Am I crazy, or is this 'Financial Advisor' crazy?

[Coderguy]

Just had the 401k meeting at my new job.

He said, and I quote: "We don't believe in index funds, they are the only way to guarantee you under perform the market".

The fees on the plans are 15.00 quarterly, 25.00 annually plus a range of 1.10% to 1.71% fees&charges.

I am not participating in the plan.

Thoughts?

 

[REWahoo]

I am not participating in the plan.

Thoughts?

Does your employer match what you put in? If so, I'd participate up to that amount.

 

[Bestwifeever]

Just had the 401k meeting at my new job.

He said, and I quote: "We don't believe in index funds, they are the only way to guarantee [-]you under perform the market[/-] I don't get a commission".

The fees on the plans are 15.00 quarterly, 25.00 annually plus a range of 1.10% to 1.71% fees&charges.

I am not participating in the plan.

Thoughts?

Fixed it for you.

 

[W2R]

I don't like it. The fees are high. The "financial advisor" is advising you with his own financial gain in mind, not yours.

 

[Animorph]

That does sound bad, but probably not quite worthless. Check your available funds performance versus similar index funds over at least a 10 year period to see if your sales guy has a leg to stand on. No performance guarantee, but if your available funds at least matched the index you won't be paying high fees for crappy performance. Get the company match if it's available. You might invest in a Roth IRA for now, plus a tax efficient taxable account for the rest.

 

[Texas Proud]

Stupid things comes out of some peoples mouths.... this is one of them...



BUT, I would also look at the potential tax savings in addition to the match... if you save enough in taxes, then it is worth putting up with high fees etc. to be better off in the long run...


Are there no funds with low fees? That would really surprise me with the various laws out there about fiduciary duties with fees etc.

 

[Webzter]

An index fund will naturally drag behind the index (you are paying a percentage of course). But, it's not the only way to under-perform the market... another great one is to pay someone a guaranteed amount per quarter plus a larger percentage than the index fund to [-]churn commissions[/-] actively manage your money.

So, be smart enough to pick your own stocks or smart enough to choose an index fund with the lowest fees and you'll be ok over the long run.

 

[Keim]

Just had the 401k meeting at my new job.

He said, and I quote: "We don't believe in index funds, they are the only way to guarantee you under perform the market".

The fees on the plans are 15.00 quarterly, 25.00 annually plus a range of 1.10% to 1.71% fees&charges.

I am not participating in the plan.

Thoughts?

I am an indexer. But I have to say he is exactly right. Indexes do guarantee underperforming the market. What he didn't say is that they guarantee you will underperform the market by less vs 80-90% of other funds.

 

[Coderguy]

Great replies.

There is no matching. There is one low fee fund, it is their preservation of capital focused fund. I am currently doing as Webzter mentioned. I'm not quite sure about how to figure out the tax savings; I will try to figure it out.

He simply rubbed me the wrong way in all possible ways. He was talking about getting 10% returns through managed funds. He gave this example about staying in when things are bad so you get more shares at low cost; I was waiting for him to finish the example by bringing up staying in and getting shares at high cost when things are up, but he left that right off. Then he basically said "Save 6% tax deferred, and you can retire". I just sat there drinking my coffee at that point.

 

[Webzter]

I'm not quite sure about how to figure out the tax savings; I will try to figure it out.

Re-run last year's taxes but take out the the amount of your expected contributions from your adjusted gross income. That should get you close enough. Bonus points if it ends up putting you significantly below the next progressive step.

 

[intent]

He sounds crazy, but I think the 401k guy who my DW met with recently is even crazier.

My wife tells him we want to retire as early as possible. He says something along the lines of, "It really isn't possible to retire prior to age 59, so that's what I'll calculate for." He then begins to gather our financial info and upon doing so praises her for being well ahead of most. At the end of the meeting, he suggests to her that we are easily on track and, in fact, he would recommend we *spend more* and have some fun.

So, in his professional opinion, a couple who wants to retire as early as possible should keep the nose to the grindstone until 59, but be sure and spend more of what they make along the way.

To be fair, the guy she met with could only allot 30 minutes for each employee, so the meeting was hurried - but that is C-R-A-Z-Y.

 

[Coderguy]

He sounds crazy, but I think the 401k guy who my DW met with recently is even crazier.

My wife tells him we want to retire as early as possible. He says something along the lines of, "It really isn't possible to retire prior to age 59, so that's what I'll calculate for." He then begins to gather our financial info and upon doing so praises her for being well ahead of most. At the end of the meeting, he suggests to her that we are easily on track and, in fact, he would recommend we *spend more* and have some fun.

So, in his professional opinion, a couple who wants to retire as early as possible should keep the nose to the grindstone until 59, but be sure and spend more of what they make along the way.

To be fair, the guy she met with could only allot 30 minutes for each employee, so the meeting was hurried - but that is C-R-A-Z-Y.

I took a pass on the 30 minute personal meeting today, would have liked to do it; but want someone I feel more comfortable with...

 

[Webzter]

I took a pass on the 30 minute personal meeting today, would have liked to do it; but want someone I feel more comfortable with...

I believe FinanceDude is in your area.... bonus points, if he has anything mockable, you have ammo for the forum.

I don't know if he's fee-based and/or too expensive for the likes of you or me, but might be a place to start

 

[ziggy29]

Does your employer match what you put in? If so, I'd participate up to that amount.

+1, and not a cent more.

 

[growing_older]

I have been employed by companies which offered only poor choices in the 401k plan. If there isn't even a single reasonable low cost fund that I would want, it can still sometimes be advantageous to pick the least worst of the available choices, get the tax deduction, get a match if there is one, and plan to roll it over to an IRA when you leave the company. If you don't stay too many years, the deduction alone can still be worth putting up with a mediocre fund for a while.

 

[Gone4Good]

There is no matching. There is one low fee fund, it is their preservation of capital focused fund. I am currently doing as Webzter mentioned. I'm not quite sure about how to figure out the tax savings; I will try to figure it out.

With no match and at least 100bp higher fees it's going to be really hard to justify the 401(k). A quick back-of-the-envelope calculation says that you're still probably better off in a fully taxable account even if your current tax rate is 35% and drops to 15% in 30 years.

Just make sure you fund the taxable account by at least as much as you'd have contributed to the 401(k).

 

[target2019]

Sharpen the pencil and do the tax math. Since there is no match, it is simply a question of before-tax or after tax savings. If you want to save $10K per year, then 5K into the 401(k) and 5K into your own Roth seems reasonable.
Last week I heard HR clearly say, "for 1.5% they will completely manage your 401. That's not very much!" I think if we put all the bad advice aside, and do our own research, the world is better off.

 

[chinaco]

You can probably blend the funds an come up with a aggregate fee that is not too bad.

If you get a match... you might want to reconsider, or at least do a little more analysis.

But you are right that statement was total BS!

 

[Gotadimple]

With no match and at least 100bp higher fees it's going to be really hard to justify the 401(k). A quick back-of-the-envelope calculation says that you're still probably better off in a fully taxable account even if your current tax rate is 35% and drops to 15% in 30 years.

Just make sure you fund the taxable account by at least as much as you'd have contributed to the 401(k).

If you decide not to participate, let your HR department know why in writing -- outline the costs and the approach of the "advisor." If too many employees do not participate, the higher paid employees will be limited in how much they can contribute. When they start telling HR they are disappointed they can't shelter more of their income, HR may get approval to look for a new 401K administrator (with lower fees and better choices, hopefully!).

-- Rita

 

[Gone4Good]

If you decide not to participate, let your HR department know why in writing . . .

Good advice.

 

[LOL!]

My spouse's plan is worse, but she contributes the maximum possible as always.

The tax-deferred investments are the way to go until the fees are above 3% or so. You also have to look to the future when you rollover the assets into a low-cost plan. If you don't have the assets you will not have that low-cost tax-advantaged space in the future.

Another trick that my spouse uses is to borrow the maximum possible from her 401(k) and put the money in a low-expense-ratio 529 plan instead. She can be in the same investment category, but pay 2% less in fees AND the gains are tax-free instead of merely tax-deferred. She likes the way she stiffs the 401(k) provider out of the 2% in fees they would normally get. This also keeps her tax-advantaged 'space' open for the future when she repays the loan.

 

[MooreBonds]

I have been employed by companies which offered only poor choices in the 401k plan. If there isn't even a single reasonable low cost fund that I would want, it can still sometimes be advantageous to pick the least worst of the available choices, get the tax deduction, get a match if there is one, and plan to roll it over to an IRA when you leave the company. If you don't stay too many years, the deduction alone can still be worth putting up with a mediocre fund for a while.

I second this sentiment - the choices in my fund aren't stellar (though aren't quite as bad as 1.5%-1.71% expense ratios)....but I still max out between the 401k and 401kROTH, with the present benefit of some taxable income lowering, and that I'll be able to roll them into better choices 10 years from now when ERing...

 

[jayc]

I would sign up because of the tax savings. Nothing is better than getting 100% of your earned income to start working for you, even if the cons are a crappy plan. Usually for every $100 you put in, your take home pay only goes down about $75. Pick the least overpriced fund/option to use. I usually pick a 'stable' type.

Sometimes the 401k/403b will let you rollover once a year to an IRA without termination. This can be a work around.

 

[Cassius King]

Sometimes the 401k/403b will let you rollover once a year to an IRA without termination. This can be a work around.

I learn something new everyday.

 

[52andout]

He sounds crazy, but I think the 401k guy who my DW met with recently is even crazier.

My wife tells him we want to retire as early as possible. He says something along the lines of, "It really isn't possible to retire prior to age 59, so that's what I'll calculate for." He then begins to gather our financial info and upon doing so praises her for being well ahead of most. At the end of the meeting, he suggests to her that we are easily on track and, in fact, he would recommend we *spend more* and have some fun.

So, in his professional opinion, a couple who wants to retire as early as possible should keep the nose to the grindstone until 59, but be sure and spend more of what they make along the way.

To be fair, the guy she met with could only allot 30 minutes for each employee, so the meeting was hurried - but that is C-R-A-Z-Y.

we once had an adviser from DH's company tell us that. When actually saw him after the recent mortage/market meltdown/mess he was quite sheepish. If we hadn't saved more than we should have we would have been very nervous early retirees.