My friend was telling me about his Financial Advisors

[tryan]

Had a similar experience with my one of my neighbors - except he works for Edward Jones. Sooo I agree to listen to the squeal ... after all - I know where he lives. So he comes in a tie n'suit with his sales pitch.... superior performance; funds ONLY availalbe thru him ... blah, blah blah. I finally cut to the chase and ask "What's your cut if I move my 401k", loooong pause , he says "5.5%". I said "that 's a problem" and showed him the door.

 

[Nords]

Did you ask him if he had any idea of the investment strategy they were using?

"I'm sorry, that information is proprietary."

To be fair, when Buffett formed his first partnership in the 1950s he wouldn't tell the partners what he'd invested in. "Give me your money, I'll do the work, if people find out what I'm investing in then everyone will do it and it won't work any more." One guy was so persistent about wanting to know what Buffett was doing with his money that Buffett cashed him out.

 

[Sheryl]

Just what every parent wants for their kids...

Yeah, Dad's a bit unusual. I don't think he ever got over my refusal to learn the slide-rule. "Just in case your calculator battery dies when you really need it."

 

[2B]

I am usually viewed as one of the "financial literate" wherever I've worked. That has led me to become an unofficial advisor for a number of people. I've seen some real disasters done by their financial advisors that were clearly nothing more than a way to get his fees.

The usual trick is for them to buy load mutual funds where they get a nice commission. Then they get a management fee for watching your fund underperform because of its excessive fund management fee. This underperformance is the reason they recommend moving out of this losing fund into another "hot" load fund that will get them another commission.

I always show them what they could not be "worth" had they bought an S&P index fund instead. In about 20 "sessions" I've never had anyone that was better off with their "financial advisor."

I'm amazed at how shocked some of the people get when I point out how much they've paid in fees and commissions. I had always assumed these people could read! I've also been amazed at how few people move from their "financial advisor" because they "have been with them so long," "are friends" or just never get around to it. I've only had one convert that I know of.

 

[heyyou]

That is what Bernstein found out. Spread the knowledge and the general public will still not change. Change means admitting a mistake. Same as at Alcoholics Anonymous, "Hi, my name is Joe and my advisor buys high fee load funds for my account. I can avoid responsibility for my previous decisions by not changing now."

 

[Mr._johngalt]

I am usually viewed as one of the "financial literate" wherever I've worked. That has led me to become an unofficial advisor for a number of people. I've seen some real disasters done by their financial advisors that were clearly nothing more than a way to get his fees.

The usual trick is for them to buy load mutual funds where they get a nice commission. Then they get a management fee for watching your fund underperform because of its excessive fund management fee. This underperformance is the reason they recommend moving out of this losing fund into another "hot" load fund that will get them another commission.

I always show them what they could not be "worth" had they bought an S&P index fund instead. In about 20 "sessions" I've never had anyone that was better off with their "financial advisor."

I'm amazed at how shocked some of the people get when I point out how much they've paid in fees and commissions. I had always assumed these people could read! I've also been amazed at how few people move from their "financial advisor" because they "have been with them so long," "are friends" or just never get around to it. I've only had one convert that I know of.

This pretty much mirrors my experience. I've given up trying to talk
to these people about the money they are throwing away.

JG

 

[pjdaddy]

I'm amazed at how shocked some of the people get when I point out how much they've paid in fees and commissions. I had always assumed these people could read! I've also been amazed at how few people move from their "financial advisor" because they "have been with them so long," "are friends" or just never get around to it. I've only had one convert that I know of.

Painful to see myself here.

We are in the process (initiated one month ago) of shifting a rollover IRA from Smith Barney to Vanguard. We started with SB many years ago, based on a cold call that initiated a college fund in a taxable account back when we knew next to nothing about investing. And they actually got us on track and we learned a fair bit from the experience. We established a rollover IRA with them about 6 years ago in order to diversify the company stock match in my wifes 401 plan.

Unfortunately, in spite of seeing the writing on the wall within a couple years (my 8-fund asset allocation with Vanguard has consistently outperformed the SB actively managed account) we kept hanging in there "one more year" out of a misguided sense of loyalty. It's been clear for sometime that the 6-month portfolio review with SB was more a feel-good BS session than any information transfer. The final straw was hearing that "although the portfolio return is a bit under the S&P 500, we're pretty happy with where we are since we're achieving this with fairly low risk". So they're happy with a mediocre return?

At least that statement provided the activation energy needed to initiate the change we should have made years ago. By my calculation, the twice a year feel-good portfolio reviews have cost me about $5K/session. Better late then never.

 

[JustCurious]

I always show them what they could not be "worth" had they bought an S&P index fund instead. In about 20 "sessions" I've never had anyone that was better off with their "financial advisor."

This is a very good idea. You might want to show them the returns of a total stock market index fund instead, such as VTSMX. The returns are more consistent with less risk.

 

[2B]

This is a very good idea. You might want to show them the returns of a total stock market index fund instead, such as VTSMX. The returns are more consistent with less risk.

Frequently, their financial literacy doesn't extend past the DJIA. Most will admit they've heard of the S&P500. Going to the Vanguard total stock market would put my credibility in with the latest "hot fund" their advisor has been pushing.

 

[FinanceDude]

Frequently, their financial literacy doesn't extend past the DJIA. Most will admit they've heard of the S&P500. Going to the Vanguard total stock market would put my credibility in with the latest "hot fund" their advisor has been pushing.

And I think that is a blanket statement...........

Maybe I should start a thread on triangular currency arbitrage or convergence/divergence trends............nah

 

[FinanceDude]

I am usually viewed as one of the "financial literate" wherever I've worked. That has led me to become an unofficial advisor for a number of people. I've seen some real disasters done by their financial advisors that were clearly nothing more than a way to get his fees.

The usual trick is for them to buy load mutual funds where they get a nice commission. Then they get a management fee for watching your fund underperform because of its excessive fund management fee. This underperformance is the reason they recommend moving out of this losing fund into another "hot" load fund that will get them another commission.

I always show them what they could not be "worth" had they bought an S&P index fund instead. In about 20 "sessions" I've never had anyone that was better off with their "financial advisor."

I'm amazed at how shocked some of the people get when I point out how much they've paid in fees and commissions. I had always assumed these people could read! I've also been amazed at how few people move from their "financial advisor" because they "have been with them so long," "are friends" or just never get around to it. I've only had one convert that I know of.

The reason I became an advisor was I got sick of giving away free advice that worked out well for people..........hmmmm.........I wonder why I'm paying $200 a month out of my pocket for E&O insurance........when you don't have to??

 

[Mwsinron]

I guess everyone has this type of story. I have cousin who is paying a 12-B fee for basically no reason. Wont listen to me when Im telling him to get a Fid or Vanguard index fund. For basically the same results and few more bucks in his pocket. Ah well not my money..

 

[2B]

The reason I became an advisor was I got sick of giving away free advice that worked out well for people..........hmmmm.........I wonder why I'm paying $200 a month out of my pocket for E&O insurance........when you don't have to??   

Maybe they occasionally take your advice.

My best case was a woman who had her "advisor" purchase a deferred annuity for her IRA.  He did it without informing her.  He said it was such a good deal he couldn't let her miss out.  There were lots of fees and the interest rate was 3%.  I said that she should contact his supervisor, send a registered letter complaining and demand her cash be replaced in her account.  She didn't do anything.  The "advisor" was a friend of her husband when they were in high school.

 

[FinanceDude]

Maybe they occasionally take your advice.

My best case was a women who had her "advisor" purchase a deferred annuity for her IRA. He did it without informing her. He said it was such a good deal he couldn't let her miss out. There were lots of fees and the interest rate was 3%. I said that she should contact his supervisor, send a registered letter complaining and demand her cash be replaced in her account. She didn't do anything. The "advisor" was a friend of her husband when they were in high school.

And that is NOT an advisor.....probably some insurance agent working as a "planner" for the local community. Bottom line, YOU CAN'T fund an annuity WITHOUT a client's signature. And, if he did, he is guilty of fraud and non-consent of the client, and he loses his license...........

The paperwork would be rejected by the carrier without a signature, and the compliance department at the carrier would alert the gentlemen's principal.

 

[Khan]

Maybe they occasionally take your advice.

My best case was a women who had her "advisor" purchase a deferred annuity for her IRA. He did it without informing her. He said it was such a good deal he couldn't let her miss out. There were lots of fees and the interest rate was 3%. I said that she should contact his supervisor, send a registered letter complaining and demand her cash be replaced in her account. She didn't do anything. The "advisor" was a friend of her husband when they were in high school.

Is this 'being a friend' something that is taught in advisor school?

 

[2B]

And that is NOT an advisor.....probably some insurance agent working as a "planner" for the local community. Bottom line, YOU CAN'T fund an annuity WITHOUT a client's signature. And, if he did, he is guilty of fraud and non-consent of the client, and he loses his license...........

The paperwork would be rejected by the carrier without a signature, and the compliance department at the carrier would alert the gentlemen's principal.

I believe the money was already in the IRA. How the paperwork was done to buy the annuity is anyone's guess.

 

[My Dream]

Maybe they occasionally take your advice.

My best case was a women who had her "advisor" purchase a deferred annuity for her IRA. He did it without informing her. He said it was such a good deal he couldn't let her miss out. There were lots of fees and the interest rate was 3%. I said that she should contact his supervisor, send a registered letter complaining and demand her cash be replaced in her account. She didn't do anything. The "advisor" was a friend of her husband when they were in high school.

You used the word "was", are they still friends?

 

[FinanceDude]

Is this 'being a friend' something that is taught in advisor school?

Not as far as I know...........

 

[2B]

You used the word "was", are they still friends?

The lived in different states and her husband hadn't seen the guy in 10 years. The left their money with him even though it was inconvenient and he was obviously dishonest.

 

[FinanceDude]

The lived in different states and her husband hadn't seen the guy in 10 years. The left their money with him even though it was inconvenient and he was obviously dishonest.

Sounds like a loser to me.............