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Eggs in one meta-basket? Ameriprise all bad?
Old 04-14-2010, 10:49 AM   #1
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Eggs in one meta-basket? Ameriprise all bad?

Until recently I've been managing my own finances, but I got married last year and we're thinking about kids, house, retirement, etc, so I felt I needed financial advice. I asked my friends for a referral to a financial advisor, and got several glowing recommendations.

The first one I talked to was private, and was way too expensive for me -- something like $1100 for a series of meetings and an investment strategy, plus some kind of commission structure to manage our money (which he clearly wanted to do).

The second one was an Ameriprise guy. I hear the groans now (I found this site via the Amerprise thread Is Ameriprise any good?). But this guy was recently rated in the top 4% of FAs in Boston, and we got a great vibe from him on the phone and in a free initial meeting. He's charging us $400 for the year for planning, doesn't require that we invest with Ameriprise, and isn't recommending life or disability insurance until we have a mortgage or kids to protect. He explained his investment recommendations really well, and it fit with my own understanding of what a portfolio should look like. However, he did SUGGEST that we put it all in an Ameriprise account to consolidate our investments, and he WOULD be charging commission fees on that, of around 1%. He made it sound like that was 1% a year, and that it was basically the same as paying the ER on a fund (e.g. Fidelity), but that Ameriprise was buying Class A funds and absorbing the front-end load to eliminate/minimize the ER. It sounded good, but I was suspicious, hence my digging on the internet. I'm trying to pin him down 100% on what those fees are going to add up to, and how they compare to my current 401k at Fidelity. If anyone has any insight I can use to analyze his answers, that would be great.

So anyway, if I don't like his answers I will keep my money somewhere else and take/leave his recommendations as I see fit. BUT, I have a few questions for you smart folks about this whole idea of consolidating our investments in one place. It seems like a really good idea from a convenience standpoint, to be able to log into one website and see everything, get one statement, move things around for free within one uber-account. BUT, that also seems just a bit risky to me. What happens if the company collapses? That seems unlikely, but, y'know, AIG...

Is the money protected in any way from that scenario? Am I crazy to be worrying about that? Am I crazy to be talking to an FA who works for Ameriprise? Am I extra-crazy if I let Ameriprise handle my money? Can I, and should I, set up all my investment vehicles under one roof elsewhere? Vanguard, Fidelity, where would you suggest?

Thanks for any advice!
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Old 04-14-2010, 10:59 AM   #2
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Originally Posted by mickeymao View Post
Until recently I've been managing my own finances, but I got married last year and we're thinking about kids, house, retirement, etc, so I felt I needed financial advice. I asked my friends for a referral to a financial advisor, and got several glowing recommendations.

The second one was an Ameriprise guy. I hear the groans now (I found this site via the Amerprise thread Is Ameriprise any good?). But this guy was recently rated in the top 4% of FAs in Boston, and we got a great vibe from him on the phone and in a free initial meeting. He's charging us $400 for the year for planning, doesn't require that we invest with Ameriprise, and isn't recommending life or disability insurance until we have a mortgage or kids to protect. He explained his investment recommendations really well, and it fit with my own understanding of what a portfolio should look like. However, he did SUGGEST that we put it all in an Ameriprise account to consolidate our investments, and he WOULD be charging commission fees on that, of around 1%. He made it sound like that was 1% a year, and that it was basically the same as paying the ER on a fund (e.g. Fidelity), but that Ameriprise was buying Class A funds and absorbing the front-end load to eliminate/minimize the ER. It sounded good, but I was suspicious, hence my digging on the internet. I'm trying to pin him down 100% on what those fees are going to add up to, and how they compare to my current 401k at Fidelity. If anyone has any insight I can use to analyze his answers, that would be great.
If I were you I would first understand the fee structure. It sounds as if it will be at least 2% all in, and likely more. Then re-read the Ameriprise thread you referenced. If you still want it, have fun! Some people have some truly odd tastes.

If you don't like the fee structure, is there any reason to inquire further? Does he wear Armani suits? Drive a Mercedes AWG?

Ha
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Old 04-14-2010, 11:10 AM   #3
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I would like to suggest that you can easily manage your money yourself. In fact you can go with a one fund solution. So, that you don't even need to think about it anymore.

I would suggest you open up an account with Vanguard and put your money into the Wellington fund or the STAR fund depending on how much money you have to start with. Wellington needs $10k and STAR needs only $1k to buy into the fund. From then on you can add money as little as $100. I think the Wellington fund will do slightly better than the STAR fund but not by a whole lot. You will be in good shape with either one.

This is not optimal in regards to tax efficiency but I feel pretty confident you'll get a better return by not paying high fees on the funds and no 1% fee for the management.
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Old 04-14-2010, 11:17 AM   #4
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How about an acid test: ask him to provide financial advice without any of the funds being moved to Ameriprise.

Consolidation at the provider of your choice is definately convenient. I have everything at Schwab except for DW's solo 401k, a product Schwab is not even vaguely competitive on.
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Old 04-14-2010, 11:23 AM   #5
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If your willing to spend some time. Read, Read, Read, this forum and others like Bogleheads. Bogleheads Investing Advice and Info You will learn plenty. You will be able to save that 1 or 2%, it adds up over the long haul! I'm a fan of Vanguard, low expenses. Good Luck!!!
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Old 04-14-2010, 11:28 AM   #6
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Originally Posted by mickeymao View Post
Am I crazy to be talking to an FA who works for Ameriprise? Am I extra-crazy if I let Ameriprise handle my money? Can I, and should I, set up all my investment vehicles under one roof elsewhere? Vanguard, Fidelity, where would you suggest?
Answers (based on my own experience with Ameriprise):

1) yes you are crazy (you asked)
2) yes you are extra-crazy (you asked again)
3) you can. Should you? It's a question of personal preference. The majority of our investments is at Vanguard, and I am comfortable with that setup. But some people prefer to split their stash.
4) Vanguard and/or Fidelity would do fine...
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Old 04-14-2010, 11:33 AM   #7
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we got a great vibe from him
I suspect that is mostly why he ranks so highly as FA! A lot of these type folks are making money off their charisma!

We have all our investments consolidated at Fidelity. We pay well under 1% ER overall for our mutual funds. I know people mostly at Vanguard pay way less.

Mutual funds are set up in such a way that they are not vulnerable to bankruptcy of the broker who holds them for you. There are quite a few threads here on the subject.

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Old 04-14-2010, 11:46 AM   #8
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1% is a lot of scratch.

I don't know what kind of stash you're talking about but if you're hoping to build a reasonable retirement portfolio you'll eventually get into the six or seven figures. Paying someone $5 or $10 grand a year to sit on a bunch of mutual funds seems pretty steep to me. At that kind of cost (every year) it really does pay to try to learn basic portfolio management and do it yourself.
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Old 04-14-2010, 12:07 PM   #9
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Awesome. Thanks for the replies. As I mentioned I am trying to pin down the exact fee structure -- I have an appt. for a phone meeting in a few days. Trying to do my homework first, so I have maximum ammo for that conversation.

I was already leaning toward brewer12345's recommendation, but I need solid reasons to really convince my (not-investment-savvy) wife that we shouldn't just trust the nice smart man.

I'm aware that 1% is significant, but that is equivalent to the ER I'm seeing on most of my Fidelity funds. Do I understand, then, that if I want to see a lower ER than 1% I should definitely go with Vanguard?

Can anyone tell me whether it is at all likely that this scenario he described is true: I'd be paying him 1% but NOT paying the front-end load on the funds he buys for me?

Thanks!
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Old 04-14-2010, 12:17 PM   #10
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My hunch is that the 1% fee is on top of the fund fees which are probably 1% or more also.

It may be true that he is waving the front load, but you will still have the ER fee most likely.

Also you don't have to go with Vanguard. Fidelity also sells index funds with very low fees. However, Vanguard is probably the best place to find good actively managed funds with the lowest ERs.
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Old 04-14-2010, 12:26 PM   #11
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Originally Posted by mickeymao View Post
I was already leaning toward brewer12345's recommendation, but I need solid reasons to really convince my (not-investment-savvy) wife that we shouldn't just trust the nice smart man.
Just ask her to access her history in other areas with "nice, smart, men." "Have some Madeira, m'dear..."

Quote:
Can anyone tell me whether it is at all likely that this scenario he described is true: I'd be paying him 1% but NOT paying the front-end load on the funds he buys for me?

Thanks!
This is likely true. However, it doesn't say much about the ongoing expense fees from the fund itself, the 12-B1 fees, or the possible surrender fees.

We get posts like yours from time to time. The answer is always glaringly obvious, but sometimes people have their own motivational structure which they must give service to.

If you go with this nice man, will you be sure to come back in the future and give us a report?

Ha
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Old 04-14-2010, 12:29 PM   #12
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I'm aware that 1% is significant, but that is equivalent to the ER I'm seeing on most of my Fidelity funds.
I own a few Fidelity funds and the ER is generally well under 1%. Specifically the money markets and bond funds are quite a bit lower. The equity index funds are way lower. And even several of the equity mutual funds are lower - more like 0.6 to 0.7% or thereabouts. It really depends.

So don't assume that 1% ER would be across the board if you went with all Fidelity funds. That as a blanket statement is quite misleading.

However, I also hold some mutual funds from other companies that are lower in general than Fidelity, even though I own them through my Fidelity account.

But if I were going for minimal ER, I would definitely go through Vanguard as they have taken the cost trimming down to the min.

As others said, I suspect you would still be paying whatever the ER is of the funds he invest you in, AS WELL AS the 1% fee.

Audrey
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Old 04-14-2010, 12:32 PM   #13
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It sounds like the Ameriprise guy is going to charge you 1% fee for all your assets under management with him. Then another 1% or so you will be paying in the form of expense ratios on the A class funds he is putting you in. Most of those carry a 0.25% 12b-1 fee (included in the "expense ratio") that is straight cash paid to your investment manager (on top of his 1% fee). In other words, you will be paying close to 2% a year for someone to manage your investments.

These investments may not be very tax efficient (your investment adviser won't be paying your tax bill after all).

Consider that you can implement a pretty good investment strategy for around 0.25% a year using a combination of ETF's and low cost mutual funds. 1.75% extra fees on, say, $100,000 is $1,750 a year. 1.75% on $500,000 is $8750 a year. How much are you willing to pay to invest? In other words, would you manage your own money if you could save $2000 a year in fees? $5000? $10,000?
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Old 04-14-2010, 12:34 PM   #14
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Just for fun

I looked up one (of very many) of their available bond funds.

This particular one (a B-share) had a 1.56% expense ratio and a 1% 12-1b fee. The B-share back end was then 5% off of whatever you cash in.

Those bonds probably pay around 5% (or so) which means that (pretty much) you and Ameriprise split the income from the bonds.

A good deal for them - Not so good for you.

Ameriprise Financial - Mutual fund profile
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Old 04-14-2010, 12:36 PM   #15
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For me, an important difference between Vanguard and Fidelity is that Fidelity has offices in many big cities and Vanguard doesn't. We are with Vanguard, and I must say that there are times when I wished that I could have visited an office. I'd rather hand deliver a big check than mail it for example. It would have been nice to have an agent tell me that yea verily, the forms were filled out correctly when rolling a 401(k) into an IRA, rather than mailing and waiting.
Other than that, Vanguard has been great.
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Old 04-14-2010, 12:37 PM   #16
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A good deal for them - Not so good for you.

Ameriprise Financial - Mutual fund profile
How can you say that? The investor only supplies money, the advisor has to do all that schmoozing and be nice all the time. He deserves to be well paid.

Ha
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Old 04-14-2010, 12:41 PM   #17
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I looked up one (of very many) of their available bond funds.

This particular one (a B-share) had a 1.56% expense ratio and a 1% 12-1b fee. The B-share back end was then 5% off of whatever you cash in.

Those bonds probably pay around 5% (or so) which means that (pretty much) you and Ameriprise split the income from the bonds.

A good deal for them - Not so good for you.

Ameriprise Financial - Mutual fund profile
And compare this particular Ameriprise bond fund, with, say the Vanguard equivalent. In its ETF format, you can buy BND for whatever commission you pay (I pay $8 a trade at fidelity), plus a 0.14% expense ratio. This will leave you, the investor, with most of the bond yield.
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Old 04-14-2010, 12:46 PM   #18
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Awesome. Thanks for the replies. As I mentioned I am trying to pin down the exact fee structure -- I have an appt. for a phone meeting in a few days. Trying to do my homework first, so I have maximum ammo for that conversation.

I was already leaning toward brewer12345's recommendation, but I need solid reasons to really convince my (not-investment-savvy) wife that we shouldn't just trust the nice smart man.

I'm aware that 1% is significant, but that is equivalent to the ER I'm seeing on most of my Fidelity funds. Do I understand, then, that if I want to see a lower ER than 1% I should definitely go with Vanguard?

Can anyone tell me whether it is at all likely that this scenario he described is true: I'd be paying him 1% but NOT paying the front-end load on the funds he buys for me?

Thanks!
This is how it worked for me at Ameriprise:

1) I had to pay an annual fee (roughly 1% of our portfolio value) for Ameriprise to print a fancy "tailored financial plan" bound in a nice pleather binder. The "tailored financial plan" is filled with pages upon pages of useless and generic fluff but it is "pretty" and it makes it look like the FA worked day and night just for you. In actuality, the "tailored financial plan" is probably computer generated and takes all but 3 minutes to put together. It is a sham. Seriously, you get more information about your financial situation out of a program like Quicken than you do out of an Ameriprise financial plan. And Quicken costs a lot less.

2) I had to pay (mostly front) loads on all the mutual funds that the FA bought on my behalf. Yep, 5.75% of every dollar I invested went to the FA so that he could place a buy order on my behalf. That's crazy. I can buy a mutual fund at Vanguard in 30 seconds and pay nothing. You may avoid paying front loads by paying the FA a fee equivalent to something like 1% of your portfolio value each year, but it is still very expensive, especially if you have a fairly large portfolio and add very little to it each year.

3) I had to pay high ERs. Yep, most of the mutual funds available to Ameriprise clients have high ERs (average around 1.5% for me). Oh, and they push pretty hard their Riversource proprietary funds. Stay away, most are expensive, underperforming funds. My Vanguard funds have an average ER of only 0.26%.

4) And when I finally came to my senses, they didn't let me move my money out without putting up a fight. They slapped me with account closing fees, surrender charges and back loads.

So add it up: 1% for the financial plan + 1% for the privilege of not paying front loads + 1.5% ER = 3.5% of your portfolio goes to Ameriprise each year... (that's on top of custodial fees, closing fees and whatever...)
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Old 04-14-2010, 12:48 PM   #19
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Thanks for all the advice, folks. I appreciate it all, both the biting and the polite. It's true that Fidelity may be much handier as they have an office near me and my 401k is already there. I will look into Vanguard as well. I'll see how useful the FA's advice is once we've taken money management off the table.
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Old 04-14-2010, 02:02 PM   #20
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How about an acid test: ask him to provide financial advice without any of the funds being moved to Ameriprise.
Why would he do that?
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