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02-09-2011, 02:39 PM
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#61
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Moderator Emeritus
Join Date: Dec 2005
Posts: 10,125
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Quote:
Originally Posted by Nords
Ah, yes, the "family whipping boy" billet...
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No, my sisters have under accumulated financial resources. The people who have asked have been friends.
__________________
Angels danced on the day that you were born.
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02-09-2011, 07:22 PM
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#62
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2005
Posts: 10,252
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Here is a financial planner to avoid
Quote:
Bill Pomeroy, a certified financial planner in Baton Rouge, La., has dealt with a number of lottery winners who went broke.
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(From 8 lottery winners who lost their millions - MSN Money ) I infer his advice did not prevent his clients from going broke.
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02-09-2011, 09:53 PM
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#63
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2004
Location: Laurel, MD
Posts: 8,326
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What percentage of stocks/funds are sold by FA's? If there was no demand for FA's, wouldn't they disappear? I agree it's tough to ensure that the FA's interests are mostly aligned with the client, but I have no problem with FA's being paid as long as the disclosure of fees is adequate. The financial services industry has little incentive to minimize expenses, just to move product.
__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
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02-10-2011, 12:09 AM
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#64
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Thinks s/he gets paid by the post
Join Date: Nov 2005
Location: North of Montana
Posts: 2,769
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I've often wondered (and I'm sure the self confessed described Financial Advisers posting here will tell us) why the customer's assets make a difference when preparing and executing a plan. All are the same age, same number of dependents etc.
Take 3 people with money to invest:
1) Has $100,000
2) Has $1,000,000
3) Has $10,000,000
Assuming I hire a FA who charges by assets, why does he get more for managing my $10M portfolio than by doing the same for my neighbour's $1M portfolio?
If charged by "assets under management", does the FA spend 100 times as many hours on person 3's portfolio as they do on person 1's? If not, why not?
__________________
There are two kinds of people in the world: those who can extrapolate conclusions from insufficient data and ..
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02-10-2011, 05:36 AM
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#65
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Thinks s/he gets paid by the post
Join Date: Jul 2003
Location: Pasadena CA
Posts: 3,346
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[QUOTE=kumquat;1035371
If charged by "assets under management", does the FA spend 100 times as many hours on person 3's portfolio as they do on person 1's? If not, why not?[/QUOTE]
I'm no fan of FAs although I do know a few that I think are OK, but the one thing I see is true is that they are very sensitive to their income AUM. A person with 10X resources is likely to receive more FA time and attention. (Whether this is a good thing is another question.) And a person with a large portfolio may need it structured differently, i.e., more muni bonds and possibly hedge funds.
__________________
T.S. Eliot:
Old men ought to be explorers
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02-10-2011, 06:09 AM
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#66
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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__________________
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).......:)
This Thread is USELESS without pics.........:)
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02-10-2011, 07:08 AM
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#67
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Charleston, SC
Posts: 13,566
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Quote:
Originally Posted by LOL!
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With or without an advisor, most lottery winners continue the behavior that caused them to think buying lottery tickets was a good path to success in life. I make a study of lottery winners, and one of the best, if not most disturbing, books on the topic is from Edward Ugel. Money for Nothing is a great read on why lottery winners rarely manage to hold on to their winnings.
__________________
“One day your life will flash before your eyes. Make sure it's worth watching.”
Gerard Arthur Way
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02-10-2011, 08:22 AM
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#68
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Quote:
Originally Posted by kumquat
I've often wondered (and I'm sure the self confessed described Financial Advisers posting here will tell us) why the customer's assets make a difference when preparing and executing a plan. All are the same age, same number of dependents etc.
Take 3 people with money to invest:
1) Has $100,000
2) Has $1,000,000
3) Has $10,000,000
Assuming I hire a FA who charges by assets, why does he get more for managing my $10M portfolio than by doing the same for my neighbour's $1M portfolio?
If charged by "assets under management", does the FA spend 100 times as many hours on person 3's portfolio as they do on person 1's? If not, why not?
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I can't speak for all FAs, but expenses drop on a percentage basis. The $100,000 guy may pay 1%, the $1 million guy 50bp, and the $10 Million guy 20-25bp............
__________________
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).......:)
This Thread is USELESS without pics.........:)
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02-10-2011, 08:30 AM
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#69
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Thinks s/he gets paid by the post
Join Date: Apr 2007
Location: west bloomfield MI
Posts: 2,223
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Quote:
Originally Posted by Gone4Good
You've identified the heart of my question, and the reason for the post. Why doesn't a competitive market supply enough labor and competitors to bring salaries and fees in financial services down to a level consistent with other services in the economy?
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The financial services industry is one which has low markup. People which make lots of money are doing high transaction volume.
Quote:
4) 6 and 7 figure institutional salesmen get commissions to sell the new issue to mutual funds, insurance companies, etc.
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For example, on a new issue that spread might be $.15 per share sold, and the person might be selling a million or more shares to a few different mutual funds. Maybe that spread is only $.05/share (for same 2 million shares sold) or it could be the spread is $.25/share sold (depends on cost of the underwriter).
Generally money follows risk. Risk-reward. When underwriting a new issue, in some cases the underwriter has committed to buy 100% of the new issue, so they have risk, and charge a markup to make money. If they fail to sell 100% of the issue, they lose money (risk) so they price to sell 100% of the issue.
If you only evaluate based on money made, but not on the risk taken to make that money, you are not seeing the whole picture.
Quote:
Originally Posted by haha
The smartest investor I ever knew was a 75 year old broker who owned a small firm. The money he made from me was meaningless to him, as he was very wealthy. The most successful people in the world love their work, and generally are in no great hurry to retire.
We have a tendency to narrowly interpret actions of those who appear to make different choices from those chosen by us.
Ha
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well said
Quote:
Originally Posted by Gone4Good
Everywhere is different, and broad brushes usually paint badly, but my experience has been that when conflicts of interests arise between what's good for the employer and whats good for the client, the client often loses. It's so bad in some places (read industries) that if you want to do right by the client, you sometimes have to do it on the sly and then only with trusted clients who you know won't blow you up. But of course, in those instances, doing right by the client means putting yourself in a hole relative to your peers and the good graces of your employer who sees your peers selling more, or generating more fees, than you are. Most people can't survive long doing that.
There's a reason why the brush is broad. And it's not because the financial services industry employs bad people. It's because the incentive structure often times pits the interests of those selling financial products against those who buy them.
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Agree
When I interviewed for a financial planner position, I told them no advice is ever unbiased. The issue is really to explain the bias to the customer, and if they understand the bias, then it is good advice.
They hired me, so either my other answers were really good, or they ignored that answer.
Quote:
Originally Posted by harley
Exactly. My previous FA is a great guy, who works hard and is convinced he can do well for his clients. However, returns don't bear that out. Also, just like nearly every other human being, he has a significant blind spot regarding what I see as conflicts of interest. He could justify putting me in a 5.75% load fund that does the exact same thing as a Vanguard fund because it's one year return was .7% higher. It had nothing to do (in his mind) with that big commission he was going to get. Seriously, he just didn't think that way. Great guy, good intentions, but just wrong. He was adding no value at relatively high costs.
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You don't understand how advice is given and PAID FOR, IMO.
There are 3 ways to pay for the advice you received. One would be hourly rate to advisor for a financial plan. Might cost between $500-$10,000 up front depending on complexity. So you might need to fork over $5000 up front for the advice, and the advice ends when plan is presented to you (and paid for). If you were investing $5000 into an IRA, there went year 1's contribution up front.
Another way is to have advisor collect a wrap fee (call it 1% of assets under management). So you invest that same $5000, and over course of first year $50 of that goes to advisor. Most firms have a minimum for a program like this ($50 might pay for a half hour of advice).
Another way is to charge loads on the funds, and the advisor gives advice throughout investing timeframe (no expiration date on financial plan). This is 5.75% up front, but no ongoing fees unless new money is invested.
You had a choice for how you paid your FA, you chose what to do, yet you blame the advisor for charging you for the advice the advisor gave you.
That summarizes my thoughts up to page 2...
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
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02-10-2011, 08:45 AM
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#70
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Thinks s/he gets paid by the post
Join Date: Apr 2007
Location: west bloomfield MI
Posts: 2,223
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LOL
The way it was presented to me is that salespeople are compensated for performance. Salaried people are NOT compensated for performance. The more I am winding down working my salaried position, the more I am believing this to be a lifetime philosophy which I will share with my kids when they are old enough.
I heard the same exact wording in my interview and orientation process.
Quote:
Originally Posted by meierlde
I am not sure what the rate might be but why not FA by the hour maybe $400 or so. It can't take but a few hours to figure out where folks are going and perhaps an hour a month beyond that.
Actually if it were me brokers would be all turned into Vanguard or Schwab, no brokers just customer service types. Also would seperate market makers from brokers as they did in the UK before the big bang there.
So you would have salesmen, brokers, jobbers (specialists) and advisors, and you could only be one of them at a time.
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The way it was explained to me is that the fee for a financial plan creates a relationship between advisor and client. Once the plan is paid for and presented, the relationship must end for legal reasons (advisors have insurance, and recommendations must be suitable, and I suspect it is this standard which forces relationship to end once plan is presented).
Quote:
Originally Posted by kumquat
I've often wondered (and I'm sure the self confessed described Financial Advisers posting here will tell us) why the customer's assets make a difference when preparing and executing a plan. All are the same age, same number of dependents etc.
Take 3 people with money to invest:
1) Has $100,000
2) Has $1,000,000
3) Has $10,000,000
Assuming I hire a FA who charges by assets, why does he get more for managing my $10M portfolio than by doing the same for my neighbour's $1M portfolio?
If charged by "assets under management", does the FA spend 100 times as many hours on person 3's portfolio as they do on person 1's? If not, why not?
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Two points, people with $10 M usually believe their $h!t does not stink, so it does take more to deal with them than it does to deal with clients with lesser assets.
Second, a person chooses how they compensate their advisor (assets under management vs sales loads). Generally there are breakpoints for both (the person with $100k will be charged around 1%, the person with $1 M might only be charged .5%). Mutual funds do the same thing (expense ratios decrease as assets increase) and Vanguard does the same thing with admiral shares (more invested=lower fees as a percentage).
You claim the advisor is doing bad by collecting a percentage, but did not mention the mutual funds in same sentence- that is not objective advice or comments Vanguard is doing the EXACT same thing to you, and I have not see a post where you suggested Vanguard should only charge you $200/year as expense ratio because it does not cost VG any more money for your shares than it does for mine.
Quote:
I'm no fan of FAs although I do know a few that I think are OK, but the one thing I see is true is that they are very sensitive to their income AUM. A person with 10X resources is likely to receive more FA time and attention. (Whether this is a good thing is another question.) And a person with a large portfolio may need it structured differently, i.e., more muni bonds and possibly hedge funds.
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Right, and person with $10 M might be looking at other risks- own a business, higher returns or something like that.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
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02-10-2011, 08:57 AM
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#71
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Moderator Emeritus
Join Date: Sep 2007
Posts: 17,774
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I wonder if most $10 million plus portfolios are invested in more individual things than a $1 million--maybe not, but if so, there would be that much more research, tracking, rebalancing, new potential, communicating with client, etc. to keep up with and keep track of for an FA so the percentage would still be valid.
But I would hope if we used a FA that Vanguard funds, especially the managed funds, wouldn't be overlooked by the FA just because the FA thinks they're "DIY". Seems like there are a lot of other firms' funds that one doesn't need an FA to invest in, but these aren't all considered DIY, are they?
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
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02-10-2011, 09:09 AM
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#72
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Thinks s/he gets paid by the post
Join Date: Apr 2007
Location: west bloomfield MI
Posts: 2,223
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Quote:
Originally Posted by Bestwifeever
But I would hope if we used a FA that Vanguard funds, especially the managed funds, wouldn't be overlooked by the FA just because the FA thinks they're "DIY". Seems like there are a lot of other firms' funds that one doesn't need an FA to invest in, but these aren't all considered DIY, are they?
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How is the advisor compensated for putting client in VG funds?
VG does not pay the advisor, so who does?
VG is choosing not to use a salesforce. The sales people need to be compensated. Fix that problem and you have a workable solution.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
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02-10-2011, 09:11 AM
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#73
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Moderator Emeritus
Join Date: Sep 2007
Posts: 17,774
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I don't know--how is the FA compensated by putting someone in any funds? Only by the funds? Wouldn't the percentage of portfolio apply to VG funds too?
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
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02-10-2011, 09:49 AM
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#74
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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What I am confused about is why in a capitalist country otherwise fairly normal people are upset about what someone charges for a service that can be used or ignored. It's not like a toll on the only bridge between your job and your home. It isn't even like doctors' salaries or civil servant retirements. You think they aren't worth the money, you are free to bypass their door. You think you want the service, but cheaper, bargain with them, or shop around. There is no union.
I sometimes wonder if a lot of our board members wandered in here after things got too free in East Germany or Russia after 1989.
Industrial economies and large governments are built on a lot of crap that few people actually need, but quite a few want, or want to force others to provide for them. It would seem that financial planning and financial planners should not even be on one's radar as something to get upset about.
Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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02-10-2011, 09:51 AM
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#75
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Charleston, SC
Posts: 13,566
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Feever, there are lots of ways people buy funds, as you are no doubt aware. Anyone can go buy a mutual fund at a mutual fund house, or through a broker like Schwab. There might be a transaction fee to buy a fund, but after that, you are only paying the mutual fund's fees.
But, if you have a FA, either independent or through an Edward Jones or what-have-you, you are paying them something each month to manage the mutual fund portfolio.
Or you could have a wrap account somewhere like Smith Barney, where you might be paying all sorts of fees that may or may not be obvious to you as they manage the account and make selections.
I'm not sure that managing mutual fund portfolios makes a lot of sense for most people.
Managing equity or fixed income accounts does require more expertise IMHO and is where professional money managers do earn their keep.
Ha, I agree it is odd. I mean, I don't buy hair color, but I'm not out there railing against the hairdressers who offer it.
__________________
“One day your life will flash before your eyes. Make sure it's worth watching.”
Gerard Arthur Way
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02-10-2011, 10:14 AM
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#76
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Full time employment: Posting here.
Join Date: May 2008
Location: Lexington
Posts: 714
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Most people "rail" on financial advisers because they act in a position of a fiduciary, but are not fiduciaries, not even the CFP's. They are the only profession in this position. It is the ultimate caveat emptor that people have to deal with, and as such, warrants a lot of warnings.
And since profits can be as high as the 100k's for a few hours of work (e.g., the $10M customer), the tactics employed are often on par or worse than those used by used car salesmen, and the profits are larger, so there is more incentive to do it.
I think most of the complaining would go away, even at the crazy prices FA's generally charge, if there was some sort of serious accountability involved, like other professions in positions of trust must face.
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02-10-2011, 10:57 AM
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#77
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Thinks s/he gets paid by the post
Join Date: Apr 2007
Location: west bloomfield MI
Posts: 2,223
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Quote:
Originally Posted by Bestwifeever
I don't know--how is the FA compensated by putting someone in any funds? Only by the funds? Wouldn't the percentage of portfolio apply to VG funds too?
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Some firms only let certain funds or fund families get used in wrap accounts.
Other than that, it just depends.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
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02-10-2011, 12:20 PM
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#78
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Quote:
Originally Posted by haha
What I am confused about is why in a capitalist country otherwise fairly normal people are upset about what someone charges for a service that can be used or ignored. It's not like a toll on the only bridge between your job and your home. It isn't even like doctors' salaries or civil servant retirements. You think they aren't worth the money, you are free to bypass their door. You think you want the service, but cheaper, bargain with them, or shop around. There is no union.
I sometimes wonder if a lot of our board members wandered in here after things got too free in East Germany or Russia after 1989.
Industrial economies and large governments are built on a lot of crap that few people actually need, but quite a few want, or want to force others to provide for them. It would seem that financial planning and financial planners should not even be on one's radar as something to get upset about.
Ha
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+1.......Ha makes sense yet again!
__________________
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).......:)
This Thread is USELESS without pics.........:)
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02-10-2011, 12:21 PM
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#79
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Quote:
Originally Posted by plex
Most people "rail" on financial advisers because they act in a position of a fiduciary, but are not fiduciaries, not even the CFP's. They are the only profession in this position. It is the ultimate caveat emptor that people have to deal with, and as such, warrants a lot of warnings.
And since profits can be as high as the 100k's for a few hours of work (e.g., the $10M customer), the tactics employed are often on par or worse than those used by used car salesmen, and the profits are larger, so there is more incentive to do it.
I think most of the complaining would go away, even at the crazy prices FA's generally charge, if there was some sort of serious accountability involved, like other professions in positions of trust must face.
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One thing most people fil to realize is that FAs are one of the most regulated employees on earth. To say we are micromanaged by FINRA is an understatement...........
__________________
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).......:)
This Thread is USELESS without pics.........:)
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02-10-2011, 12:57 PM
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#80
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Thinks s/he gets paid by the post
Join Date: Feb 2005
Posts: 2,032
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Quote:
Originally Posted by jIMOh
How is the advisor compensated for putting client in VG funds?
VG does not pay the advisor, so who does?
VG is choosing not to use a salesforce. The sales people need to be compensated. Fix that problem and you have a workable solution.
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I can tell you this
1. Advisors do use Vanguard funds. Our office has well over $10M in vanguard funds alone. Much more in other index funds.
2. You bet Vanguard has a salesforce. They hit the advisor market hard. We get calls, visits, invitations to conferences, mouse pads, calendars, and asset allocation guides from them all the time
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