Are excessive financial fees eating your returns?

[CaliforniaMan]

...
My biggest concern is the churn.... there is NO reason to keep changing funds at a rapid clip... zip, zero, nada.... funds fall into a class, and the biggest difference in them are the fees... and an S&P fund is and S&P fund... there is not enough diff in them except for the fee.... or it is NOT an S&P fund....
...

Also my biggest quandary about this thread is the fund churning. I had not heard about an FA churning funds like this before. Is it common? Do they give any reason for it? Is it to get the client to think they are "earning" their keep, to hide fees? Not asking about IPs FA, but more in general. Anyone heard of this kind of thing happening before or why?

 

[Ready]

Also my biggest quandary about this thread is the fund churning. I had not heard about an FA churning funds like this before. Is it common? Do they give any reason for it? Is it to get the client to think they are "earning" their keep, to hide fees? Not asking about IPs FA, but more in general. Anyone heard of this kind of thing happening before or why?

When I spoke to Fidelity Portfolio Advisory Services last year, they told me they buy and sell funds on average every 9 months. When I asked why, they gave me a very generic brush off answer about tax efficiency and AA rebalancing. It took me a while to realize the real reasons they do it. I believe there are two:

1) To make it more difficult to measure the performance of individual holdings against an index, since the holding periods are so short.

2) To create the illusion that financial management requires a complex series of transactions that only a seasoned team of advisors would know how to pull off. This makes it more difficult for the average investor, once they turn over their assets to the FA, to attempt to pull out and go back to managing it for themselves.

 

[daylatedollarshort]

When I spoke to Fidelity Portfolio Advisory Services last year, they told me they buy and sell funds on average every 9 months. When I asked why, they gave me a very generic brush off answer about tax efficiency and AA rebalancing. It took me a while to realize the real reasons they do it. I believe there are two:

1) To make it more difficult to measure the performance of individual holdings against an index, since the holding periods are so short.

2) To create the illusion that financial management requires a complex series of transactions that only a seasoned team of advisors would know how to pull off. This makes it more difficult for the average investor, once they turn over their assets to the FA, to attempt to pull out and go back to managing it for themselves.

I agree with your assessment and think some of this also falls under what Shiller calls "rent seeking" activities:

Robert J. Shiller on the unproductive financial workforce. - Project Syndicate

- financial wheeling and dealing that may be socially and economically useless, if not harmful.

I think this is the real reason the Fidelity people call us, sometimes to the point of harassment, saying they want to build a "relationship", which I think really means they want us to invest in higher commission generating products.

I think if I ever went bankrupt somehow the "relationship" would come to rather abrupt end.

 

[travelover]

Also my biggest quandary about this thread is the fund churning. I had not heard about an FA churning funds like this before. Is it common? Do they give any reason for it? Is it to get the client to think they are "earning" their keep, to hide fees? Not asking about IPs FA, but more in general. Anyone heard of this kind of thing happening before or why?

My late MIL had a financial adviser that was constantly churning her portfolio. He'd call with a new hot tip and she, of course, would just say "you are the expert", and let him churn away. I bit my tongue, but it still makes me angry to think about all this guy stole from her.

 

[ChrisC]

Also my biggest quandary about this thread is the fund churning. I had not heard about an FA churning funds like this before. Is it common? Do they give any reason for it? Is it to get the client to think they are "earning" their keep, to hide fees? Not asking about IPs FA, but more in general. Anyone heard of this kind of thing happening before or why?

Yes, churning happens but it's not by far the biggest complaint against FAs. Here's some data on churning cases in general: Dispute Resolution Statistics - FINRA.

A few observations about FAs; let me first say, I carpooled with one for many years and spent a lot of time chatting with him about his endeavors, I personally used several FAs before information technology obviated the need for them to execute trades or to provide just-in-time market research for me, and I have seen exceptionally sophisticated investors (including institutions and accredited individual investors) complain about the suitability of investments recommended by their FAs. Personally, I would love to have a solid trustworthy, reasonably compensated FA work out our investing situation -- I might have to wait until my children become a bit more seasoned in their careers to collectively provide me with guidance as I get older.

FAs have to earn a living, the field is frighteningly competitive, the compensation packages typically given to FAs reward those who manage the most assets per household client, and retail brokerage wire houses have been fighting competitively against the online, DIY client base that are typically captured by other players like Schwab and Fidelity, both of which have a different business model than the wire houses like MSSB. One can expect FAs to move around a lot, especially as the wire houses seek to raid FAs from other wire houses as well as the non-traditional retail brokers like Schwab, Fidelity, etc.

I wish IP the best with her FA. And with that, I'm out of this discussion.

 

[clifp]

When reading this thread or one of the threads it referenced, I learned that somebody bought a Tesla. I have been dying to ask about it, but didn't want to go any further into the weeds.

The main Tesla thread is here

I should point out that I paid for the Tesla entirely by avoiding fees paid to an FA

 

[REWahoo]

I should point out that I paid for the Tesla entirely by avoiding fees paid to an FA.

<rimshot!>

 

[Rustward]

Threads like this one are just so entertaining.
Sometimes when the discussion is all one-sided as this one seems to be, it seems as that the larger side is really just attempting to rationalize their beliefs.

If you are already doing the best thing, just do it. We don't need to start a WWIII over it.

If someone wants advice, they can ask for it.

This horse was dead a long time ago.

 

[Ready]

On a really slow day, even the firemen enjoy a cat up in a tree.

Well, this must be a really slow week!

Here is what I've learned from this thread:

If you want to create a thread that will go on and on and get everyone fired up, do the following:

1) Wait for someone to post a very basic, well accepted piece of information, like the sky is blue.

2) Tell everyone that the sky is not really blue, and if they believe that, they are a bunch of bimbos or lemmings.

3) When forum members challenge you by asking for more information, accuse them of being hostile.

4) Tell them that you would have shared this information with them had they been nicer to you, but since they were not, you are not going to share your secret.

5) Then throw out a bunch of vague statements that don't really offer any meaningful content but include a few buzz words that sound legitimate.

6) Tell everyone you don't have time to respond to their requests for detailed information. Then continue proceeding to reply more than 30 times to the same thread, all the while reminding people how you don't have time to respond to their petty requests for more information.

7) Continue repeating steps 2-6 and see how long you can keep people coming back for more of the same insane discussion.

8) Repeatedly remind everyone how petty they are for contributing to this thread.

 

[travelover]

.........

2) Tell everyone that the sky is not really blue, and if they believe that, they are a bunch of bimbos or lemmings.

......

Actually the bimbo accusation was in another thread.

 

[aja8888]

Well, this must be a really slow week!

Here is what I've learned from this thread:

If you want to create a thread that will go on and on and get everyone fired up, do the following:

1) Wait for someone to post a very basic, well accepted piece of information, like the sky is blue.

2) Tell everyone that the sky is not really blue, and if they believe that, they are a bunch of bimbos or lemmings.

3) When forum members challenge you by asking for more information, accuse them of being hostile.

4) Tell them that you would have shared this information with them had they been nicer to you, but since they were not, you are not going to share your secret.

5) Then throw out a bunch of vague statements that don't really offer any meaningful content but include a few buzz words that sound legitimate.

6) Tell everyone you don't have time to respond to their requests for detailed information. Then continue proceeding to reply more than 30 times to the same thread, all the while reminding people how you don't have time to respond to their petty requests for more information.

7) Continue repeating steps 2-6 and see how long you can keep people coming back for more of the same insane discussion.

8) Repeatedly remind everyone how petty they are for contributing to this thread.

Is it possible there is collusion between you and IP on this thread....?

 

[Ready]

Is it possible there is collusion between you and IP on this thread....?

I was merely trying to share some things I learned from this forum. My thoughts were not meant to address any particular forum member in a negative way.

 

[aja8888]

I was merely trying to share some things I learned from this forum. My thoughts were not meant to address any particular forum member in a negative way.

(I was jesting with you )