I finally fired my FA

[harley]

I have about 1/2 of our net worth with a CFA, an old friend of the family. He's a great guy, and has done decently by us over the years, but I've never been comfortable with the investments he's advised for us. I've argued with him, and he's done some things I wanted, and I've done some he wanted. I've also been in a number of investments with him that I never really understood, and again, wasn't comfortable with. Over the 20 years or so he's handled our investments, he's come to understand that I'm fairly conservative, so he tries to work with that. He hates bonds, though, and always talked me out of investing in them. To him, conservative means things like annuities and large cap equities. Not what I meant.

Anyway, when we sold our old house and I rolled my work 401(k) into an IRA, I put all that money into Vanguard. I was going to, over the years as my tax sitch allowed, liquidate various investments with him and move them into Vanguard, slowly taking complete control. However, since the market has experienced this little hiccup, I think I can sell quite a bit of it without cap gains hits.

So I called him, explained what I was planning, and asked him to help me figure out the tax implications on various investments so I can make educated decisions. I told him I really liked him, but I just wanted to control my own finances, and that over the years I had realized I was an indexer. He disagreed (of course) and thinks active management is what will get us out of this hole in the future. But he's going to get on it.

This was hard to do. I like the guy a lot. There will be some investments I can't get out of right away, but the die is cast. I'll let you all know how it works out.

 

[FIREd]

I also have a FA. We hired him in 2001, a few months after getting our first real jobs. He immediately got us into annuities (inside an IRA) and VU Life insurance contracts, which sounded like a good idea at the time. As I started to learn more about investments, I realized that we made a big mistake hiring that guy and so over the years we have moved most of our money to Vanguard so that we could manage it ourselves. We are still, however, locked into the annuities until 2011 and so we have begrudgingly kept him in charge of those.

At the beginning of the year our FA was still managing about 1/3 of our retirement money and I was managing the other 2/3s. Yet about 1/2 of all the $$$ losses this year come from the annuities he manages. In other words, as a percentage of money under management, he lost twice as much as I did YTD.

Like your FA, he knows I am conservative by nature, yet he insists upon keeping a 80-90% stock AA. Now we are waaaayyyyy under water in those annuities, what a waste of money! But we are still locked in those contracts and paying redemption penalties at this point would just add insult to injury. So we will let it ride for now, but in 2011 there is no doubt that we will fire him. We have paid that leech enough money as it is. The only good thing? At this point it looks like we will be able to break out of those annuities without paying any taxes on the proceeds, which is the silver lining I guess.

The funny thing is he sent me an email yesterday to remind me that the time for us to pay his annual fee is coming up fast. I am not paying. With all the money he lost this year, I think I paid a high enough price already for his services.

 

[FinanceDude]

I also have a FA. We hired him in 2001, a few months after getting our first real jobs. He immediately got us into annuities (inside an IRA) and VU Life insurance contracts, which sounded like a good idea at the time. As I started to learn more about investments, I realized that we made a big mistake hiring that guy and so over the years we have moved most of our money to Vanguard so that we could manage it ourselves. We are still, however, locked into the annuities until 2011 and so we have begrudgingly kept him in charge of those.

At the beginning of the year our FA was still managing about 1/3 of our retirement money and I was managing the other 2/3s. Yet about 1/2 of all the $$$ losses this year come from the annuities he manages. In other words, as a percentage of money under management, he lost twice as much as I did YTD.

Like your FA, he knows I am conservative by nature, yet he insists upon keeping a 80-90% stock AA. Now we are waaaayyyyy under water in those annuities, what a waste of money! But we are still locked in those contracts and paying redemption penalties at this point would just add insult to injury. So we will let it ride for now, but in 2011 there is no doubt that we will fire him. We have paid that leech enough money as it is. The only good thing? At this point it looks like we will be able to break out of those annuities without paying any taxes on the proceeds, which is the silver lining I guess.

The funny thing is he sent me an email yesterday to remind me that the time for us to pay his annual fee is coming up fast. I am not paying. With all the money he lost this year, I think I paid a high enough price already for his services.

If hes' charging you an annual fee AND putting you in commission products, he's a flat-out crook..........could it be Amerprise?

 

[FIREd]

If hes' charging you an annual fee AND putting you in commission products, he's a flat-out crook..........could it be Amerprise?

Bingo!

 

[FinanceDude]

Bingo!

You were getting "double-dipped". Once the hate toward FAs in general goes down, I will be happy to expand on that.

Good for you........

 

[Marquette]

There should be two categories of financial advisors:

FA
Ameriprise FA

makes grouping easier

I will say this... I had bad, but not horrible experiences, with Amerprise. I fired my Ameriprise FA. I won't discount hiring one in the future. But, like the rest of transactions of this nature, if I'm paying someone for their time and expertise, then I expect them to educate me while they do their job. I seriously doubt that someone like FinanceDude would hear what their client is saying and then do something else anyway without some candid discussion.

 

[FinanceDude]

There should be two categories of financial advisors:

FA
Ameriprise FA

makes grouping easier

I will say this... I had bad, but not horrible experiences, with Amerprise. I fired my Ameriprise FA. I won't discount hiring one in the future. But, like the rest of transactions of this nature, if I'm paying someone for their time and expertise, then I expect them to educate me while they do their job. I seriously doubt that someone like FinanceDude would hear what their client is saying and then do something else anyway without some candid discussion.

Thanks for the compliment. Also, congrats on being a mod, I will behave from now on.......

This week sucked, tough to get people to "buy low"

 

[CuppaJoe]

I actually appreciate the stockbroker who taught me about mutual funds in 1972. I can't imagine the techniques you describe, arguing, etc. She tried to sell me one fund, I didn't go for it, a few months later came up with another that suited my risk tolerance. I still hold that fund (now no-load) and will continue to hold it in this uncertain market.

A friend of mine complained that her FA put her in a stock that tanked a few years ago. I don't get it? Wouldn't she have to agree to a stock buy? What kind of contracts do FA's ask you to sign?

 

[FinanceDude]

I actually appreciate the stockbroker who taught me about mutual funds in 1972. I can't imagine the techniques you describe, arguing, etc. She tried to sell me one fund, I didn't go for it, a few months later came up with another that suited my risk tolerance. I still hold that fund (now no-load) and will continue to hold it in this uncertain market.

Looks like it worked out for you........

A friend of mine complained that her FA put her in a stock that tanked a few years ago. I don't get it? Wouldn't she have to agree to a stock buy? What kind of contracts do FA's ask you to sign?

If the account involves stock trading, the client has to agree to buy it and the FA needs to have a conversation about why it is being bought, etc. In some accounts, the client gives up the buying and selling decisions to the FA, that's called a "discretionary account".

I don't have any of those, I want and need to have conversations about what I am doing and why with my clients.........

 

[shotgunner]

maybe

"This week sucked, tough to get people to "buy low" Would it be easier to do that if you had told them when to sell high?

 

[FinanceDude]

"This week sucked, tough to get people to "buy low" Would it be easier to do that if you had told them when to sell high?

Investors tend to do the opposite of what they should. For instance, I have a fair number fo folks that hold considerable amounts of cash. However, when certain stocks go on sale, why not buy them, regardless of market conditions? I have a few guys that do that, and the money they made in the past was significant.

If I could call the tops and bottoms of the markets, Warren Buffet would be poor compared to me.......

 

[Rustward]

Bingo!

So the FA is charging you an annual fee for selling you an annuity in addition to the fees built into the annuity?

Maybe I am going too far, but would you mind saying how much the FA's fee is and how much the expenses of the annuity are? I believe annuities call this the mortality fee or something like that. Of course there are also expense ratios associated with the VA subaccounts, but you are going to have that kind of expense just about wherever you go -- but perhaps you could reduce that elsewhere, like Vanguard.

After a few years (but before you are past all the redemption fees) some annuities will allow you to remove a small percentage of the value each year penalty free. You would probably want to do a custodian-to-custodian rollover to an IRA.

 

[CuppaJoe]

....
If the account involves stock trading, the client has to agree to buy it and the FA needs to have a conversation about why it is being bought, etc. In some accounts, the client gives up the buying and selling decisions to the FA, that's called a "discretionary account".

I don't have any of those, I want and need to have conversations about what I am doing and why with my clients.........

The problem I have with my friend's statement, "my FA put me into that stock" was that she's not taking responsibility for her own risk. It may simply be a miss-use of language.

 

[Marquette]

The problem I have with my friend's statement, "my FA put me into that stock" was that she's not taking responsibility for her own risk. It may simply be a miss-use of language.

When things are going well, people take 100% responsibility, even if they had help. When things are going poorly, people absolve themselves of 100% of the responsibility, even if the decision was ultimately theirs.

That said, my experience as a young pup of 25 was akin to paying a used car salesman who billed himself as a 'car expert' to sell me the used car that best met my needs. Slick presentation, cognitive dissonance since you're paying for 'expert' advice, coupled with evasiveness when questioned directly. By the time we got to the part where questions about why we were doing what we were doing were met with replies of "Well, I guess you just have trust issues", I knew it was time to go.

I've gotten a lot bolder since then and educated myself a lot more. If I find a new FA, it will be to help guide and teach, not to go 'car shopping'.

 

[2B]

Many years ago I had a "managed" account. It was with a big brokerage firm (now defunt) and it was a big mistake. My account was seriously churned for about 6 months before I realized how bad it was being killed by commissions and really bad trades. They were really high way back when. It also got me into and out of whatever was being pushed by the firms analysts. It really got me more focused on making sure I understood this money thing.

I personally view a FA as someone for people with very complicated financial and personal lives or for someone that suddenly gets a windfall and needs help temporarily. Unfortunately, there are many crooks in the business that will pump up high commission products and charge rediculously high fees.

 

[mn54]

A FA is someone who is successful at turning assets into commissions.

 

[Khan]

I have about 1/2 of our net worth with a CFA, an old friend of the family. He's a great guy, and has done decently by us over the years, but I've never been comfortable with the investments he's advised for us. I've argued with him, and he's done some things I wanted, and I've done some he wanted. I've also been in a number of investments with him that I never really understood, and again, wasn't comfortable with. Over the 20 years or so he's handled our investments, he's come to understand that I'm fairly conservative, so he tries to work with that. He hates bonds, though, and always talked me out of investing in them. To him, conservative means things like annuities and large cap equities. Not what I meant.

Anyway, when we sold our old house and I rolled my work 401(k) into an IRA, I put all that money into Vanguard. I was going to, over the years as my tax sitch allowed, liquidate various investments with him and move them into Vanguard, slowly taking complete control. However, since the market has experienced this little hiccup, I think I can sell quite a bit of it without cap gains hits.

So I called him, explained what I was planning, and asked him to help me figure out the tax implications on various investments so I can make educated decisions. I told him I really liked him, but I just wanted to control my own finances, and that over the years I had realized I was an indexer. He disagreed (of course) and thinks active management is what will get us out of this hole in the future. But he's going to get on it.

This was hard to do. I like the guy a lot. There will be some investments I can't get out of right away, but the die is cast. I'll let you all know how it works out.

The bolded statements (with some variants) come up over and over when people talk of 'firing' their FA.

Is there somewhere these people learn to 'be likeable' 'be family friends'...?

 

[2B]

Khan,

It's definitely in the job description. Everyone I've talked to with a FA always say how nice they are.

 

[cyclone6]

I tend to follow the advice of a number of people - not paid - but free for the reading. John Hussman and John Mauldin. Plus one paid - retiredinvestor.com - a whopping $59/year.

Thank goodness I didn't just follow the CNBC/Kudlow (what a whore - "Goldilocks!") advice.

When I inherited some significant money from my aunt, I wanted to learn how to invest it. I started reading here. The 4% rule - the 60/40 portfolio - FIRECALC. With time, I learned the basics, and the basics made sense. Still do...except for the "timing does not matter" argument. Obviously timing does matter - in a huge way.

Its discounted of course -even today as I type this - with the "if you have 10+ years..." BS. What if you don't have 10+ years?

So Hussman, Mauldin and retiredinvestor.com were all sounding warning alarms since I came into the money early '07. As a group, they scared me off. And I felt like a complete dumbas_ watching the market run up to its highs late '07 - even with the events of Aug '07 (the beginning). I wanted to buy so badly, but instead stayed cash/CDs - plus a sizeable chunk in Hussman's two funds - which while down 6% or so the last week, still have significantly outperformed index "buy and hold, timing does not matter" thinking.

I know I'm rambling...but I guess my main points are simply these:

1) Timing does matter. Anyone who says differently didn't invest in 1987, 1973 or 1929 - or 2007. Two points come to mind here...buy low, sell high - and more importantly for people in or near retirement - as stated by Mr. Buffet himself - not losing money is as every bit as important as making money.

2) While I understand the basics of index buy-and-hold investing, and like the concept, I don't understand the economy or future exepectations well enough to risk a large chunk of money based on the conventional wisdom espoused here. Too many posts about "blue light specials" when the market had come down 200 points, and the fundamentals remained the same. Hussman, Mauldin and the editors of retiredinvestor.com kept me honest - that something big was coming because the markets were not making sense.

So far I am down 1.5% in this meltdown (mostly due to my 20% exposure to Hussman) from my high water mark in mid-Sep. If I had followed the herd and thrown it in during the irrational runup, I would have bought high, and ended up losing money (OK - a hell of a lot more money!).

Find some advisors/writers/managers you learn to trust, and at least let their advice temper the conventional wisdom/emotional responses that so often prove to violate the two basic tenets...

 

[FIREd]

So the FA is charging you an annual fee for selling you an annuity in addition to the fees built into the annuity?

Maybe I am going too far, but would you mind saying how much the FA's fee is and how much the expenses of the annuity are? I believe annuities call this the mortality fee or something like that. Of course there are also expense ratios associated with the VA subaccounts, but you are going to have that kind of expense just about wherever you go -- but perhaps you could reduce that elsewhere, like Vanguard.

After a few years (but before you are past all the redemption fees) some annuities will allow you to remove a small percentage of the value each year penalty free. You would probably want to do a custodian-to-custodian rollover to an IRA.

The FA's annual fee is 1% of assets under management. The fees on the annuities add up to around 3% annual if I remember well (I assume that, for my sake, this includes the ERs on the subaccounts). And The FA gets a commission on each premium we are paying on the life insurance policies (around 5%). Man, I want to puke just thinking how much money we have wasted on this in the past 7 years...

 

[Rustward]

Man, I want to puke just thinking how much money we have wasted on this in the past 7 years...

Don't beat yourself up too badly. We used to own some VA's also.

One more thing... Read your contract carefully looking for fees (riders) that can be eliminated, and for penalty-free transfer privileges that may (or may not) be there.

 

[harley]

Our guy is/was commission only. He was my FIL's FA, came to our wedding, took us out on his boat, etc. Have known him a long time.

As far as the arguing, it wasn't contentious arguing, it was more like convincing me and me letting myself be convinced. I knew I wasn't sold on the investments, but at the time I didn't know anything better myself, so I went with what he recommended. I certainly claim full responsibility for anything we did. I just wasn't sure enough of my own instincts to say no.

I suspect the friend that was "put" into investments was the same. It's like going to the doctor. You have to be pretty sure of yourself to tell him/her you think they are wrong and you are going to do something different than they are recommending.

I don't think FAs with crappy personalities would do well. They are basically salespeople. But our FA is a friend, and I do feel bad about taking our business away. Well, you can't stay in the nest forever.

 

[FinanceDude]

A FA is someone who is successful at turning assets into commissions.

How much experience as an FA do you have?

 

[RetiredWW]

So, when does it make sense to have a FA?

So, when does it make sense to have an FA? I have one now.

 

[FIREd]

So, when does it make sense to have an FA? I have one now.

Well if it works for you (the fee structure seems reasonable, you are happy with your returns, investments' risks and costs are properly explained to you, etc...), then it may make sense for you.