My friend was telling me about his Financial Advisors

[Sheryl]

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Originally Posted by 73ss454 Up till 2 or 3 years ago I also had no clue about anything with regards to investing. When I hear people talk about investing and I ask them what expense ratio and commissions they're paying I also get that same blank stare. No wonder the investment house's are having blow out years, there's a lot of dummies out there. Sorry to say I was one of them.

Sounds like me!

When I think of all the times my dad tried to interest me in investing and I just shrugged him off, I have to laugh. Now I've taught him a few things -like how to use the internet to buy bonds. I've created a monster!

He'll die a happy man now that he knows I understand the yield curve.

[ktupper]

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Originally Posted by My Dream If I may ask, what is expense ratio, and how is is calculated? 2nd question, why would IG charge both commisions and expense ratio, and don't say, cause they can?

Along with Investopedia, Motley Fool has good info on it.

http://www.fool.com/school/mutualfunds/costs/ratios.htm

[Nords]

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Originally Posted by Sheryl He'll die a happy man now that he knows I understand the yield curve.

Just what every parent wants for their kids...

[mickeyd]

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Buzzard High Risk Fund

Buzzard, you big dummy, why are you not charging at least 20 basis points in 12b-1 fees? How can you expect to be honored by your fellow fund managers if you do not know how to properly fleece charge the appropriate fees for your superb services?

[FIRE'd@51]

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Originally Posted by Cut-Throat He then went on to describe the 'outfit' that was handling his finances. He said they were different and had been educated at Harvard and were 'way out in front' of the run-of-the-mill brokers. They used a 'scientific approach' to pick the correct investment mix that would give you superior returns. It was truly cutting-edge and not like anything ever used in this industry and that he was very lucky to have run into these guys. : I asked him how much they charge for this service.

Did you ask him if he had any idea of the investment strategy they were using?

[tryan]

Had a similar experience with my one of my neighbors - except he works for Edward Jones. Sooo I agree to listen to the squeal ... after all - I know where he lives. So he comes in a tie n'suit with his sales pitch.... superior performance; funds ONLY availalbe thru him ... blah, blah blah. I finally cut to the chase and ask "What's your cut if I move my 401k", loooong pause , he says "5.5%". I said "that 's a problem" and showed him the door.

[Nords]

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Originally Posted by FIRE'd@51 Did you ask him if he had any idea of the investment strategy they were using?

"I'm sorry, that information is proprietary."

To be fair, when Buffett formed his first partnership in the 1950s he wouldn't tell the partners what he'd invested in. "Give me your money, I'll do the work, if people find out what I'm investing in then everyone will do it and it won't work any more." One guy was so persistent about wanting to know what Buffett was doing with his money that Buffett cashed him out.

[Sheryl]

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Originally Posted by Nords Just what every parent wants for their kids...

Yeah, Dad's a bit unusual. I don't think he ever got over my refusal to learn the slide-rule. "Just in case your calculator battery dies when you really need it."

[2B]

I am usually viewed as one of the "financial literate" wherever I've worked. That has led me to become an unofficial advisor for a number of people. I've seen some real disasters done by their financial advisors that were clearly nothing more than a way to get his fees.

The usual trick is for them to buy load mutual funds where they get a nice commission. Then they get a management fee for watching your fund underperform because of its excessive fund management fee. This underperformance is the reason they recommend moving out of this losing fund into another "hot" load fund that will get them another commission.

I always show them what they could not be "worth" had they bought an S&P index fund instead. In about 20 "sessions" I've never had anyone that was better off with their "financial advisor."

I'm amazed at how shocked some of the people get when I point out how much they've paid in fees and commissions. I had always assumed these people could read! I've also been amazed at how few people move from their "financial advisor" because they "have been with them so long," "are friends" or just never get around to it. I've only had one convert that I know of.

[heyyou]

That is what Bernstein found out. Spread the knowledge and the general public will still not change. Change means admitting a mistake. Same as at Alcoholics Anonymous, "Hi, my name is Joe and my advisor buys high fee load funds for my account. I can avoid responsibility for my previous decisions by not changing now."

[Mr._johngalt]

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Originally Posted by 2B I am usually viewed as one of the "financial literate" wherever I've worked. That has led me to become an unofficial advisor for a number of people. I've seen some real disasters done by their financial advisors that were clearly nothing more than a way to get his fees. The usual trick is for them to buy load mutual funds where they get a nice commission. Then they get a management fee for watching your fund underperform because of its excessive fund management fee. This underperformance is the reason they recommend moving out of this losing fund into another "hot" load fund that will get them another commission. I always show them what they could not be "worth" had they bought an S&P index fund instead. In about 20 "sessions" I've never had anyone that was better off with their "financial advisor." I'm amazed at how shocked some of the people get when I point out how much they've paid in fees and commissions. I had always assumed these people could read! I've also been amazed at how few people move from their "financial advisor" because they "have been with them so long," "are friends" or just never get around to it. I've only had one convert that I know of.

This pretty much mirrors my experience. I've given up trying to talk
to these people about the money they are throwing away.

JG

[pjdaddy]

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Originally Posted by 2B I'm amazed at how shocked some of the people get when I point out how much they've paid in fees and commissions. I had always assumed these people could read! I've also been amazed at how few people move from their "financial advisor" because they "have been with them so long," "are friends" or just never get around to it. I've only had one convert that I know of.

Painful to see myself here.

We are in the process (initiated one month ago) of shifting a rollover IRA from Smith Barney to Vanguard. We started with SB many years ago, based on a cold call that initiated a college fund in a taxable account back when we knew next to nothing about investing. And they actually got us on track and we learned a fair bit from the experience. We established a rollover IRA with them about 6 years ago in order to diversify the company stock match in my wifes 401 plan.

Unfortunately, in spite of seeing the writing on the wall within a couple years (my 8-fund asset allocation with Vanguard has consistently outperformed the SB actively managed account) we kept hanging in there "one more year" out of a misguided sense of loyalty. It's been clear for sometime that the 6-month portfolio review with SB was more a feel-good BS session than any information transfer. The final straw was hearing that "although the portfolio return is a bit under the S&P 500, we're pretty happy with where we are since we're achieving this with fairly low risk". So they're happy with a mediocre return?

At least that statement provided the activation energy needed to initiate the change we should have made years ago. By my calculation, the twice a year feel-good portfolio reviews have cost me about $5K/session. Better late then never.

[JustCurious]

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Originally Posted by 2B I always show them what they could not be "worth" had they bought an S&P index fund instead. In about 20 "sessions" I've never had anyone that was better off with their "financial advisor."

This is a very good idea. You might want to show them the returns of a total stock market index fund instead, such as VTSMX. The returns are more consistent with less risk.

[2B]

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Originally Posted by JustCurious This is a very good idea. You might want to show them the returns of a total stock market index fund instead, such as VTSMX. The returns are more consistent with less risk.

Frequently, their financial literacy doesn't extend past the DJIA. Most will admit they've heard of the S&P500. Going to the Vanguard total stock market would put my credibility in with the latest "hot fund" their advisor has been pushing.

[FinanceDude]

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Originally Posted by 2B Frequently, their financial literacy doesn't extend past the DJIA. Most will admit they've heard of the S&P500. Going to the Vanguard total stock market would put my credibility in with the latest "hot fund" their advisor has been pushing.

And I think that is a blanket statement...........

Maybe I should start a thread on triangular currency arbitrage or convergence/divergence trends............nah

[FinanceDude]

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Originally Posted by 2B I am usually viewed as one of the "financial literate" wherever I've worked. That has led me to become an unofficial advisor for a number of people. I've seen some real disasters done by their financial advisors that were clearly nothing more than a way to get his fees. The usual trick is for them to buy load mutual funds where they get a nice commission. Then they get a management fee for watching your fund underperform because of its excessive fund management fee. This underperformance is the reason they recommend moving out of this losing fund into another "hot" load fund that will get them another commission. I always show them what they could not be "worth" had they bought an S&P index fund instead. In about 20 "sessions" I've never had anyone that was better off with their "financial advisor." I'm amazed at how shocked some of the people get when I point out how much they've paid in fees and commissions. I had always assumed these people could read! I've also been amazed at how few people move from their "financial advisor" because they "have been with them so long," "are friends" or just never get around to it. I've only had one convert that I know of.

The reason I became an advisor was I got sick of giving away free advice that worked out well for people..........hmmmm.........I wonder why I'm paying $200 a month out of my pocket for E&O insurance........when you don't have to??

[Mwsinron]

I guess everyone has this type of story. I have cousin who is paying a 12-B fee for basically no reason. Wont listen to me when Im telling him to get a Fid or Vanguard index fund. For basically the same results and few more bucks in his pocket. Ah well not my money..

[2B]

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Originally Posted by FinanceDude The reason I became an advisor was I got sick of giving away free advice that worked out well for people..........hmmmm.........I wonder why I'm paying $200 a month out of my pocket for E&O insurance........when you don't have to??   

Maybe they occasionally take your advice.

My best case was a woman who had her "advisor" purchase a deferred annuity for her IRA.  He did it without informing her.  He said it was such a good deal he couldn't let her miss out.  There were lots of fees and the interest rate was 3%.  I said that she should contact his supervisor, send a registered letter complaining and demand her cash be replaced in her account.  She didn't do anything.  The "advisor" was a friend of her husband when they were in high school.

[FinanceDude]

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Originally Posted by 2B Maybe they occasionally take your advice. My best case was a women who had her "advisor" purchase a deferred annuity for her IRA. He did it without informing her. He said it was such a good deal he couldn't let her miss out. There were lots of fees and the interest rate was 3%. I said that she should contact his supervisor, send a registered letter complaining and demand her cash be replaced in her account. She didn't do anything. The "advisor" was a friend of her husband when they were in high school.

And that is NOT an advisor.....probably some insurance agent working as a "planner" for the local community. Bottom line, YOU CAN'T fund an annuity WITHOUT a client's signature. And, if he did, he is guilty of fraud and non-consent of the client, and he loses his license...........

The paperwork would be rejected by the carrier without a signature, and the compliance department at the carrier would alert the gentlemen's principal.

[Khan]

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Originally Posted by 2B Maybe they occasionally take your advice. My best case was a women who had her "advisor" purchase a deferred annuity for her IRA. He did it without informing her. He said it was such a good deal he couldn't let her miss out. There were lots of fees and the interest rate was 3%. I said that she should contact his supervisor, send a registered letter complaining and demand her cash be replaced in her account. She didn't do anything. The "advisor" was a friend of her husband when they were in high school.

Is this 'being a friend' something that is taught in advisor school?