Another Financial adviser story

[redduck]

Of course there is always this:

"On May 20, the Securities and Exchange Commission filed an emergency civil action accusing James Putman and another employee of Wealth Management in Appleton, Wis., of taking $1.24 million each in kickbacks related to certain investments they were making for clients.
The S.E.C. also accused the pair of fraudulent conduct relating to how they allocated $102 million in client funds, much of which now appears to be gone.
Given the unfortunate prevalence of this sort of behavior, the charges would not be headline news were it not that Mr. Putman is a past president of the National Association of Personal Financial Advisors. Napfa is an organization of financial advisers that make money only through fees that clients pay directly to them." (note by redduck :It seems like client fees aren't the only way the some FA's make money).

(NY Times, June 5, 2009)

note: highlighted by redduck

 

[Fedup]

Is this a misstatement? You avoid no load funds? You insist on paying loads/fees?

Your choice but I'd love to hear why you think this is preferred.

Personally I stick with no-load index funds.

I posted too fast. I meant to say I avoided the loaded mutual funds. No load mutual funds don't charge the 3-5% up front. Years ago some mutual funds have them.

 

[MRG]

I posted too fast. I meant to say I avoided the loaded mutual funds. No load mutual funds don't charge the 3-5% up front. Years ago some mutual funds have them.

Years ago? Many still do. Last I looked American Funds still charged a 5.75% FE load.

 

[Fedup]

Years ago? Many still do. Last I looked American Funds still charged a 5.75% FE load.

They were the ones I remember. I have not checked them lately, but I think Fidelity also had some loaded mutual funds years ago and I don't know if they have them any more.

 

[SumDay]

Can you tell elaborate a bit on how this all works? Do you pay your FA by the hour? If you just want Vanguard products would the FA be on board with that? Do you get a birthday card?

I think it depends on the FA. Ours charges more for the first visit, which is more extensive - it took three hours. Follow-ups are about the cost of the average plane ticket. We also get unlimited phone calls, and emails when we have specific one-off questions. She must be doing OK - it took us two months to get our bi-annual follow-up visit.

We had to provide detailed spending records, which she had no problem critiquing. "You give quite a bit to church, look for a cheaper cell plan, do you need all those cable channels", that kind of stuff. We wanted validation that we could move to a maintenance free community (DH has some residual issues from cancer treatment) and I had lots of questions about RMDs, withdrawal rates, when to take SS, etc. She's really focused on the "it's not how much you have, it's how much you spend." She gave detailed instructions on how & what to rebalance, and where to direct future 401(k) contributions.

I'm kind of an insecure investor, so it helps me sleep to have a second opinion (DH is totally uninterested).

Our FA would be fine if we were all in Vanguard - she loves them. All our $$ outside our 401(k)'s is at Vanguard. She also analyzes our 401(k) fees and returns.

I chose one in our city, but know some have no issue with doing it long distance. I liked sitting down with her & looking her in the eye.

Hope this helps - glad to answer any other questions.

 

[FlaGator]

So sorry to disagree with you, but the only meaningful assessment of my personal situation is the one I choose to make.

Your vote does not count.
-----------
Ok, I concede, the measure of an FA's performance/value should consist entirely of how you feel.
----------------------------------------

This is why I no longer participate in any discussions about FAs.

Doesn't matter that someone was able to pull the plug early and have a comfortable life, if wasn't done in a manner approved by some anonymous wizard, you have obviously failed

Furthermore, the presumption that someone in such a position failed to make a single sound decision about their money, much less a series of them over the years, defies logic.

 

[Scuba]

It does seem to me that many on this forum perceive FA's to be unethical. While there are certainly some that are, many I've interacted with are highly ethical and like other professionals, they work to generate the best outcomes for their clients.

Having or not having an FA is a personal choice. Some of us prefer having an FA or a team to support our wealth management, and some prefer the DIY approach. Somehow those of us who like our FA's have still been able to RE, so we must be doing OK. I measure our FA's performance net of fees vs a blended index based on our AA. So far, so good.

 

[Koolau]

I've worked with financial guys/gals. Most were incompetent and at least one was unethical (to the point of IMO fraud though it wasn't worth the effort to try to bring charges or even sue for damages - the guy declared bankruptcy before anyone could try this.) But I'm sure there are some good ones out there - somewhere.

Financial Advisor (or is it Financial Planner or both?) is a term that virtually anyone can call him/her self IIRC. It may vary state to state. Many of these FA/FP types take short courses or on-line courses which allow them to put a series of initials behind their name. Some even go so far as to get a (forgive me if I get this wrong) a Series 7 license. IIRC this allows them to sell certain products. It IS a rather rigorous process as I know someone who did it. BUT it doesn't insure ethics or even competence and it certainly doesn't insure a fiduciary relationship with clients IIRC. Also, IIRC there is the Certified Financial Planner (CFP?) which does require a rigorous education/testing program. I would still consider using a CFP if I could hire one for a specific issue/event/planning session on a per-hour basis - AND if s/he SOLD NOTHING but their time. Even CFP doesn't guarantee fiduciary responsibility to my knowledge - as always, I'm telling you way more than I actually know, so take it with a salt shaker full of grains of salt - and do your own research as always 'cause YMMV. IOW Free advice is worth what you pay for it.

I'm glad Scuba found a "good" FA. I hope it continues to work for her. I just finally figured out that NO MATTER WHAT THE FA TELLS ME TO DO, I'm still responsible for the results AND I PAY ALL THE CONSEQUENCES OF BAD ADVICE. So as Signor Ugarte (Peter Lorre in Casablanca) said "I've found myself to be much more affordable..." when it comes to financial planning. I can screw up my finances just as well as a professional - and it costs me nothing for my own advice. If I want "free" advice, I'll come here!

But I'm not bitter.

YMMV

 

[OldShooter]

@Koolau, if you look back at my post #32 I think you will find a little more clarity on the various (and very different) flavors of FAs.

... While there are certainly some that are, many I've interacted with are highly ethical and like other professionals, they work to generate the best outcomes for their clients. ...

+1 I just finished helping with proposal evaluations from eight FAs to manage a $4M pot for a nonprofit, including interviews with existing customers and face-to-face meetings with four firms at various places around the country. While there were differences in experience, philosophy, and style, there was not a single one that I would not trust completely. Not coincidentally, all were RIAs.

All that said, it is a jungle out there. Screening for RIAs helps, as does using BrokerCheck (https://brokercheck.finra.org/). I don't give much weight to existing customer opinions, though, unless the customer is quite sophisticated. For the "usual" FA customer the opinion is going to be more of an evaluation of whether they like the FA personally, whether he/she takes them to dinner, remembers their birthdays, etc. Kind of like those sites where reviews of doctors are posted -- completly useless for finding a technically skilled doctor but very handy if your goal is finding a nice guy.

Continuing the riff, I know an FA from a very reputable company who is an excellent financial counselor for people, active in his church, honest, and well-liked by anyone who knows him. His investment skills, however, cost his clients roughly 200bps a year in addition to his wrap fee. IMO there are a lot of guys like that in the spectrum too.

 

[Rustward]

When I'd consider use a financial advisor.
1. They charge by the hour
2. They do not sell anything ever!
3. It never takes more then a couple of hours.
4. I am so totally uncomfortable with financial transaction and I can't feel comfortable opening an account with Vanguard and dumping my investments into 4 low cost index funds.

Otherwise for the average person I'd avoid them like the plague.

RobbieB ...are your results after the fees? It is unclear.
S&P YTD +10%
2016 +12%

So your results could actually be poor given the amount of risk you've taken.

Study after study show the professional investors won't beat the S&P
Over time.

Would it be possible to have a defensive portfolio that over several up and down cycles could overall perform as well or better than the S&P? We have not seen a down year for quite some time. Same overall return with smaller swings up and down.

I think comparing just a year and a half is a little shortsighted.