensation is heavily weighted to rewarding increased risk. He puts the entire portfolio for each client into one long-shot stock (10 different stocks). As he anticipated, 9 clients lose 50% of their money, but one client's stock goes through the roof, and he gains $2.5 million in one year. George takes home $250,000.

Mr Prudent had overall investment results (10% of all AUM) that were over twice as good as Mr Grandslam, but Grandslam was paid 2.5 times as much money. Which advisor would we rather be with? Is this FA compensation scheme congruent with the interests of the clients?

Obviously, this is an extreme illustration, but compensating an advisor based on gains (without penalizing them out of their own pocket for losses) would provide a strong incentive for them to take high risks, even uncompensated ones. They would be induced to swing for the fences with each client, even if it leads to a lot of striking out. Most investors just need to consistently get on base. "If you don't make money, I don't make money" sounds "fair," but it hides the reality of where the risk would really lie.

Anyway, I seem to recall (not sure) that compensating advisors based on gains is against the law or against some sort of blood oath that they sign.

 

[Tom52]

Why do you have to roll the inherited IRA into an annuity? Usually it can be rolled into a beneficiary IRA - and if the person you inherited from was over 70.5 (taking RMDs), you start taking RMDs on your own record.

You can roll the inherited IRA, aka beneficiary IRA to another brokerage. I did this with an IRA I inherited from my father.

There's no law, that I know of, that requires you to convert the inherited IRA to an annuity. I would ask long and hard questions about this.

The inherited IRA was a rollover IRA that was already in an annuity. I understand you can't un-do it out of an annuity so my choices are limited. It's not a big deal as the total account value is only about $15,000.

There are several other annuities that were never in payout so my only options are to annuitize or cash out. This is the frustrating part since my share of the total is about $150,000, of which $40,000 is not subject to taxes which I will cash out. The remaining $110,000 only has the options to cash out and pay the tax bite or annuitize over a chosen number of years. I am not complaining as the annuities are a small % of the inheritance.

 

[target2019]

Snidely, when you go to a doctor, do you pay only if you get cured, or do you pay to be treated?

Also, insurance companies have something to say about doctors' fees. In the FA business fees vary widely. So the marketplace for medical and financial is not the same, I'd say.

 

[explanade]

Didn't want to make a new thread.

Just happened to run across some news about how big Ameriprise is and how much their CEO has made over the years:

$97 million in 2013, $45 million in 2014 based on stock options. But got his pay cut to only $20 million in 2015 due to some declines in the business:

https://www.google.com/url?sa=t&rct...mapWUY88VdTtlBMTg&sig2=RZfnSNiQNqoRoMtuZFkmQw

But the pay of the CEO of a similar-sized financial services firm, also headquartered in Minneapolis, is a lot less:

Thrivent Financial and Ameriprise Financial are far more alike than they are different, both big financial services firms with headquarters just a block from each other in downtown Minneapolis.

Both manage money and sell financial products like annuities through a network of representatives.

There are big differences, of course. Thrivent is organized for the benefit of its members. Ameriprise’s stock trades on the New York Stock Exchange. But there’s maybe no difference quite as striking as this:

The top job at Ameriprise pays 25 times more than the top job at Thrivent.

A well-intentioned communications staff member at Ameriprise pointed out that the company’s large size really distorts such comparison, as Ameriprise is ranked 263 on the latest Fortune 500 list.

Yes, but Thrivent is ranked at 325, not that far down.

Brad Hewitt, Thrivent Financial’s CEO, made $3.55 million in salary and incentive pay in 2012.

Brad Hewitt, Thrivent Financial’s CEO, made $3.55 million in salary and incentive pay in 2012.

“Oh,” he said.

Schafer: Two similar firms differ wildly on CEO pay - StarTribune.com

The Wiki entry on Cracchio says Ameriprise provides financial planning services to the "mass affluent and affluent." Not sure what the difference is.

https://en.wikipedia.org/wiki/James_Cracchiolo

But the Ameriprise Wiki says in 2010, it had 3 million clients and managed assets of over $672 billion:

https://en.wikipedia.org/wiki/Ameriprise_Financial

Amazing that it is so successful, though it's been hurting more recently:

The CEO’s total compensation was cut to $20.7 million from $24.5 million, driven by a decrease in non-equity incentive plan compensation, the Minneapolis-based firm said Friday in a regulatory filing. Awards were also lowered for Chief Financial Officer Walter Berman, Global Chief Investment Officer Colin Moore and William Truscott, the CEO of global asset management.
Asset managers have come under pressure as some clients withdrew funds, and volatile market swings hurt investment results. Ameriprise faced outflows at its Acorn Fund over the past year, and the company also exited a travel insurance venture in 2015 after it failed to meet profitability targets.
“Total direct compensation for each of our named executive officers was lower in 2015 based on company performance,” Ameriprise said in the filing, which labeled 2015’s results as “solid” compared with the description of “excellent” in the comparable document a year earlier.
Ameriprise slumped 20 percent in New York trading in 2015, the worst drop since 2008. The stock had more than doubled in value in the three years through 2014.

Ameriprise Cuts CEO Pay 15% to $20.7 Million After Stock Slump - Bloomberg


Now we know where those fees go.