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Re: Retirees who trusted their broker
Old 03-12-2007, 11:01 PM   #21
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Re: Retirees who trusted their broker

Quote:
Originally Posted by samclem
I think you'll find the 40 basis points from B0fA to be just the tip of the cost iceberg. If they put you into MFs, then there wil be underlying expenses there (about the same as you'd pay yourself IF they buy low cost ones--they may not). Trading costs, etc.

There's no getting around the fact that mny advisors and brokers have a much different set of incentives than their clients. I laugh when people say "well, my advisor outperformed the market last year by 4%, I don't mind giving him his 2%." They have no idea what risk he assumed with their money to get that gain. It's a no-lose game for the advisor or broker: If he outperforms the market, he gets the juicy fees. When he underperforms, he will try to keep the client for awhile by pointing out sectors he did outperform, or by emphasizing the great record he had last year. At the very worst, the client leaves--maybe thousands of dollars poorer, and the broker/advisor hasn't lost a cent. Taking risks with someone else's money is easy.
Actually, .4 is the total fee. Any mutual fund expense fees (assuming they are from the BOA family of funds, Columbia and a couple others) are rebated back, so the full cost is .4.

This is much lower than standard fees, because I am able to piggy back on to a couple account holders with MUCH greater assets than mine.

So, when you look at Vanguard and the lowest mutual funds out their being in the .2 range give or take, and I can have a manged account with investments in any Columbia, or other BOA owned funds, for a total cost of .4, I am trying to figure out if there are other areas of concer besides the .2 additional cost.

On the flip side, I am not that familiar with Vanguard funds, but most of the funds I have through Schwab (T. Rowe Price, US Global, etc.) charge MUCH more than .2 or .4. Most are in the 1 to 2 range.

Edit: Also, rereading your post. There are no trading fees, or any other fees. The only time there are other fees is when you go with a private account manager, such as Marsico. In these private account manager situations, you have Marsicos group managing a sub portfolio that mirrors one of their fund strategies, but in which case you own all the individual stocks, so if at the end of the year you need to sell some stocks with built in capital losses, you can have them sell you out and put you in a similar category stock (Ford vs. GM) or keep you in cash for 30 days and then rebuy the stock, etc. For these private account manager sub accounts, you pay an extra 40-50 basis points, depending on the account manager. This is an optional service, but provides additional flexibility. The benefit of a mutual fund, without some of the negatives of a mutual fund.
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Re: Retirees who trusted their broker
Old 03-12-2007, 11:28 PM   #22
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Re: Retirees who trusted their broker

Rule 1: anything too good to be true probably isn't. I suspect you are being sold and there is more to know.
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Re: Retirees who trusted their broker
Old 03-12-2007, 11:36 PM   #23
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Re: Retirees who trusted their broker

Hmm--I wonder what other costs are built into that vehicle.

The value of the B of A arrangement probably boils down to how you plan to handle your investments. If you believe that active management (i.e. having a manager pick selected stocks for the MFs), then the B of A arrangement sounds like an inexpensive way to buy into these funds (if there realy aren't any "catches" built in). If you believe (consistent with the majority of academic literature) that active managers do not add value, then you'll want to go with lower cost Vanguard index funds, simplify you life, and pocket the .2% annual difference.

One additional consideration: Is the B of A deal a permanent arrangement? Esp: is this a "teaser" ER, or a permanent one? Is it dependent on your present employer? If the larger accounts you are piggybackng on depart, will you be able to stay? This isn't a big deal if this is IRA or 401K money, but if this is a taxable accout, you could get burned really badly if you have to sell once the fees go up.
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Re: Retirees who trusted their broker
Old 03-12-2007, 11:37 PM   #24
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Re: Retirees who trusted their broker

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Originally Posted by CyclingInvestor
Interesting thing about this story is that is really wasn’t outright fraud- the advice to take close to 10% and the poor fund choice would not have been all that rare in the late 90s. I remember reading in WSJ about people who had retired with $500,000 or something and intended to never go back to work again. The only thing different about some of these guys and the guys in the article above is the plan worked for some of them! It made a big difference which particular bag of crap you bet on.

In the past people who didn't consider themselves able to evaluate opportunities protected themselves with family and class leanings toward extreme conservatism. One thing that modern media culture rips apart pretty well is that old fashioned sense of staying with the tried and true. I can remember my Irish Grandmother dispensing the ethnic truths-“A fool and his money are soon parted”; “There’s no fool like an old fool”(this one mainly a warning to older men who might be tempted to leave Mama and take up with a floozie in Havana or New Orleans or somewhere dangerous.) I think most people felt mixed about these things, but I can tell you that many years later I do a silent check with my storehouse of maxims before doing anything that might fall into one of these categories of fool. Fool is something people did not want to be!

Outright fraud and embezzling of funds is also fairly common. It happened twice on a large scale in the small town where I lived. One major swindler was an elder of some fast growing church who sold phoney investments mostly to members of the congregation. More than once I shared with a few of these folks what I thought were the risks involved, but they figured I wasn't a Christian so why listen to heathen me?

HaHa, too bad for them that they didn't.

Ha

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Re: Retirees who trusted their broker
Old 03-12-2007, 11:49 PM   #25
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Re: Retirees who trusted their broker

Quote:
Originally Posted by samclem
Hmm--I wonder what other costs are built into that vehicle.

The value of the B of A arrangement probably boils down to how you plan to handle your investments. If you believe that active management (i.e. having a manager pick selected stocks for the MFs), then the B of A arrangement sounds like an inexpensive way to buy into these funds (if there realy aren't any "catches" built in). If you believe (consistent with the majority of academic literature) that active managers do not add value, then you'll want to go with lower cost Vanguard index funds, simplify you life, and pocket the .2% annual difference.

One additional consideration: Is the B of A deal a permanent arrangement? Esp: is this a "teaser" ER, or a permanent one? Is it dependent on your present employer? If the larger accounts you are piggybackng on depart, will you be able to stay? This isn't a big deal if this is IRA or 401K money, but if this is a taxable accout, you could get burned really badly if you have to sell once the fees go up.
Not employer related, it is what they consider a 'family account' although it is actually made up of a small group of family and friends. The deal is nothing special, it is their standard rate chart, the only thing special is that in a case like this when we came over together, they averaged out the rate so that two of us that have substantially smaller accounts that would normally be charged in the 150 basis point range, get to take advantage of the larger accounts in our small group. Most of the funds for the larger accounts came from the sale of a business, and I anticipate the total assets of the 'family account' to go up, not down and over time the fee will be below 40 basis points.

Anyway, this is all new to me, so I am trying to figure it all out. I have been heavily invested in emerging markets (mostly Eastern Europe and Latin America) and they have done exceptionally well for me, but they are volatile. The size of my portfolio is now large enough that I want a more balanced portfolio and am trying to figure out how to proceed, as well as how far away I am from ER.
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Re: Retirees who trusted their broker
Old 03-15-2007, 03:03 PM   #26
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Re: Retirees who trusted their broker

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Originally Posted by frayne
You just can't fix stupid.
Or am I being too critical ?
I don't think people are necessarily stupid, probably most aren't. I was mostly just a passive participant in my employers offering of a 403(b). I'm positive I wasn't alone in my thinking that investing, stock market, mutual funds, annuities, blah blah was VERY complicated and best left to the "experts" and those who are titled "Advisor". After all, you can dedicate an entire college education to pursue a career in dealing with those things.

I would guess that the man in the article was a passive participant in the accumulation of his $700K. It probably came thru hard work, yet the retirement savings was "easy" in that he didn't have to make decisions as to allocation, or study the pro/con of this or that. His was a sizeable chunk of money & he reasonably thought he could make it grow even bigger. We hear stories all the time of stock market millionaires. NONE of us ever expects to be duped, yet you hear of some really smart people who are taken by con artists.

My DH is very smart about fixing things around the house or in working on a motor vehicle. Some of his expertise has come thru trial & error. He just can't relate to people who glibly take their car to a shop & say "fix it" and pay out the nose for some minor 5˘ bolt-on widget. "Anybody could fix that," he says. Same with home repairs. Well *I* understand that some people just aren't inclined nor interested in learning how -or- even attempting to DIY.

To me it somewhat boils down to a matter of trust. In a perfect world one would be able to trust their broker, financial advisor, insurance salesman, home repair person, or auto mechanic. I think it's pretty simplistic to blame the victims of shysters in any of these or other fields.

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Re: Retirees who trusted their broker
Old 03-15-2007, 04:43 PM   #27
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Re: Retirees who trusted their broker

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Originally Posted by Bram

To me it somewhat boils down to a matter of trust. In a perfect world one would be able to trust their broker, financial advisor, insurance salesman, home repair person, or auto mechanic.

But there is a real difference. I trust tradesmen and service people all the time. But these people, hopefully, know their trade and I can get recommendations, examples of their work or even performance bonding.

Its just most financial persons are *sales* persons and often don't know anythng about finance. Its bad because these sales people have a financial incentive to not work in your best interest.
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Re: Retirees who trusted their broker
Old 03-15-2007, 11:14 PM   #28
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Re: Retirees who trusted their broker

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Originally Posted by yakers
Its just most financial persons are *sales* persons and often don't know anythng about finance. Its bad because these sales people have a financial incentive to not work in your best interest.
And therein lies the part of the problem..... it is not a widely held view to know them as "salesmen". Until their esteem approaches that of a used car salesman, people will continue to trust them & hand over their money. But even with a high degree of suspicion, people still get duped by a used car salesman's finesse.

And certainly during these times of a bull market these financial "salesmen" give every appearance of being financial geniuses, further enhancing their aura. They throw around the financial jargon, they have a bunch of letters of unknown meaning after their names.... quite impressive! "I have a financial advisor" can impress many of my colleages and friends. I was in the very same boat until I fortunately stumbled upon this forum a few months ago. I have the motivation, interest, & the time to learn more about finances/investing/DIY. But I think the financial salesmen will continue to have a job like shooting fish in a barrel. And I am not even saying that they're doing anything illegal or unscrupulous. It's just that many people would rather pay for the "service".
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Re: Retirees who trusted their broker
Old 03-16-2007, 06:18 AM   #29
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Re: Retirees who trusted their broker

Quote:
Originally Posted by yakers
But there is a real difference. I trust tradesmen and service people all the time. But these people, hopefully, know their trade and I can get recommendations, examples of their work or even performance bonding.

Its just most financial persons are *sales* persons and often don't know anythng about finance. Its bad because these sales people have a financial incentive to not work in your best interest.
I've got news for you. Your plumber, carpenter, lawyer, accountant, banker, and anybody else who performs a service for you is also a salesman.

Also, some of the brightest financial minds I know work in the advisory business. I find it funny that a crowd who shuns financial advice so much claims to be all knowing about the business.

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Re: Retirees who trusted their broker
Old 03-16-2007, 07:28 AM   #30
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Re: Retirees who trusted their broker

Quote:
Originally Posted by frayne
Sad, at least I'll have myself to blame if my portfolio goes belly up. One thing I fail to understand is these people work 25-30-35 years of their lives accumulating and building wealth and then piss it away trusting some slick dude with a good sales pitch about life on easy street.

You just can't fix stupid.

Or am I being too critical ?

Yes... too critical... (have not yet read the article... but).. there are many people who are good at what they do, and it is NOT finance... they saved for retirement and are about to live only off their nest egg... so they get something in the mail about a retirement seminar etc... everything looks professional... they have people who are living the high life... get a check evey month.... wow, this is what I need to protect myself from the cruel market (which they know very little about)..

Since their firm can't tell them anything, they are left to swim on thier own in the shark infested waters...
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Re: Retirees who trusted their broker
Old 03-16-2007, 07:42 AM   #31
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Re: Retirees who trusted their broker

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Originally Posted by Nords
It's not just the blue-collar types-- it's the smarter ones too who theoretically can find/trust good managers or do for themselves.
I was told (by my PhD advisor) that Caltech lost a substantial fraction of their endowment in the tech crash. It used to be one of the richest schools in the country, but fell way back in the list. Which explains why they've been begging heavily for money for the last few years.
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Re: Retirees who trusted their broker
Old 03-16-2007, 10:49 AM   #32
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Re: Retirees who trusted their broker

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Originally Posted by saluki9
Also, some of the brightest financial minds I know work in the advisory business. I find it funny that a crowd who shuns financial advice so much claims to be all knowing about the business.



Investment PRODUCTS are a COMMODITY, Investment ADVICE is NOT..............
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Re: Retirees who trusted their broker
Old 03-16-2007, 10:59 AM   #33
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Re: Retirees who trusted their broker

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Investment PRODUCTS are a COMMODITY, Investment ADVICE is NOT..............
There is also substantial disagreement among DIY types as to the best strategy for investment. Everyone seems to agree that "after MER" returns are the only thing that counts. But how to get those is a many splendored thing...
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Re: Retirees who trusted their broker
Old 03-16-2007, 12:07 PM   #34
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Re: Retirees who trusted their broker

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There is also substantial disagreement among DIY types as to the best strategy for investment. Everyone seems to agree that "after MER" returns are the only thing that counts. But how to get those is a many splendored thing...
That's because this board is focused on virtually nothing bu RETURN, which in and of itself is a curious thing..............
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Re: Retirees who trusted their broker
Old 03-16-2007, 09:03 PM   #35
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Re: Retirees who trusted their broker

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That's because this board is focused on virtually nothing bu RETURN, which in and of itself is a curious thing..............
I disagree, FD. I see an awful lot of discussion here on asset allocation, diversification, indexing, etc....none of which which puts emphasis on maximizing return.
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Re: Retirees who trusted their broker
Old 03-17-2007, 12:12 AM   #36
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Re: Retirees who trusted their broker

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I disagree, FD. I see an awful lot of discussion here on asset allocation, diversification, indexing, etc....none of which which puts emphasis on maximizing return.
Then why do I see so many posts bragging about it? I guess I should say I USED to see those posts, before the Dow dropped 700 points..........
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Re: Retirees who trusted their broker
Old 03-17-2007, 12:44 AM   #37
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Re: Retirees who trusted their broker

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Then why do I see so many posts bragging about it? I guess I should say I USED to see those posts, before the Dow dropped 700 points..........
My return is still good even though I am down from the high awhile back... but I look at return over 3 to 5 years.. and am doing better than 10% average.. have others done better... absolutely, but I am happy..

And people can run faster than me, bowl better, play golf better (this is not hard as I am about 35 hdcp :)... but I am still happy...
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Re: Retirees who trusted their broker
Old 03-17-2007, 10:00 AM   #38
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Re: Retirees who trusted their broker

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play golf better (this is not hard as I am about 35 hdcp :)...
Now that sounds painful!

See a good pro, establish good fundamentals, spend at least 10 hours a week at a driving range, working on those, and developing "muscle memory" and you should be able to knock off at least 15 strokes.

Or, continue on, and torture the group that is playing behind you.


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Re: Retirees who trusted their broker
Old 03-17-2007, 10:14 AM   #39
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Re: Retirees who trusted their broker

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Then why do I see so many posts bragging about it? I guess I should say I USED to see those posts, before the Dow dropped 700 points..........
It seems that when the bulls are in charge, we're all experts.
When the bears take over, well, we run for cover.
It is just the nature of the "two beasts".
Greed and fear are both powerful emotions that can force
anyone to abandon a solid plan in a panic.

Quote:
Originally Posted by kcowan
There is also substantial disagreement among DIY types as to the best strategy for investment.
This is why I feel so fortunate to have found a good FA. Yes, it is more expensive; but he has saved me from shooting myself in the foot several times. It is impossible to put a value on that. Could I have done better myself? Maybe! Anyone should be able to make money in a bull market. But what happens when the bears (fear) strike? I am also fortunate to be able to afford to hire someone to manage the funds for me!
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Re: Retirees who trusted their broker
Old 03-25-2007, 08:29 PM   #40
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Re: Retirees who trusted their broker

"This is why I feel so fortunate to have found a good FA. Yes, it is more expensive; but he has saved me from shooting myself in the foot several times. It is impossible to put a value on that. Could I have done better myself? Maybe! Anyone should be able to make money in a bull market. But what happens when the bears (fear) strike? I am also fortunate to be able to afford to hire someone to manage the funds for me!"
--------------------------------------------------------------------------------------------------------------------------------

We agree. Our Merrill Lynch broker and his son who is a Certified Financial Planner made us wealthy, and have kept us wealthy. They steered our little ship through the tech boom and bust, kept us well diversified and balanced, prevented me from jumping in with both feet during the tech run-up, and encouraged some adventuresome investments I wanted with a small percentage while keeping my feet firmly planted on the ground and in safe and moderate investments. We came through that debacle relatively unscathed.

I try to stay informed, and I discuss investments with our advisors, but I don't try to take out my own appendix, and I don't try to handle our portfolio by myself. I respect the fact that they do this all day every day. I don't WANT to spend my days comparing investment opportunities, running spreadsheets, doing comparisons, etc. That's what I pay them to do.

I don't begrudge one cent we have paid them over the years. They certainly sailed our little ship expertly and profitably. I understand that many prefer to do it themselves, even that they save money doing so. But I'd rather be out here in my RV seeing the world, and knowing that my money is being professionally cared for. They don't move without consulting me, and I have the final say, but with few exceptions, I've agreed with them and I've never been sorry. They've made it so that since we were 42 and 50, we've had an absolutely wonderful life. More power to them. If they have multimillion dollar homes themselves, they've earned it, because they've helped many others become multimillionares as well.

Not to denigrate those who prefer to do it themselves, but I hate to see brokers and planners treated as though they are just playing people for suckers. Many are nothing like that, and the fees they charge are well worth the results they achieve. I know ours are.

LooseChickens




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