Index Funds Pros and Cons - Page 3

**Martha** · 09-26-2006, 03:19 PM

Quote:

Originally Posted by FinanceDude

One more thing: *Management fees can be deducted on your taxes, commissions can not............

Commissions are deducted from the sales price when determining your gain on the sale of the asset.

haha · 09-26-2006, 03:27 PM

Quote:

Originally Posted by FinanceDude

Pretty common fee applied to investment accounts...........but that's my business models, and I price them accordingly:

I assume that Fin. Advisors don't spend a lot of time with people who have no money, so for the most part their clients will not be dolts.

Still, I can easily imagine a busy person who might never bother to consider that the advisor is getting almost half the spendable income from an investment, while bearing none of the risk. And of course, in tough markets, he is the only one who is clearing anything.

I imagine that if you were so self destructive as to point that out to your clients, quite a few would reconsider their investment plan. *

I appreciate your honesty on this board because for the most part FPs have a pretty short half life around here.

Ha

justin · 09-26-2006, 03:33 PM

Financedude,

What happens to the 12b-1 fees and sales loads/commissions paid (if any) by your clients? That $50 fee to buy vanguard funds is an additional expense to your clients on top of the 1%/yr, right? What about commissions on stock purchases or sales? Do those come out of your 1%?

donheff · 09-26-2006, 03:42 PM

People who read this board are generally taking enough interest in personal finance to figure out how to manage their own portfolio. Also, many of us are in or near ER and the reality of maintaining a SWR over 30-40 years takes on real meaning. But in the accumulation years many of us (unwisely) considered ourselves too busy to pay attention to this stuff. An FA can come in handy for such people. It enabled DW and me to put together a nice nest egg that we now manage ourselves. Could we have done better? Maybe, but we could have done a lot worse. For those who use an FA a fee advisor like the dude here makes more sense (to me) than an FA who is biased by load commissions. Of course if the fee advisor traps you in load funds on top of the 1% something is wrong :P

FinanceDude · 09-26-2006, 03:59 PM

Quote:

Originally Posted by Martha

Commissions are deducted from the sales price when determining your gain on the sale of the asset.

True, but I was referring to the fact that people can deduct their management fees on an annual basis on their taxes, what you are saying is true, but happens upon sale, which could be several years out............

FinanceDude · 09-26-2006, 04:03 PM

Quote:

Originally Posted by donheff

Of course if the fee advisor traps you in load funds on top of the 1% something is wrong* :P

That doesn't happen a lot anymore, unless you got a famous Northwestern Mutual "wrap account" with Mason Street funds that has been shut down...........

However, "wrap accounts" are still all the rage, which is sad. Basically, it involves the client paying a management fee on TOP of the mutual fund expense, and even though a lot of the programs use institutional and A-share expenses, the program easily costs the consumer 2.00-2.50% a year.............that's a crime..............

FinanceDude · 09-26-2006, 04:11 PM

Quote:

Originally Posted by HaHa

I appreciate your honesty on this board because for the most part FPs have a pretty short half life around here.

Ha

Well, I am different, I got dropped on my head when I was young and have never recovered...........

saluki9 · 09-26-2006, 08:42 PM

Quote:

Originally Posted by HaHa

Not that I think you shouldn’t get your fees however you can, but caveat emptor does apply here as in most places.

Ha

HAHA I work for an advisory firm. Our fee schedule is around 75BPS max and generally head down from there. Our avg account size is in the 7 figures which is why our fees are lower than most firms.

We implement our allocations mostly with ETFs and DFA funds, so say that the max avg would be 1% of total assets. I think you're mistaken in believing that ALL people are getting is investments. Most firms offer planning, advice, meeting with your other advisors,bill payment, liabilities management, insurance analysis etc. I happen to think that our firm is quite good with the services we offer. Many of our clients have are very financially astute, and have zero interest or time to do any of these activities themselves.

I know it's popular here to demonize an entire industry, but the truth is that there are some really good advisors and advisory firms out there.

haha · 09-26-2006, 08:57 PM

Quote:

Originally Posted by saluki9

HAHA* I work for an advisory firm.* Our fee schedule is around 75BPS max and generally head down from there.* Our avg account size is in the 7 figures which is why our fees are lower than most firms.*

We implement our allocations mostly with ETFs and DFA funds, so say that the max avg would be 1% of total assets.* I think you're mistaken in believing that ALL people are getting is investments.* Most firms offer planning, advice, meeting with your other advisors,bill payment, liabilities management, insurance analysis etc.* I happen to think that our firm is quite good with the services we offer. Many of our clients have are very financially astute, and have zero interest or time to do any of these activities themselves.*

I know it's popular here to demonize an entire industry, but the truth is that there are some really good advisors and advisory firms out there.

Good point, thanks for taking the time to make it.

Ha

Spanky · 09-26-2006, 09:03 PM

Quote:

Many of our clients have are very financially astute, and have zero interest or time to do any of these activities themselves.

.. so that they can do something else of more importance, e.g., golfing, fishing, biking, hiking.

LOL! · 09-26-2006, 09:20 PM

Quote:

Originally Posted by FinanceDude

True, but I was referring to the fact that people can deduct their management fees on an annual basis on their taxes, what you are saying is true, but happens upon sale, which could be several years out............

Is it not true that one can deduct only those expenses that exceed 2% of your AGI and then only if you itemize?* *If that's true, I hope I never even come close to paying 2% of AGI in management fees.

And there are some very low expense ratios for some index funds.* For example, in our 529 accounts, we own VIIIX with er of 0.03%.* * VTI, the total stock market index ETF, has an expense ratio of 0.07%.* (Yes, I know there are a bid/ask spread and NAV issues.) It may be better to own VTI instead of a mixture of SPY, MDY, and IWM.

Hydroman · 09-26-2006, 10:06 PM

Quote:

Originally Posted by saluki9

I know it's popular here to demonize an entire industry, but the truth is that there are some really good advisors and advisory firms out there.

In your opinion is Paul Merriman's advisory firm one of the good ones?

youbet · 09-26-2006, 10:12 PM

Quote:

Originally Posted by saluki9

I know it's popular here to demonize an entire industry, but the truth is that there are some really good advisors and advisory firms out there.

I suppose there must be somewhere. The problem is sorting through the zillions of duds to find a mediocre one.

FinanceDude · 09-26-2006, 10:29 PM

Quote:

Originally Posted by saluki9

HAHA* I work for an advisory firm.* Our fee schedule is around 75BPS max and generally head down from there.* Our avg account size is in the 7 figures which is why our fees are lower than most firms.*

We implement our allocations mostly with ETFs and DFA funds, so say that the max avg would be 1% of total assets.* I think you're mistaken in believing that ALL people are getting is investments.* Most firms offer planning, advice, meeting with your other advisors,bill payment, liabilities management, insurance analysis etc.* I happen to think that our firm is quite good with the services we offer. Many of our clients have are very financially astute, and have zero interest or time to do any of these activities themselves.*

I know it's popular here to demonize an entire industry, but the truth is that there are some really good advisors and advisory firms out there.

Very good point, but I believe the reason is MANY people on here have taken a bath working with so-called "advisors" in the past..............

Funny how we never have these discussions about insurance agents or attorneys on here..........I guess those are the "honorable professions"............

Nords · 09-26-2006, 10:38 PM

Quote:

Originally Posted by LOL!

Is it not true that one can deduct only those expenses that exceed 2% of your AGI and then only if you itemize?* *If that's true, I hope I never even come close to paying 2% of AGI in management fees.

Keep in mind that the uproar over paying 1% (or more) of your portfolio in management fees occurs when you retire and realize that you're already limiting your withdrawals to 4% (or less).

Your retirement AGI is hopefully a lot lower than your working years.

FinanceDude · 09-26-2006, 11:00 PM

Well........depends on what your goals are..........if you earn $70,000 a year before ER, and 4% is $75,000 a year, so be it...........

youbet · 09-26-2006, 11:15 PM

Quote:

Originally Posted by FinanceDude

Funny how we never have these discussions about insurance agents or attorneys on here..........I guess those are the "honorable professions"............

Well, you guess wrong.* insurance agent and honorable profession = oxymoron.* Sort of like calling a gas chamber operator an honorable profession.* I'm sure there must have been an honorable gas chamber operator somewhere, but probably not really typical!

FinanceDude · 09-26-2006, 11:54 PM

Quote:

Originally Posted by youbet

Well, you guess wrong.* insurance agent and honorable profession = oxymoron.* Sort of like calling a gas chamber operator an honorable profession.* I'm sure there must have been an honorable gas chamber operator somewhere, but probably not really typical!

How about attorneys

09-26-2006, 03:33 PM	#43
justin Thinks s/he gets paid by the post Join Date: Jun 2005 Posts: 4,010	Re: Index Funds Pros and Cons Financedude, What happens to the 12b-1 fees and sales loads/commissions paid (if any) by your clients? That $50 fee to buy vanguard funds is an additional expense to your clients on top of the 1%/yr, right? What about commissions on stock purchases or sales? Do those come out of your 1%?

09-26-2006, 03:42 PM	#44
donheff Thinks s/he gets paid by the post Join Date: Feb 2006 Posts: 2,694	Re: Index Funds Pros and Cons People who read this board are generally taking enough interest in personal finance to figure out how to manage their own portfolio. Also, many of us are in or near ER and the reality of maintaining a SWR over 30-40 years takes on real meaning. But in the accumulation years many of us (unwisely) considered ourselves too busy to pay attention to this stuff. An FA can come in handy for such people. It enabled DW and me to put together a nice nest egg that we now manage ourselves. Could we have done better? Maybe, but we could have done a lot worse. For those who use an FA a fee advisor like the dude here makes more sense (to me) than an FA who is biased by load commissions. Of course if the fee advisor traps you in load funds on top of the 1% something is wrong :P __________________ Every man is, or hopes to be, an Idler. -- Samuel Johnson

09-26-2006, 11:00 PM	#56
FinanceDude Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Aug 2006 Posts: 7,411	Re: Index Funds Pros and Cons Well........depends on what your goals are..........if you earn $70,000 a year before ER, and 4% is $75,000 a year, so be it........... __________________ Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:) President Obama, please know that I will continue to cling to my guns and religion........:)