What fund company encourages a teen investor?

[Nords]

Our 15-year-old has a part-time job tutoring math at a Kumon center. For three years now she's managed to fund her Roth IRA (she'll max it out this year) and she's saved enough to open another (taxable) account. She could buy an index fund with a $500 minimum balance and a $50/month EFT contribution.

Over the years she's watched me explore different investing styles and she's played around the edges. We've talked a lot and she's beginning to realize how financially literate she is compared to her high-school peers (to say nothing of some of the teachers). She understands the concept of buying investments when the blue-light special is flashing and then letting compounding work its magic. Unsurprisingly, like me she's decided that she'd rather have an aggressive asset allocation in low-cost value index funds and leave it there for at least the next five years.

You would think that a mutual-fund company like Fidelity would encourage this type of low-maintenance behavior. You would be wrong.

Fidelity has consistently rebuffed all requests to custody our kid's IRA before she turns 18. (T. Rowe Price eagerly accepted the job.) Not only is Fidelity not interested, they've also said that they're not even planning to do it someday. I've been told this from a number of different reps and from one of the VPs who came out to an investor seminar, so I'm beginning to believe that they really mean it.

This morning I found out that it's the same situation with a "young investor" account. Even if our kid's account number was consolidated with the accounts of spouse & me, Fidelity isn't interested. I don't think they even have a "young investor" marketing program. They might be willing to drop a minimum investment from $1000 to $500, but generally only on actively-managed funds with higher expense ratios. They won't discuss waiving an index fund's minimum balance of $10K to $500. When I pointed out that I could simply transfer $10K to the kid's account and would they then be willing to accept monthly EFTs of $50, they said they couldn't even waive the minimum amount of a monthly (automated) deposit.

It went beyond a "Sorry, can't help". I was also lectured on the impacts of the gift tax, the "dangers" of UTMAs, and generally was treated like an ignorant newbie. (They said they knew who they were talking to. They presumably were able to see the balances of our accounts and their asset allocations.) Despite us owning no mutual funds and being classified as "extremely aggressive" in our profiles, on our kid's behalf I was being steered from index funds with ERs of 0.10% and pointed toward actively-managed funds with much higher expenses. (Their best suggestion for a 15-year-old was a 2040 retirement fund at 0.84%. But maybe they should've had more time to think about it.) The way I was treated on the phone was markedly inconsistent with their previous endearments to us "valued customers" who are considered knowledgeable enough to have margin accounts and to trade options.

Before this call, I'd assumed that when our kid turned 18 she'd transfer her Roth IRA (which would be worth at least $15K) over to Fidelity, switch it to one of their cheap index funds, and consolidate it with our accounts. She'd get the same "member of the family" perks that Fidelity extends to us parents.

But we apparently have no reason to continue being loyal to Fidelity. The transfer-in-kind paperwork could be executed within a few weeks if necessary, although it's a hassle and after 22 years with a fund company I prefer to be lazy.

Anyone had better luck with their own kid's "new investor" accounts? Any recommendations on fund companies that actively pursue a customer who doesn't have a lot of money but who doesn't cost a lot to support?

[ziggy29]

Can't vouch for the accuracy, but try this:

Mutual Fund Education Alliance - Fund Selector - Search Feature

You can filter by fund minimums (say $500 or less) and other things (sector, expense ratio, et cetera).

If something looks promising you may want to check it directly with the fund family to confirm the accuracy.

[DblDoc]

Nords - we use the Vanguard Star fund, VGSTX, for our son's currently small "portfolio". $1000 minimum initial investment, $100 minimum for additional. Probably not as aggressive as she wants but once she has a reasonable balance she could shift the (usually) $3000 minimum initial investment into the funds of her choice. Also fees are waived if the family has > $100,000 aggregate in Vanguard MF's.

DD

[lucija]

If you are a small investor, from what I have seen, TRP is by far the friendliest (larger) fund company.

Granted, they tend to bit a bit more pricey than Fido/Vanguard, but their funds are solid and their ERs are still quite reasonable. Also, they are a bit more of a managed funds shop (not the greatest when it comes to index funds).

Having said all that... their customer service is pretty good and they will take the time to work with you even if you have no assets or very little in assets. Best of all, your daughter can buy into any one of their funds starting with $0 assuming she sets up periodic purchase with a min of $50 (I believe that the periodic purchase can be even less frequent than 1/mo) --- very reasonable in my opinion. I am pretty sure there's no yearly (min) account fees if you are signed up for systematic purchase, but you may want to make sure this is the case.

[Nords]

Quote:

Originally Posted by DblDoc Nords - we use the Vanguard Star fund, VGSTX, for our son's currently small "portfolio".

We're taking a look there and at T. Rowe Price. I'm hoping that there's something like "ShareBuilder" or "Foliofn" that caters to young investors. IIRC that was all the rage in the 1990s.

I expressed our displeasure once more higher up at Fidelity. They responded quite promptly and we're going to talk on Monday. I mentioned this thread to the rep and he says they're reading it... so here's our chance to be heard!

[unclemick]

The Moneypaper's DIRECTinvesting.com

Re the 90's - be very very careful - someone else may end up with two file cabinets of DRIP plans.

Vita Nelson - is an son name so I don't think there is a Norwegian connection - but one can never be too careful.

I got a guy at the old rocket plant - two kids going in 95 - Wendy's and Pepsi. Ages 9 and 10 I believe.

heh heh heh -

P.S. Still have 4 or 5 DRIP's not closed out and transferred to Vanguard.

[Animorph]

Not too young an investor, but my 20 year old son has a Fidelity account we started when he was 18, mainly to have a money market account.

He has accumulated enough that I thought he should be investing some of it. We went with 3 funds at Oakmark, held directly with Oakmark for $1000 minimums, and one fund directly with Royce for $1000 plus $50/month auto-investment towards a $2000 minimum. No idea if they accept younger investors (I don't remember the online applications asking about age either), but the minimums were within our reach and these are funds I use myself and create a decent AA together.

I think American funds also had low minimums, but I didn't look into them too deeply.

Fidelity clearly doesn't want <18 year olds. Maybe it's because their mutual funds are held in brokerage accounts?

[Nords]

Looks like plenty of other options out there. T. Rowe Price has a mid-cap fund (PEXMX) that requires either $2500 or $50/month. Of course there's a $2.50/quarter charge and the expense ratio is 0.40%, but they're ready to do this alongside her Roth IRA and she can set up everything online herself. Once she gets her accounts up to $10K then the quarterly charges go away.

Spouse says it's ironic that TRP offers such flexible terms to beginners. When she started investing back in the 1970s, TRP was the only no-load company they could find willing to take a small starter account.

I guess I've had the romantic (yet perhaps mistaken) impression that Fidelity would be offering family-banking services to the next generation. Now I'm not sure that our kid gains anything from moving over to Fidelity after all-- it might be worth building up her balances at TRP for a few years and then seeing what the various companies have to offer.

[CitricAcid]

I am only 19 years old, and I use TRP for my Roth IRA. The $50 a minimum per account is probably the lowest no-load minimum I have seen. They have good index choices as well, with only a slightly higher expense ratio than Vanguard.

[Ed_The_Gypsy]

Thanks, CitricAcid!

I need that information. I want to set up Roths for my kids but they don't make much and I can't afford much.

Cheers,

Gypsy

[Nords]

The Fidelity rep and I talked yesterday, and we decided that our kid doesn't need to invest with them right now. Maybe later, or maybe not ever.

The rep was intrigued by this discussion board. I don't know if we posters will ever officially hear from Fidelity on this forum but they read it. (Keep an eye out for new posters named "Johnson"...) So if you have something to say about the company then say it loud-- hopefully they're listening.

Fidelity's more experienced reps are very good at customer retention when it counts. Our conversation was pretty much "Very sorry about the confusion, we'll fix that, we want to help, what would you like to see us do?" We agreed I had developed the mistaken impression that Fidelity was capable of more than they're actually willing to do.

The first issue is that Fidelity is not trying to be our family banker. Although they offered good family deals in the 1990s, they haven't kept up. Today just about every fund company has a decent website, free billpay, asset allocation tutorials, retirement planners, and different service levels for higher account balances. Fidelity still has great service (and their website is a lot easier to navigate than T. Rowe Price) but in the meantime I think Fidelity has spent more effort on managing 401(k)s for companies and not so much on small investors.

Next, Fidelity can set up a taxable UTMA/UGMA account for a kid under 18 but will not custody a minor's Roth. While the reps might be able to reduce a minimum investment to $1000 or even $500, apparently the $100/month minimum EFT contribution is practically hard-wired into the system and not waiverable. Fidelity also will charge $10/year until the account reaches $10K, just like T. Rowe Price, and that also seems to be hard-wired into the system. I think the intent is to encourage people to get their account balances above $10K so that Fidelity doesn't have to maintain a bunch of $2000 orphans.

Finally, the rep did point out that our kid would be treated as a member of the family once she reaches the age of 18, and that relationship would continue as long as we're customers. While that can be a good deal, it's also one that's offered by quite a few other fund companies who are trying a lot harder to pursue young clients. Fidelity apparently doesn't think it's worth the effort under age 18 and is focusing on snaring them when they start up their 401(k)s.

I think the most important goal out of this exercise is to get our kid accustomed to saving her income by automatic deductions instead of blowing it on lifestyle. So if she keeps her job then she should max her Roth IRA for the next couple years and she should be able to handle $50/month in a taxable account beyond the IRA. When she starts college in 2010 she'll probably have $15K-$20K compounding away in the Roth IRA and another $2000 in her taxable account. When she turns 18 she might move the Roth IRA to Fidelity if she can make the minimums (or if Fidelity waives that) and if the expense ratio is lower (she's paying 0.5%/year for TRP's international stock index). After college she'll probably be putting most of her savings in tax-deferred accounts so it may be a while before she's ready to put more than a token amount in the taxable TRP account. So that will probably stay at TRP for several years after college or until she can afford an "annoying" $100/month EFT.

Our kid has also learned what a hassle it can be to deal with TRP's incoherent customer service and bloated website. So by the time she's finished with college she may be more than ready to move to Fidelity...