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11-22-2014, 10:01 AM
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#1
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Recycles dryer sheets
Join Date: Feb 2011
Location: Nottingham
Posts: 212
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True Cost of Mutual Fund
Morning All -
Had visit with Financial Planner other day - free seminar - I try to pick up information.
I am still leaning towards doing my own "active" management using what I have learned on here, including using low cost Vanguard funds.
In the seminar the planner mentioned that you can't just go by the prospectus expense ratio. You need to include also the other "hidden" fees - management, admin, ... His focus was when you include those fees they are not much different than his charge of 1.4%.
So my question is how do I compare apples to apples??
Do I include the expense ratio and other fees identified in the prospectus against his 1.4%? Does his 1.4% include all of the mutual funds fees or are they on top of them (i.e., 1.4% plus expense ratio + ...)?
For our FIRE we are looking to need about a net 4% long term growth on our investments. Having high expenses can really put strain on fund performance.
Thanks
Kannon
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11-22-2014, 10:16 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2007
Posts: 14,328
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Quote:
Originally Posted by kannon
........His focus was when you include those fees they are not much different than his charge of 1.4%..............
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I award three Pinocchios. Run.
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11-22-2014, 10:20 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2013
Posts: 11,078
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You might point this wise advisor to the linked SEC document. They seem to believe it's all in the prospectus in two tables. Of course the SEC could be wrong and this wise advisor knows it all.:what:
http://www.sec.gov/answers/mffees.htm
What wouldn't be in there are advisor 'wrap' fees. Might ask if that's what he's talking about. Did he see a turnip truck when you pulled up?
Run away, far away.
Edit to add: Nice job smelling BS when a FA starts lying. You can also get the same definitions of allowable charges from FINRA or ICI.
Sent from my SAMSUNG-SGH-I337 using Early Retirement Forum mobile app
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11-22-2014, 10:21 AM
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#4
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Recycles dryer sheets
Join Date: Jul 2013
Posts: 123
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Quote:
Originally Posted by kannon
In the seminar the planner mentioned that you can't just go by the prospectus expense ratio. You need to include also the other "hidden" fees - management, admin, ... His focus was when you include those fees they are not much different than his charge of 1.4%.
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That's bull. You can get a total US market index fund like Vanguard's VTSAX or Fidelity's FSTVX for .05%, or Schwab's SWTSX for .09%. That's $5 or $9 per year for every $10000 you have invested... instead of $140.
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11-22-2014, 10:33 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Posts: 12,598
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Anything that involves a human doing stuff just for you is always going to cost more.
Only, therefore, involve a human if you simply can't get the task done without a human's personal attention.
This would seem to be one of those times when you can dispense with the personal human touch (naturally, there are humans in the mutual fund company, but they are not paying personal attention to you).
Amethyst
__________________
If you understood everything I say, you'd be me ~ Miles Davis
'There is only one success – to be able to spend your life in your own way.’ Christopher Morley.
Even a blind clock finds an acorn twice a day.
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11-22-2014, 10:34 AM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,004
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This guy is either uneducated about mutual funds or lying to you.
__________________
Numbers is hard
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11-22-2014, 10:40 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
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Turnover.
heh heh heh - it's not a trick question.
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11-22-2014, 10:57 AM
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#8
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Thinks s/he gets paid by the post
Join Date: May 2014
Location: Utrecht
Posts: 2,650
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A financial planner should bill for his time, not a %.
Otherwise, indeed run.
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11-22-2014, 11:13 AM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,204
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Not surprisingly, your FP is using broad averages to make you think his fees are reasonable - it's sales spin and it works on too many people. There are indeed mutual funds that have fees that high or higher, with our without hidden fees (on top of expense ratios) - so he's rationalizing he's not lying to you outright. Or he's just ignorant and parroting his firms sales pitch. Either would be a good reason to eliminate his services from consideration IMO.
But there are lots of excellent mutual funds for almost any asset class with very competitive returns and far lower fees - Vanguard, Fidelity, Schwab, etc. You can easily find expense ratios for any mutual fund and while it takes some digging (unfortunately), you can also find any hidden fees on any mutual fund to get a clear picture of the total fees.
The odds that your FP can provide better returns after his fees than a portfolio of good low expense funds is very remote at best - there have been many academic studies to prove it.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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11-22-2014, 12:50 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
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Quote:
Originally Posted by kannon
....;.In the seminar the planner mentioned that you can't just go by the prospectus expense ratio. You need to include also the other "hidden" fees - management, admin, ... His focus was when you include those fees they are not much different than his charge of 1.4%......
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He's either an idiot or a liar, but either one disqualifies him from being your advisor.
His 1.4% is on top of whatever the funds being used charge (not instead of). Stay the course, read and learn and do it yourself and you'll be much better off.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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11-22-2014, 01:09 PM
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#11
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Run from this FA. Also by "active investing" what do you mean.? Market timing and intense trading or periodic rebalancing?
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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11-22-2014, 01:25 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Oct 2002
Location: Chattanooga
Posts: 3,878
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He's selling and plenty of suckers are buying.
__________________
Earning money is an action, saving money is a behavior, growing money takes a well diversified portfolio and the discipline to ignore market swings.
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11-22-2014, 01:48 PM
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#13
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Moderator
Join Date: Feb 2010
Location: Flyover country
Posts: 25,199
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Man, what a tough crowd!
Let's give the poor guy the benefit of the doubt.
Assume he wants you to compare a mutual fund with an ER of 1.4% with his management fee of 1.4% and he puts you in a portfolio of only stocks (no funds).
In that case, he's absolutely right.
The kicker is simply that - you would be foolish in the first place to buy a fund with that ER
and - the odds are tiny that his stock picks would outpace a low cost index fund.
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11-22-2014, 02:10 PM
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#14
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Thinks s/he gets paid by the post
Join Date: Jun 2007
Posts: 2,657
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This is a line of sales patter that mutual fund advisers are taught. It is NOT TRUE but can be easily misunderstood to mean using an adviser won't cost more than do it yourself. It is true that you can find mutual fund with high fees and also that some fund as much or more than 1.4%. But ironically you would never pick those funds unless an adviser steered you into them.
The suggestion that there are hidden fees not included in the ER is a deliberate lie, and if asked about it he will say you misunderstood or mention an usual case of funds that charge an account fee for small balances.
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11-22-2014, 02:17 PM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,671
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For entertainment purposes only, I have attended a couple of dozen of these seminars. I am always reminded that current customers are paying for the meals that are consumed by the possible customers.
I once caught a quote from Scott Burns that goes something like this ~"Enjoy the free meal but avoid the kool aid."
__________________
Part-Owner of Texas
Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx
In dire need of: faster horses, younger woman, older whiskey, more money.
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11-22-2014, 03:04 PM
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#16
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Full time employment: Posting here.
Join Date: Apr 2006
Posts: 880
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True Cost of Mutual Fund
Just reserved a spot for DH and I for an upcoming seminar (free dinner). I use to avoid these while I was working, but now I have the time
Of course there is no obligation according to the invitation.
Sent from my iPhone using Early Retirement Forum
__________________
"Tell me, what is it you plan to do with your one wild and precious life?" - Mary Oliver
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11-22-2014, 03:08 PM
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#17
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Moderator
Join Date: Dec 2007
Location: Eastern WV Panhandle
Posts: 25,302
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How do you find these free dinners? I never get invited to those but I get junk mail for financial newsletters all the time.
__________________
When I was a kid I wanted to be older. This is not what I expected.
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11-22-2014, 05:07 PM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2003
Location: Kansas City
Posts: 7,968
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11-22-2014, 05:17 PM
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#19
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 2,223
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Quote:
Originally Posted by Walt34
How do you find these free dinners? I never get invited to those but I get junk mail for financial newsletters all the time.
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Most of the "Free Dinner" (bait) seminars I have come across are advertised on radio, and you have to call them.
Rubber chicken isn't so bad when it's free.
Back to the OP , advise a u-turn away from the adviser, you can do it yourself
__________________
" A person is smart, but People are dumb, dangerous, panicky animals, and you know it " Agent "K", Men in Black
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11-22-2014, 05:21 PM
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#20
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Full time employment: Posting here.
Join Date: Apr 2006
Posts: 880
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They come in the US mail with our name and address. Not sure how I got on "the list". We get 2-3 invites/year. We've never attended one so I guess I'll see if it is worth the effort.
Sent from my iPhone using Early Retirement Forum
__________________
"Tell me, what is it you plan to do with your one wild and precious life?" - Mary Oliver
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