My cousin and his "financial advisor"

[Ready]

We had some cousins visit us this week. The husband started his own company last year and did very well. Somehow the topic of 401Ks came up, and he mentioned that he opened up a self employed 401K a few months ago. He told me that "a guy" drove out two hours to visit him and he handed him a check for $85K to open up the 401K. Something about the phrase "a guy" had me feeling a bit suspicious, so I asked him if he would like me to look at the investments that were selected.

We logged into his account, and I found that he had been invested in a variety of mutual funds from Goldman Sachs and Franklin Templeton. I looked at the GS fund and found it had an expense ratio of 2.22%. And, it was a class C share, with a back end load of 1%. It also had a 12b-1 fee of about 1%. So from what I could tell, he was paying about 4% in fees to be in these funds.

He called the broker at my urging and put him on speakerphone. I inquired as to why he was selecting these funds with such high fees rather than index funds. He mumbled something about managing risk and said he had to head into a meeting, so the call ended somewhat abruptly.

A few hours later my cousin called him back. The broker asked if he was on a speakerphone. My cousin said yes, but I was in another room (which I wasn't). The broker then tried to discredit my ideas on index funds and told him not to listen to me. He assured him that if anything happens, he is going to be there for him and his wife and baby.

At that point, I lost my patience and blurted out that he was full of sh*t. He became pretty defensive, but I was pissed. I said "are you a certified financial planner?" His response - "NO". OK, are you acting as a fiduciary in making these fund recommendations. Again - "NO". Then I said "then you have no business making financial recommendations here as you are not qualified to do so".

I asked him what percentage of actively managed funds that he oversees have consistently out performed index funds for 20 years or longer. He said it was probably a low number, maybe 5%.

So I said, OK then why would you recommend funds that have only a 5% chance of beating an index. And oh by the way, why are you selling class C shares - could it be so that you can help yourself to a 1% kickback. And do those funds also have 12b-1 fees that are somehow finding their way into your pocket?

We ended up having a heated discussion for another few minutes. I told him I thought he was a crook, and he could care less about my cousin. His only interest was in lining his own pocket with hefty commissions. He even mentioned that he was only planning on keeping the money in those funds for six to nine months, thinking I wouldn't pick up on the fact that with Class C shares he gets a commission every time he sells the funds within the account.

My cousin was pretty taken back by the whole conversation. After it was over, I found out this broker was actually his brother's best friend. Although interestingly enough, his brother doesn't do any business with him.

I was slightly embarrassed by how rude I was once I found out about the family friendship. But it didn't change my conclusion.

I tried to get them to set up a Vanguard account while they were still here, but I couldn't quite pin them down to do it. I told them I would help them select funds, and also help them find a fee only financial planner in their area if they wanted some assistance.

My cousin could clearly see he was being taken advantage of. But because I couldn't get the account set up before they left, I just have this feeling that the broker is going to wait until they are back home, away from me, and he is going to try to tell him I don't know what I'm talking about.

I haven't seen these cousins for six years, and we don't talk regularly. So I don't want to overstep my bounds in trying to help. I'm curious what people's thoughts are on whether to just let it rest at this point or try to stay involved, at least to confirm the Vanguard account has been set up. My cousins were very appreciative of my involvement, but I think they just don't like dealing with financial matters.

I've read so much about Ameriprise's antics in this forum, but this is the first time I've seen a family member be so taken advantage of. It was really quite disturbing. It's been bothering me all week.

[cooch96]

Go read one of my first posts titled "Ameriprise?". I got quite the wake up call from this forum. Use the same ammunition they used on me. Just try to keep your temper, it's not your money this grifter is siphoning, and it sounds like mixing money and emotion is unsettling for your cousin, as it is for many.

Your heart is in the right place, of course. It is good of you to stand up for your extended family. Tread lightly and steadily and hopefully they'll allow you to help.

[golfnut]

I would give your cousin a follow-up call to see if he wants to pursue going with Vanguard. If he doesn't, then you've done all you can do to save him from the fee sharks.

[Sunset]

I think you have alerted your cousin to the facts.

Setting up a vanguard 401K is easy, pretty much any small business person can do it as it does not require special knowledge and vanguard people will walk a person through filling out the forms. I know as I did it.

Unfortunately for your cousin, he sounds embarrassed about trusting "his guy". He needs to talk to his brother about this friend and why his brother doesn't invest with him. That will make the biggest change in his mind.

You could send him posts from this forum to see that other folks who have been suckered into paying big fees for a mutual fund eventually learned and switched to low cost funds or etf's.

Or just point him to this exact forum so he can read them all good and bad

[Rick_Head]

My initial thought is "not your problem, stay out". If he had asked your opinion rather than you asking him if he wanted you to have a look, your opinion might matter. Now that you've got your face in there, are you willing to act in a fiduciary manner, forever, without compensation?

Sometimes it's best to suggest someone could do better elsewhere and leave it at that.

[Texas Proud]

I am a bit with the last couple of posts... but will temper it with one thing...

You say you have not seen them for 6 years... so why spend time trying to make sure he does the right thing You have already shown him how bad he has it... if that is not enough for him to get off his butt and do what is necessary then why is it any of yours?


But, the one phone call would help you feel better so might as well do it...

[Lakewood90712]

Quote:

Originally Posted by Ready We had some cousins visit us this week. The husband started his own company last year and did very well. Somehow the topic of 401Ks came up, and he mentioned that he opened up a self employed 401K a few months ago. He told me that "a guy" drove out two hours to visit him and he handed him a check for $85K to open up the 401K. Something about the phrase "a guy" had me feeling a bit suspicious, so I asked him if he would like me to look at the investments that were selected. We logged into his account, and I found that he had been invested in a variety of mutual funds from Goldman Sachs and Franklin Templeton. I looked at the GS fund and found it had an expense ratio of 2.22%. And, it was a class C share, with a back end load of 1%. It also had a 12b-1 fee of about 1%. So from what I could tell, he was paying about 4% in fees to be in these funds............snip............................. ................................................ I've read so much about Ameriprise's antics in this forum, but this is the first time I've seen a family member be so taken advantage of. It was really quite disturbing. It's been bothering me all week.

Could be several FINRA violations. If he wants to pursue this. It will be a little ugly , but may be able to unwind the thing...... So just who is this guy ? With Ameriprise ? sounds like some shady middleman and the Ameriprise registered rep. doing illegal stuff, if I understand correctly, and your cousin is ok with it.

[EastWest Gal]

How can he invest $85K into even a self-employed 401K in one year?


Sent from my iPhone using Early Retirement Forum

[freebird5825]

I wish I had cousins like you. That must have been a hell of a conversation.

That being said, unfortunately it's your cousin's moolah and it's his dog in the fight. At this point, you can't really do any more, unless said cousin requests you (in writing) to act as his authorized agent in this matter.

I would be steamed up about this too. I am currently trying to help the sister of a dear departed friend avoid making errors like this. She has inherited a fair amount, and all sorts of critters are coming out of the woodwork. So far so good.

[Travelwanted]

I say kudos to you, Ready. That is family. I would do the same.

[jollystomper]

To the OP - I think you have done what you can do. Ultimately everyone is responsible for the financial choices they make. You have directly pointed out your concerns and even offered one solution. If you cousin follows your advice, great. If not... that is his choice. Perhaps be more closely in touch him that six years, but don't start nagging him constantly about it.

I have been there, done that with more than a few relatives.

[frayne]

You have shown him the light, that said, for some people the light never comes on.

And for that reason alone they are more comfortable letting somebody else manage their money.

[ChicagoGal]

Quote:

Originally Posted by golfnut I would give your cousin a follow-up call to see if he wants to pursue going with Vanguard. If he doesn't, then you've done all you can do to save him from the fee sharks.

+1

I'd make one more follow up to see if he has any other questions after the "heat of the moment" has died down. After that, he's going to do what he's going to do.

[travelover]

No good deed goes unpunished. I pointed out to a nephew that he was getting hosed at over 3% in fees in his 401(k) and he was mad at me for stirring up trouble where none was present . Being a slow learner, I pointed out a similar situation to a work acquaintance and his wife, who handled the investing, was furious at me. She viewed it as criticism of her.

YMMV

[bingybear]

Quote:

Originally Posted by Ready We had some cousins visit us this week. He told me that "a guy" drove out two hours to visit him and he handed him a check for $85K to open up the 401K. I tried to get them to set up a Vanguard account while they were still here, but I couldn't quite pin them down to do it. I told them I would help them select funds, and also help them find a fee only financial planner in their area if they wanted some assistance. I haven't seen these cousins for six years, and we don't talk regularly.

Above ... mainly some things others have commented about.
I assume you haven't seen this cousin in 6 years until this recent incident described in OP, correct?

opened a 401k for $85k.... as asked by others, how do you do that without causing other IRS problems in one event?

If this guy was Ameriprise (assumption based on the last bit of OP), he'd have no interest in doing this. This would be transferring the account out, full stop. If you think you cousin should move his account (I would think so), you'll likely have to help.

There are a number of good places to house you investments in addition to Vanguard. (nb I have a small portion of mine at Vanguard, but more a Schwab and Fidelity) If he needs hand holding, Schwab or Fidelity may be better IF there is a local office near your cousin as he could get face to face help. But it would help even more if he learned a little be about investing and the sharks that are out there to separate one from their assets.

You got this started. I would suggest (assuming you are willing) to humbly offer to help get him started and give him an easy out if he does not want your help. As we all do, he will get hard sells from life insurance, annuity, and other FA sales people. One needs to learn enough to know what they want.... or find someone they trust that can help them navigate that whole industry. Be prepared.... this someone could be you.

best of luck.

[Meadbh]

Over the years I have pointed out to several friends that they are paying excessive MERs. One couple, I suspect, investigated and may have moved their investments, but haven't said anything to save face. Another friend brought the topic up with her FA, but bought the FA's argument that her services were worth the money.

Facts are often not the deciding factor in making decisions. We humans tend to rationalize what we have already done.

Pointing out the facts and proposing alternatives is as far as I go.

[Bestwifeever]

I'm going to bet it will be at least another six years before you see this cousin again.

[MooreBonds]

Quote:

Originally Posted by bingybear opened a 401k for $85k.... as asked by others, how do you do that without causing other IRS problems in one event?

There is only one possible way this could occur (assuming there wasn't an account for his employee wife opened as well with the max limits at the same time):

Maxing out the employee deferral of $17,500 in 2014, plus a 20% profit sharing contribution (max of $52,000 with 401k plus profit sharing combined), as well as doing the same for 2015 calendar year. So the only way this could happen is if he wrote the financial salesman a single check for $85k before April 15 for both 2014 and 2015 fiscal tax years.

If this did in fact occur, you should in theory have 2 separate checks for record keeping...but perhaps they were lazy and simply said "I'll code it appropriately"?

Or....perhaps there were insanely large sales loads that measured into the 30% range that the OP didn't know about, which whittled down the net amount deposited into the account to be just $52k?

[Texas Proud]

Quote:

Originally Posted by travelover No good deed goes unpunished. I pointed out to a nephew that he was getting hosed at over 3% in fees in his 401(k) and he was mad at me for stirring up trouble where none was present . Being a slow learner, I pointed out a similar situation to a work acquaintance and his wife, who handled the investing, was furious at me. She viewed it as criticism of her. YMMV

My bold....

Well, it kinda is isn't it

[pixelville]

Share a few appropriate links with stories about Ameriprise and also links about index fund benefits. Follow up with a call a few days later offering any help. That should set the tone for the future.