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Old 03-15-2016, 12:00 AM   #41
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Originally Posted by ReadySkiDaddy View Post
The WORST are the small independent commission-based "advisers". They will sell you nothing but high commission crap.
The ones that inhabit local banks are right with them. Unsuspecting members of the public believe banks are safe, and the banks let these salesmen set up shop in the lobby so they can prey on these customers. Well, the bank gets their cut.
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Old 03-15-2016, 04:45 AM   #42
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I have some experience with this topic, having helped set up the 401K plan at a former employer.
I recall there two standards in the industry: (a) the suitability standard for brokers; and (b) the "best interest of the client" for advisors.
The unannounced third standard is: managing investments yourself because you don't trust anyone else to do it, fiduciary or not. I like this third option the most.

This arises with 401K plans because the insurance company representatives who visit employer sites to sell 401K plans are paid by the insurance companies, not the investors, and therefore don't have to act in the best interests of the investors. An investor sued one such representative, and his defense was just that: he didn't have to observe the fiduciary standard, and therefore could not be liable for violating it.

While the suitability standard is a joke, I feel fairly strongly that the fiduciary standard is as well. One danger of the dispute over the fiduciary standard for brokers is that some people will inappropriately become complacent about the behavior of advisors simply because the fiduciary standard applies.

A friend of mine has a low 7-figure nest egg with a large financial firm which is managed under the fiduciary standard. The sum of the advisory fee and the ERs comes to 2% per year. Between the age of 25 and 65, a fee at this level reduces the final nest egg value by about 40% from what it would have been, had it been invested in low-fee index funds. The final payout will be reduced still further (by half in fact), if the adviser skims 2% of assets from a 4% withdrawal rate.
If an advisor, while in compliance with the fiduciary standard, can leave a client with about 1/3 of the retirement income that would have resulted from investing in index funds with a reasonable level of competence, and not paying fees, then the fiduciary standard is worth little if anything as I see it.
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Old 03-15-2016, 06:46 AM   #43
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Originally Posted by lawman3966 View Post
I have some experience with this topic, having helped set up the 401K plan at a former employer.
I recall there two standards in the industry: (a) the suitability standard for brokers; and (b) the "best interest of the client" for advisors.
The unannounced third standard is: managing investments yourself because you don't trust anyone else to do it, fiduciary or not. I like this third option the most.

This arises with 401K plans because the insurance company representatives who visit employer sites to sell 401K plans are paid by the insurance companies, not the investors, and therefore don't have to act in the best interests of the investors. An investor sued one such representative, and his defense was just that: he didn't have to observe the fiduciary standard, and therefore could not be liable for violating it.

While the suitability standard is a joke, I feel fairly strongly that the fiduciary standard is as well. One danger of the dispute over the fiduciary standard for brokers is that some people will inappropriately become complacent about the behavior of advisors simply because the fiduciary standard applies.

A friend of mine has a low 7-figure nest egg with a large financial firm which is managed under the fiduciary standard. The sum of the advisory fee and the ERs comes to 2% per year. Between the age of 25 and 65, a fee at this level reduces the final nest egg value by about 40% from what it would have been, had it been invested in low-fee index funds. The final payout will be reduced still further (by half in fact), if the adviser skims 2% of assets from a 4% withdrawal rate.
If an advisor, while in compliance with the fiduciary standard, can leave a client with about 1/3 of the retirement income that would have resulted from investing in index funds with a reasonable level of competence, and not paying fees, then the fiduciary standard is worth little if anything as I see it.

That all presumes that the baseline is investing in index funds. On the other hand, someone too intimidated to move into stocks in the first place and instead "self- investing" in a 401k's "stable value" fund for 40 years is going to have self-invested and moved in reverse .... Try that as a baseline comparison and the advisor starts to look like a real help.

I think that is why companies now do the auto-enroll and put it into a life cycle fund typically .... Too many Unknowledgable investors in the past signed up for 401K but never even moved the money into proper equity or bond investments. It stayed in cash. Companies were being blamed for lack of fiduciary responsibility when putting people into their plan but initially directing to cash unless employee selected investments which many did not ever do...

So, For some, even the bank lobby advice is better than going it alone ...

In fairness, I find the over generalization of that industry is probably more right than wrong, though not at all surprising that there is a strong tilt toward "suspicion and industry greed" from this group who are independent/well educated / successful self directed investors. But this board is likely representing the top 5% - 10% of John Q. Public investors.

Just yesterday I had to explain to one of my mba students that a 401K is not an investment but an investment vehicle. She is super smart, but not familiar with all of the available retirement vehicles and so needs some hand holding ...
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