Another advisor horror story

I am dealing with a similar situation right now. I was wondering if anyone could recommend a good book to give to the person (perhaps as a Christmas present...). Maybe instead of coming from me, if it comes from a book that I give them, and then they read by themselves, it would sink in. Any recommendations? I'm looking for something addressing just the managing money aspect, with introductions to fee ratios etc, not the lifestyle aspect (i.e. millionare next door or rich dad poor dad).
 
HFWR said:
Actually, it was I complaining... Finance Dude is one of THEM! ;)

Sorry, just because you CAN do something, doesn't mean you SHOULD... :-\
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Perhaps you should define "one of them".........meaning that a blanket statement about ALL in the financial services industry is an uninformed comment.......... ;)

Plus, I keep hearing everyone on here talk about 5% this and 5.75% that like every fund charges the same, there are no breakpoints, etc......you guys are funny.......... :D :D

Since I am a 100% fee-based advisor, why are we talking about high load mutuals anyways?? :confused: :confused:
 
MacDaddy, get them one of Bogle's books. (maybe the shortest one?)
 
FinanceDude said:
Perhaps you should define "one of them".........meaning that a blanket statement about ALL in the financial services industry is an uninformed comment.......... ;)
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Shirley, you jest... :D
 
HFWR said:
Shirley, you jest... :D
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A lot of the time I do..........this is not one of them. I realize there is an unabashed hate of advisors from you and others on this board...........the reason I am on here is because my clients are not a lot different than the people on this board...........the big difference being they believe FAs like me can help them, and you guys believe people that have money that fire advisors are lazy and uninformed.

The average net worth of my clients is $2-$4 million dollars. And although a number of them have money at Vanguard/Fidelity/Schwab, it's not 100% of their portfolio like it is for almost everrybody here.

Vanguard and other folks have found a way to commoditize the investment business. The model has worked extremely well since 1975 or so. A lot of people ARE DIY, and I have no problem with that. Folks on this forum are not going to hire me or anyone else for that matter to advise them on what to do............to each their own.

I wonder if legal advise or medical advise or other services can be commoditized too..............maybe that is the future........

I do, however, find it interesting that despite the Internet, Vanguard, Fidelity, and others, the statistics that only 5% or so will be FIRE hasn't changed much in 30 years............that is the real tragedy, that the average American does not KNOW or CARE how retirement will treat them............... :eek: :confused:

I respect your arguments, but I feel justified to defend myself from personal attacks.......... ;)
 
I was just joshin'; note the wink...

I really don't have an opinion, other than I don't use a FP. Still, anyone selling crappola to an 85yo should be ashamed of themselves...
 
HFWR said:
I was just joshin'; note the wink...

I really don't have an opinion, other than I don't use a FP. Still, anyone selling crappola to an 85yo should be ashamed of themselves...
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Agree...........wonder what the kids think about a scenario like this?? Seriously, there is WIDE DISPARITY between the Compliance Departments of different insurance/brokerage firms.

I know that if I would have done that at any firm I have worked at, I would have been fired, plain and simple...........
 
FinanceDude said:
Agree...........wonder what the kids think about a scenario like this?? Seriously, there is WIDE DISPARITY between the Compliance Departments of different insurance/brokerage firms.

I know that if I would have done that at any firm I have worked at, I would have been fired, plain and simple...........
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Finance Dude, could you define what "that" is that would have caused you to be fired? Is it selling loaded funds? Is it selling a variable annuity? Is it using a high expense ratio fund?

It seems to me that all of the above are common practice with many firms. Don't you agree?
 
Finance Dude-

First, let me say, I appreciate the fact that you provide insight and advice that comes from a different perspective, which is often quite helpful.

That being said, and honestly NOT trying to be haggy or anything - I just am curious regarding "fee-based" financial advising charges.

Let's start off by saying any professional deserves to be paid well if they are providing good/great service for their fees. For example, I don't mind paying our attorney his fee of $300 per hour :eek: because he is worth every penny and we use his services sparingly.

To continue regarding FA fees, you stated:

"If that doesn't work, offer to pay for an hour consultation with a local CFP. You can find them through referral or at www.fpa.net. They charge from $75-$250 an hour most areas. "

"The average net worth of my clients is $2-$4 million dollars. And although a number of them have money at Vanguard/Fidelity/Schwab, it's not 100% of their portfolio like it is for almost everrybody here."

and can't find the exact quote, but you posted YOUR rate schedule through your agency with I believe a minimum fee of .35% on assets over one million.
(I do understand you work for an agency and don't set the rates yourself)

Here is my question and point:

If I were one of your typical clients - having $3M in total assets (not including real estate), you would automatically charge me .35% per year ($10,500) for your services. If I have most of my assets in Vanguard, but need some help from you to make sure I am on the right page for SWR, diversification/risk, and tax implications - wouldn't I be (much) better off with another (capable) fee-based FA who charges me by the hour. Again, assuming I have a good idea what I am doing and I just need fine tuning? I just don't understand how you can be "fee-based" and yet charge me by a percentage of my net-worth. It doesn't sound congruent to me.

Also, if you advise only on a portion of someone's portfolio - do you just charge on that? Again, wouldn't you be better off (as a CLIENT) to pay hourly? Also, once the initial stuff is done - it should be pretty much set it and forget it, so again an hourly fee to come back once a year for a check up but not to pay $10,500 for that privilege/service?!? :p

I actually like your posts and that you tend to be so cool - headed, so please don't take this personally! Also, you really do seem to have your clients best interests at heart from what you say here. I just can't see giving ANYONE a % of my hard-earned stash. If you could explain why this is kosher, I would sincerely appreciate it.

Thanks!

Jane :) (hoping you are taking this interragation ok - ::))
 
Bob_Smith said:
I have a fair number of people who ask for input. Four "rules" I follow:

1) First I make sure anyone requesting help understands the importance of self-education and the high costs and risks associated with using investment professionals.
2) I refuse to make investment decisions for anyone except our aging parents (and only if they request it).
3) I won't discuss investments with anyone who isn't willing to read at least two good investment related books. That eliminates 95% right there.
4) I insist that the person requesting "advice" get a decent grasp on historical returns and inflation by examining the Stocks, Bonds, Bills, and Inflation series.

Bob Smith -

Great post!

I would like to nominate it to be in "Best of Boards" as a topic of how to give financial advice! (Monitors?)

Luckily ( :-[ ??!!), not too many people ask me about financial advice! But someday, I hope to be at least semi-capable of helping family members.

Have a great day!

Jane

I can count on one hand the number of people willing to jump those hurdles. Most just want someone to tell them what to do... they believe in "gurus" who can get them into investments that only go up, and I refuse to play that game. Off-hand I can recall only five who got to the point where we discussed specific investments - my MIL, my daughter, my secretary, one co-worker, and my father. This approach has prevented a lot of wheel spinning and wasted time.
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Jane, I think FD will answer and I hope he does, because I am curious about the exact mechanics of how the advisor fee structure works.

But as a prelude, I would be willing to bet that his larger clients expect and demand at least $10.5k worth of service every year. In addition to planning, updates, tax stuff, estate planning, etc., there is usually a LOT of hand-holding that goes on here. You and I don't need hand-holding, but then again we aren't typical advisor customers. The need to do hand holding is probably the #1 or #2 reason I find the career unappealing (the other is liability).
 
Brewer -

You're right! I think I would make a typical advisor uncomfortable with all my questions - and I am sure they would be totally intimidated by you if you ever bothered to consult with one! I actually would consider it, once we ever sell our property and I have my plan all figured out then to pay hourly just to get a perspective.

Looking forward to hearing FD's reply .........

Jane :)
 
Jane_Doe said:
and I am sure they would be totally intimidated by you if you ever bothered to consult with one!
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Yeah, something about me having more letters after my name than them and the fact that I manage 10X the amount of money they do would probably not go over too well.
 
JustCurious said:
Finance Dude, could you define what "that" is that would have caused you to be fired? Is it selling loaded funds? Is it selling a variable annuity? Is it using a high expense ratio fund?

It seems to me that all of the above are common practice with many firms. Don't you agree?
Click to expand...

Some firms take the "know your customer" rule and expand it. Others use suitability forms (internal) that keep their advisors in check. The firms I worked for did both...we had a branch manager who personally reviewed the new account forms, as well as monitored trading in client accounts. They were VERY sensitive to VA sales, particularly large dollar amounts and clients over 60, because Compliance told them the NASD was looking closely at these types of sales, and they didn't want an inquiry about sales practices at the firm........

I know a lot of insurance salespeople sell VAs like they are candy, but they don't need th client to sign a form where ALL the yearly charges, surrender schedule, and warnings about the client's potential to lose money, and NOT FDIC insured in big block letters on a sheet of paper. Most of us just didn't sell them, as our firm made it very difficult to do so......... ;)

I always get confused about the "high-load" mutual funds you guys talk about......there must be some confusion out there. "Load" mutual fund shares are primarily 3 types: A,B,and C.

A shares: The highest load I know of is 5.75% on the FIRST $25,000 of investment. Most firms discount the front end load at dollar increments above that. Pretty much every firm drops their "Load" to 3.5% once the amount invested is over $100,000, etc.

B shares: I don't use them, but they exist. Works like an annuity, with a 6-7 year surrender charge for early redemption. These shares typically have an ER higher than A shares by .75% a year.....after the surrender charge, they convert to A shares, with the lower expenses.

C shares: Invented in the early 90's to "combat" the growth of no-load funds, they charge an internal ER that is roughtly .75% higher than A shares, but the .75% (12b-1) goes on forever........so the regulators aren't really keen on these. Client pays nothing to get in, has to hold them a year, but I am not a fan of these either........

Compared to Vanguard, I guess ALL loaded funds would be considered "high cost". Probably 95% of my business when I used load funds was in American Funds, due to their low expenses ( about half of the average load fund)

I am not afraid to answer any questions you guys throw at me........
 
Jane_Doe said:
Finance Dude-

First, let me say, I appreciate the fact that you provide insight and advice that comes from a different perspective, which is often quite helpful.

That being said, and honestly NOT trying to be haggy or anything - I just am curious regarding "fee-based" financial advising charges.

Let's start off by saying any professional deserves to be paid well if they are providing good/great service for their fees. For example, I don't mind paying our attorney his fee of $300 per hour :eek: because he is worth every penny and we use his services sparingly.

To continue regarding FA fees, you stated:

"If that doesn't work, offer to pay for an hour consultation with a local CFP. You can find them through referral or at www.fpa.net. They charge from $75-$250 an hour most areas. "

"The average net worth of my clients is $2-$4 million dollars. And although a number of them have money at Vanguard/Fidelity/Schwab, it's not 100% of their portfolio like it is for almost everrybody here."

and can't find the exact quote, but you posted YOUR rate schedule through your agency with I believe a minimum fee of .35% on assets over one million.
(I do understand you work for an agency and don't set the rates yourself)

Here is my question and point:

If I were one of your typical clients - having $3M in total assets (not including real estate), you would automatically charge me .35% per year ($10,500) for your services. If I have most of my assets in Vanguard, but need some help from you to make sure I am on the right page for SWR, diversification/risk, and tax implications - wouldn't I be (much) better off with another (capable) fee-based FA who charges me by the hour. Again, assuming I have a good idea what I am doing and I just need fine tuning? I just don't understand how you can be "fee-based" and yet charge me by a percentage of my net-worth. It doesn't sound congruent to me.

Also, if you advise only on a portion of someone's portfolio - do you just charge on that? Again, wouldn't you be better off (as a CLIENT) to pay hourly? Also, once the initial stuff is done - it should be pretty much set it and forget it, so again an hourly fee to come back once a year for a check up but not to pay $10,500 for that privilege/service?!? :p

I actually like your posts and that you tend to be so cool - headed, so please don't take this personally! Also, you really do seem to have your clients best interests at heart from what you say here. I just can't see giving ANYONE a % of my hard-earned stash. If you could explain why this is kosher, I would sincerely appreciate it.

Thanks!

Jane :) (hoping you are taking this interragation ok - ::))
Click to expand...

I get interrogated by folks not so different form you guys everyday, so I take no offense............ :D :D

There are two kinds of advisors, IMO. Fee-based advisors and Hourly-fee advisors. I think "fee-based" is over-used and misunderstood, so I'll differentiate:

1)Most people think of a "fee-based" planner as a CFP, who charges an hourly rate and/or a flat fee to "do a plan" and make recommendations. VERY FEW of these folks actually do the investing, they give recommendations and leave it up to the client to either follow the plan or not. They will do follow-up reviews with you for an hourly fee, and so on. They work much like an attorney or CPA with billable hours.

2)Fee-based advisors: Are folks like me who charge a fee on the amount of assets I manage for you. The industry is moving rapidly in this direction, and away from the traditional "stock jockeys" and "jack-of-all-trades" brokers of days gone by. Because I licensed as an RIA (Series 65), I can solicit clients and put them in managed money accounts or manage the assets directly myself, as I have a Series 7. The fees I charge have a maximum and minimum to them. I could charge as much as 1.25% on a $1 million portfolio, and there are some doing that. However, I have chosen to adjust my compensation to the lower end of the scale because I have found that larger accounts need less hand-holding thean smaller ones, and I want to be competitive in my area.

We have very good software for doing individual financial plans for clients, and the firm has stated we can charge up to $500 a client for a review. I know Ameriprise and others typically charge $1000-$1200.........but we have pretty much the same software......... :LOL: :LOL: I have decided NOT to charge for doing a plan, because I believe that most clients do not want to pay for a financial plan AND for ongoing advice......... ;)

What do you get for the fee? I wish I could say I am the next Warren Buffett or Peter Lynch, but I think Brewer is much closer than me to that lofty perch........ ;) Basically my clients are those that don't want to manage their own money (they like that I'm accountable), or don't want to learn how to manage their own finances.........

For the flat fee, the client gets from me:

1)Complimentary financial plan or review

2)Quarterly meetings at a minimum, or more when situations arise

3)Introduction to my personal referral network, encompassing everything from CPAs to estate planning attorneys, to real estate guys to commercial lenders to M&E specialist, business brokers, etc, Lifetime MDRT specialist, etc. I even have negotiated loans and car purchases on behalf of my clients.

4)They have 24 hour access to me, as I give them my cell phone number and pager number.

5)Investment Policy Statements, reviewed annually, 24/7 web-based performance reports, etc.

6)Twice yearly seminars where I bring in experts and cover taxes, IRA limits, distribution rules, 72T, a host of investment topics.



And as you guys probably have guessed, I have had a few take my recommendations to Schwab/Vanguard/Fido/TD Waterhouse in the past 10 years..........but if that's the way they really want it, they had no intentions of using an advisor long-term anyway......... ;)

I have less than 100 clients, and plan on keeping it that way.........

5)
 
Very interesting, FD. What do you do for professional liability insurance?

Do you invest in individual stocks and bonds for your clients, or stick strictly to funds?
 
FinanceDude said:
.... I realize there is an unabashed hate of advisors from you and others on this board...........the reason I am on here is because my clients are not a lot different than the people on this board...........the big difference being they believe FAs like me can help them, and you guys believe people that have money that fire advisors are lazy and uninformed.
Click to expand...

That "fire" above should be "hire", right?
 
I may be one of those select few on this board that actually uses an advisor. The reason I do that is that beyond a specific liquid net worth, I did not want to manage my own portfolio on a day to day basis. :eek: Of late, I have started taking more vacations and spend more time on my boat.

I pay a 0.5% wrap fees to the advisor to manage the accounts. As all funds are not made equal(high load / low expense), neither are the advisors. Similar to funds, there are more bad advisors than good.

Do I view the fees paid to the advisor as an expense. Yes. But as long as he beats the portfolio's asset allocated average index after charging for the advisory fees, it works for me. For the same time and effort that I put in now, I would have matched the index by putting it in a low expense/no load index funds.


The cheapest and most reliable option is not always the best one.
 
FinanceDude said:
There are two kinds of advisors, IMO. Fee-based advisors and Hourly-fee advisors. I think "fee-based" is over-used and misunderstood, so I'll differentiate:
Click to expand...

FD, I appreciate your honesty and enjoy your view on the situation so this is not a dig at you but in my experience the distinction always used to be:-

Commission-based - no up front fee to client, advisor paid by the investment companies, often a large chunk of the initial up-front load

Fee-based - a fee charged for planning and if on-going management included then transparency on payments received from investment companies, which are often used to offset fees.

I think your description is an obfuscation of the term "fee-based" which sounds like an industry response to the public realising they are being excessively charged.
 
Bourne said:
[...]
But as long as he beats the portfolio's asset allocated average index after charging for the advisory fees, it works for me.
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I wonder how one determines that the advisor beats his benchmark? We have seen in the YTD threads that there are numerous ways to calculate a return-on-investment. And we also know that one cannot beat a benchmark that has no fees while paying fees. So something is fishy here.

I see nothing wrong with paying fees, but one should be getting the best value for those fees and not just throwing money away.
 
brewer12345 said:
Very interesting, FD. What do you do for professional liability insurance?

Do you invest in individual stocks and bonds for your clients, or stick strictly to funds?
Click to expand...

We have E&O through our firm, I pay $200 a month for that.

I started out big in individual stocks. I never relied on our research department becuase their recommended list was pretty bad........... :p :p I used to build portfolios of mutual funds based on the client: Aggressive Growth, Growth and Income, Income, Fixed Income. Our firm had a good wrap program than used primarily insitutional and no-loads with low ER's, and allowed us a lot of leeway in what fee we charged. That was my first foray..........my goal was to get these wrap accounts under 1% as much as I could.............

For a time I did a lot of managed money accounts. However, as a lot of people have discovered, these accounts were quite expensive a few years ago. The manager would take 75 bp, the firm would take 50 bp, and the broker had to charge 50-75bp just to make any money at all................ :p :'( With the Internet, and growth of online shops, the managed money platforms have discounted their minimums to get in (as low as $25,000) and some managers will take as little as 25bp to manage the assets.

I have found a niche, and it's not the "Ten Hot Stocks to Buy Now"............. :D :D :D
2007 is my target year for the CFP. I don't know that I will change my practice to go on an hourly consultative basis, hey I gotta pass the test first.

Much like the MBA helped Brewer, and the CFA helped saluki, the CFP will help me................ ;)
 
FD, just so I understand: you pretty much stick to funds these days?
 
Bourne said:
But as long as he beats the portfolio's asset allocated average index after charging for the advisory fees, it works for me. For the same time and effort that I put in now, I would have matched the index by putting it in a low expense/no load index funds.
Click to expand...

I'm not clear on what the bold portion means. Do you go back and figure out what your return would have been if you had invested in a mix of low cost index funds similar to the ones your FA invested your $$ in and see if you came out ahead? If so, I would submit that is more trouble than just actually investing in these funds yourself and saving .5% every year in fees. If you NOT doing this cross-check yourself and are instead relying on your FA's annual depictions of what your return would have been without his help, then I think there's a real potential you aren't getting an unbiased appraisal. To put it charitably.
 
FD -

Thanks for the response. Glad you didn't take offence! Maybe when you are a CFP you will charge by the hour? or offer it as an option? Anyway, if I used your services, I would feel badly to get the "free" plan and just walk away - it doesn't seem fair. I guess it is like a free estimate (my husband is a retired builder) - you win some, you lose some, but if you don't give them, you won't win any! :)

Have a great day!

Jane :)
 
brewer12345 said:
FD, just so I understand: you pretty much stick to funds these days?
Click to expand...

No, it's about 50/50. The stock portfolios I constructed are composed of companies I have been following for 6-7 years. A number of them are the boring blue chips like Pfizer, Altria, and Proctor and Gambel. I like using funds for international exposure because I feel the info you can get your hands on sometimes about Russian and Chinese stocks in particular is a little sketchy.

I remembered something about mutual funds. A guy I used to work with (since left the business) used to sell Vanguard Funds and wrap them with a fee. He was doing quite well with it, and I have no idea why..........but I know for sure he is out the business now, and that may have been a contributing factor............ :p :p :p
 
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