Alice has fallen down the rabbit hole!

[lwm31]

I'm new here. 52 years old, female, south Jersey (don't hold it against me! Haha) I never cared about finances before, figured I was too stupid to understand it, so I'd let the "professionals" handle it. Well, what sparked my interest to dig started about a year ago. I have a severely handicapped son and was worried about his future. I figured whole life insurance was the way to go. Called my insurance guy, told him I wanted one million in whole life. I think at that point is when they started salivating looking back. He hooked me up with an "expert" in insurance for just such matters because his business associate has a severely handicapped son as well and understood what I was going through. After being trapped in their offices for almost three hours with them assuring me they were good Catholics who went to church every single day (I'm not kidding), they assured me the best they could do for me and the best thing I could do for my son was shell $80,000 for a $300,000 whole life policy. Why did I drive home scared to death and sick to my stomach and more worried after that visit than I ever had been? Note to all: Listen to your gut!
I decided to research insurance. Well, I guess you all know what I found out.
Then guy number one tries to get me to sign him on as my financial advisor and he's going to invest me in American Funds. I didn't do it.
Guy number two, number one's "friend," goes behind his back and tries to get me into American Funds as well because he says costs don't matter (told him I was thinking of Vanguard).
The two of them made me sick.
Here's the thing -- I inherited about $200,000 when my dad died and just did what I thought was the right thing. I invested it with Edward Jones. Guess what. Yes, American Funds.
I've been reading and reading and really educating myself now and I'm so disgusted with myself and all these financial experts I could just vomit.
Here's what I've found out. Tell me if I'm reading this correctly. My EJ acct is now worth about $245,000. Thank God only half is in American Funds. I looked up the fee schedule. After stealing the 5.75% load up front, if I am reading the fee schedule correctly, there is $600 annual base charge, PLUS 1.5% of the fair market value of assets under mgmt., which I calculated to be about $3675 since it is on the entire acct, not just the American Funds, PLUS once the acct reaches $250,000 there is an additional 2% dividend reinvestment fee! Tell me it ain't so. Are they really stealing that much from me? Have I truly been that ill-informed all this time? How do they sleep at night? Once I get my head together, I am going to have this acct transferred to Vanguard if that is possible. Somebody please say some words of consolation
I could go into a million details about all the shenanigans that have gone on with these three different "experts," but what's the use? You guys here already know how that ship sails.

 

[2B]

Welcome to the forum. Congratulations! You're among the top 10 of the people I can recall that have been screwed over. A second congratulations is well deserved in that you figured out on your own that you were being taken advantage of. You also did real well in avoiding the whole life death trap.

I'm a Christian but I immediately go into high alert whenever a near stranger brings up in a conversation without an obvious lead in about how good a Christian they are. It's a common ploy of financial scammers. "Good Christians" often join churches so they can prey on members.

Your instints telling you to get out of EJ are correct. I'm a big Vanguard fan but others will probably suggest you look at Fidelity and Schwab. I'm at Vanguard so I'll just talk about them.

You can move your money now. EJ will give you no end of crap for doing it and will probably delay it as best they can to continue to milk fees. Almost all of the fees will go away at Vanguard. I don't believe you will be able to move the American Funds but I'd recommend you get out of them anyway. Even though you paid the load you are still dealing with a managed fund with a higher management fee and transaction costs. I'm a pure indexer. Being an indexer is almost like a religion.

You need to do some reading on investing and determine a reasonable asset allocation. The easiest book to cover index investing is Andrew Hallam's Millionaire Teacher. My wife read it and declared she now understood what I had been trying to tell her. You could actually stop there but a more involved discussion is in William Berstein's Investor Manifesto. Both are probably in your local library and are also on Amazon.

You made a great post. I hope we can help you. Ask more questions.

 

[38Chevy454]

The school of hard knocks can be a painful experience, but it is usually very effective. Sorry for you being taken advantage of, but you now have the desire to educate yourself and start making better decisions for you and your son's benefit.

The forum here has many people with tremendous knowledge, as well as the skills and desire to want to help. I am still learning myself, and will be for rest of my life. Ask questions and spend a lot of time reading past topics on here. It will take time to soak it all in and start to make sense and be able to draw conclusions that you can apply to your specific situation.

Educating yourself and becoming an active participant in your financial process will be the best investment decision you have made. Can't go back in time, but you can look forward and do the right things.

Also, welcome to the forum.

 

[athena53]

Please don't beat yourself up over owning American Funds. You could do a lot worse. First of all, if they truly invested $200K in American Funds, you didn't pay 5.75%. You paid 3.5% if they calculated the fees properly. I've got a healthy chunk of my retirement $$ in American Funds and I consider them a sort of ballast. They took the same beating in the market downturn that other funds did but they recovered. I scrutinize them just as hard as I do my other investments and occasionally dump some or rebalance but I'm happy with them. It's not like they sold you penny stocks or Real Estate Investment Trusts on housing tracts in Cleveland.

Keep reading and educating yourself. In the end, you have to live with the consequences of your decisions.

 

[Likes_to_Lurk]

I am sorry that you have had such bad experiences. But you are now on the right track by educating yourself.

I am a Vanguard customer and I am happy with the fund selection, low expenses and service. Vanguard is good for DIYers, who don't need too much hand holding. People on this forum also speak highly of Fidelity and Schwab.

Wherever you decide to move you funds, have the new company do the transfer for you. This way you will avoid any issues with account reps trying to keep you! Also, Vanguard, Fidelity, etc know what the procedures for extricating your money efficiently.

One additional thought... have you met with an estate attorney who is familiar with special needs situations? This might help you get some direction on how best to provide for your son.

Good luck and keep reading and posting here.

 

[athena53]

Wherever you decide to move you funds, have the new company do the transfer for you. This way you will avoid any issues with account reps trying to keep you! Also, Vanguard, Fidelity, etc know what the procedures for extricating your money efficiently.

Yes, the receiving brokerage is always very good at getting the money out of the sending brokerage! Take advantage of it. You may be able to move the American Funds straight over rather than selling them. This will avoid any possible taxes on gains and give you time to decide what to do next. I know I moved mine from Edward Jones to Morgan Stanley (I followed my advisor there because he's one of the few I've found who knows more about the market than I do) with no problem. It doesn't hurt to ask. If you were invested in something with horrible prospects, immediate liquidation would be the best option, but that's not the case here.

Having said that- I'm moving in the direction of getting out of mutual funds and into ETFs and other lower-expense vehicles that mimic the market. In my case, though, I'm doing it gradually. I don't want giant tax liabilities and since I'm now retired so don't have new money going in, I need to be careful with what I have.

 

[lwm31]

Wow! You guys responded so quickly. I can't believe it. Thanks to all of you. I have a special needs trust in place, yes. I'm on top of that.
Only half of the entire account is in American Funds, so I definitely paid more than 3.5%. I wouldn't feel so horrible if it stopped there, but the management fees on the entire acct, if I calculated them correctly, are over $4,000 per year!!!!!!! I'm debating whether to divest myself of American Funds, take my lumps, and reinvest what's left in Vanguard. I know it requires further research. You guys are great! Thank you so much.

 

[UnrealizedPotential]

I have nothing against Vanguard .However,you might also consider T.Rowe Price.

 

[Amethyst]

The thought of anyone getting fleeced is bad enough, but their blatant attempts to take advantage of your worries and cares for your special needs son is so disgusting. 'Fraid them "Christians" is goin' to the bad place.

Amethyst

 

[travelover]

Vanguard won't send you a birthday card.

Sent from my BNTV600 using Early Retirement Forum mobile app

 

[ducky911]

Your post,clever name, should be a sticky here.

Many have had this expensive lesson. And you here of the rising cost of higher education! You didn't say how long you where with EJ but I bet they took you for 100k as to where your money would have been if you went straight to vangaurd.

 

[latexman]

I've been happy with Fidelity. My Fidelity rep for my megacorp account calls me on my birthday. My Fidelity rep for my personal IRA does not.

 

[athena53]

Many have had this expensive lesson. And you hear of the rising cost of higher education! You didn't say how long you where with EJ but I bet they took you for 100k as to where your money would have been if you went straight to Vanguard.

Please don't make her feel worse with speculation. She mentioned that she started with $200K. Could she really be $100K worse off than she would have with been Vanguard? We don't know the time frame but I can tell you that none of the American Funds I'm holding have dropped by 50% over the last year or so, or underperformed the market by that much. She lost $10-15K in fees. I'm guessing the underlying funds have appreciated. Maybe not as much as the market, but overall they're more conservative so you lose on the upside as well as the downside potential.

Please tell me what Vanguard fund, with a $200K purchase made, say, a year ago, would now be worth $100K more than one of American Fund's standard offerings (AGTHX, for example) bought at the same time. I'm eager to find out so I can buy lots of it!

 

[2B]

Please don't make her feel worse with speculation. She mentioned that she started with $200K. Could she really be $100K worse off than she would have with been Vanguard? We don't know the time frame but I can tell you that none of the American Funds I'm holding have dropped by 50% over the last year or so, or underperformed the market by that much. She lost $10-15K in fees. I'm guessing the underlying funds have appreciated. Maybe not as much as the market, but overall they're more conservative so you lose on the upside as well as the downside potential.

Please tell me what Vanguard fund, with a $200K purchase made, say, a year ago, would now be worth $100K more than one of American Fund's standard offerings (AGTHX, for example) bought at the same time. I'm eager to find out so I can buy lots of it!

I'm pretty sure that there was a slip of the fingers on the size of the loss. We've been down the "compare American funds with..." several times. If you cherry pick the American fund and then select the "proper" Vanguard fund, the outcome is inevitable. In general, index funds have outperformed 60 to 80% of their comparable actively managed funds for whatever time period chosen. Throw in a load (which isn't on all American fund classes) and it's a disaster on anything but very long time periods. Some American funds don't have a load but then charge significantly higher management fees.

The OP has already paid the load so it comes down to whether they can transfer to Vanguard or another firm or not. Then the comparison comes down to long term performance. I'd personally go with the odds and switch to index funds but everyone needs to decide for themselves.

 

[Totoro]

Words of consolation: very few of us have not paid for investing lessons in a way similar as you.

First dollars I ever invested in the market was 5% load and a 2% fee. Luckily I invested just 5k or so, but at the time that was serious money for me. The company selling those things actually got convicted for misleading customers a few years later and was put out of business.

Another one is a company advisor touting stock options as a tax efficient way to receive your bonus. The options were locked up for a year, after which you could sell anytime. The lock-up period ended january 2009 That one cost me 10k or so.

Last one is finding out that I was paying withholding taxes even though I shouldn't. Cost me 0.5% annually or so.

Just to say, the right way is quite simple. Getting to the right way is surprisingly hard given all the misinformation out there.

Then again, not so surprising. A whole industry (money management) is roughly obsolete and only survives through misinformation and deceit. It will resolve itself (slowly) but in the mean time most of us still get caught to some degree.

Be happy you are now "awakened" and try to educate people around you

 

[racy]

...being trapped in their offices for almost three hours with them assuring me they were good Catholics who went to church every single day (I'm not kidding), ......

Made me think of that quote by Napoleon Bonaparte, "Religion is what keeps the poor from murdering the rich".

Maybe they were trying to ascertain your religiousness during those 3 hours and their chances of getting away with it!

 

[MRG]

Glad you figured it out. Not everyone does, even people that should know better fall prey to expensive fees. A guy that w*rked for me was telling me how his ED guy had gotten him in a fund with a 5.75% FE load. The guy had his Series 7 license (certified to sell securities), asks me if he got a good deal?

At one time, last century, front/back end loads and high fees were the normal. Today's investors have so many more choices.

 

[samclem]

I'm debating whether to divest myself of American Funds, take my lumps, and reinvest what's left in Vanguard.

Yes, you'll want to do that. You are still paying higher expense ratios at American Funds than you would with Vanguard index funds (or other low-cost funds at Fidelity, or with low-cost ETFs). But there's no huge hurry to sell the American Funds, if they are in taxable accounts you may find it best to do it slowly over time to spread out the capital gains hit. As soon as you get the Vanguard brokerage account established, though, have any automatic re-investments in the American Funds turned off and instead have dividends/CGs sent to a low-cost fund. That will reduce the fees you pay them while you make a final decision of asset allocations, etc.

Sorry for the tough lesson. But, you've paid the tuition now, so the lesson will probably stick. Stay clear of the scammers, set up an asset allocation you are comfortable with, keep costs low, rebalance occasionally, and you'll be fine. Welcome to the board!

 

[rodi]

Please don't beat yourself up over owning American Funds. You could do a lot worse. First of all, if they truly invested $200K in American Funds, you didn't pay 5.75%. You paid 3.5% if they calculated the fees properly. I've got a healthy chunk of my retirement $$ in American Funds and I consider them a sort of ballast. They took the same beating in the market downturn that other funds did but they recovered. I scrutinize them just as hard as I do my other investments and occasionally dump some or rebalance but I'm happy with them. It's not like they sold you penny stocks or Real Estate Investment Trusts on housing tracts in Cleveland.

Keep reading and educating yourself. In the end, you have to live with the consequences of your decisions.

My husband's 401k used American Funds. All of the equity funds had a 5.75% load, the bond fund and the MM fund at 3.75%. I posted about it at the time - about what crappy fees they had. We're happy to be free of them.
http://www.early-retirement.org/forums/f28/wwyd-husbands-craptastic-401k-plan-63390.html

 

[MRG]

Depending on class, type, and amount invested their loads vary.


https://www.americanfunds.com/funds/classes/details.html

 

[unno2002]

To anyone considering something like $1 million In life insurance, such as to fund care for a family member:


I would do term policies, with multiple companies.
[FONT=&quot]
Remember the company "Executive Life"? It went bankrupt.[/FONT]

 

[MBAustin]

Welcome and thanks for your honest story. Congratulations for figuring it out on your own. You got lots of good advice already - keep reading and ask more questions, most folks here are very nice and helpful as well as knowledgeable.

 

[athena53]

My husband's 401k used American Funds. All of the equity funds had a 5.75% load, the bond fund and the MM fund at 3.75%. I posted about it at the time - about what crappy fees they had. We're happy to be free of them.

Yeah, "craptastic" was a good adjective for that plan. I've never been in one that limited the company contribution to $1,000, so I'm guessing they didn't negotiate a very good deal for their employees. Companies with more clout can usually offer classes of the major fund groups with a lower fee structure. Whatta deal for the employer. Get rid of the cost of funding a DB pension plan and replace it with a max of $1K per employee (but only for those who contribute that much themselves), and roll out a plan sold by a relative of someone in HR.

 

[Chuckanut]

Since you brought up Alice going down the rabbit hole you might read the book Alice in Quantum Land.

Quantum physics is weird, difficult to understand and often defies logic. Niels Bohr said "if quantum physics does not profoundly shock you, you don't understand it." This is also true of the advice from most investment advisers. When you finally understand what has happened to your money, you are profoundly shocked.

Investing one's money for a descent return should not be as difficult as quantum physics.

A few days here or in the Bogleheads group will teach one 95% of what's needed to wisely invest one's assets.

 

[Chuckanut]

the MM fund at 3.75%. l

Seriously?!?!?! A load charge on a money market fund? Surely you jest.