Should I Fire my Financial Advisor

[Webzter]

Just to let you know, I don't have any mutual funds with my FA. His fee (1.25%) includes all trades in the stock market. I do have a small variable annuity that I bought in 2001 and that is not included in his fee structure because it generates a yearly fee on its own.

We need to get you on a plan to terminate services with your FA.

Figure out what your surrender charge is on the variable annuity.

By any chance, is your variable annuity in a tax-sheltered account? (IRA, 401k, 403b).

Go to Vanguard and go through this information as a start: https://flagship.vanguard.com/VGApp...n/general/PEdGPCreateHwToCreatePlnContent.jsp

Be sure to take the Investor Questionnaire.

Go to your library and get a copy of:

Bogleheads' Guide to Investing
All About Asset Allocation

You can easily read both of those by the end of next week.

Retake the Investor Questionnaire.

This will be a much more meaningful discussion after you get that far.

 

[Lsbcal]

Just to let you know, I don't have any mutual funds with my FA. His fee (1.25%) includes all trades in the stock market. I do have a small variable annuity that I bought in 2001 and that is not included in his fee structure because it generates a yearly fee on its own.

So from what you are saying the only other fees are brokerage fees and buy/sell spreads? Still if you used an index fund approach your total fee would be maybe .3% or less. For example, for the Vanguard Total Stock Market Fund (Admiral) the expense ratio is 0.09%. Turnover is only 3.8% so brokerage fees are minimal. On a 250k investment that works out to $2900/year in savings. The 5yr return on VTSAX is 11.85%.

Still it will take some courage to tell your FA you are moving to a low cost fund provider. If you are up front about it he will see that he cannot beat the fee structure.

Hope you will let us know how this turns out .

Les

 

[cute fuzzy bunny]

It wouldnt take a whole lot of courage for me to say goodbye to someone who sold me a VA, once I understood that its probably one of the worst possible investments on the planet.

For the buyer anyhow. Pretty good investment for the seller...

 

[PBAT]

Unfortunately we know about the high fees/loads. A few years ago, we knew little about investing, most money was in 401/403/IRA plans. Then DH inherited 100k cash, and we invested it through our bank's investment service.

Fast forward to 2007, we are now educating ourselves, and getting our portfolio in order, and we realize what we did back then. 5.75% front end loads on some funds, less on others but with back end loads, and ERs as high as 1.85%. Just thinking of all that money going into others' pockets really irks me.

I talked to our rep to make sure I was understanding all the prospectus's correctly. I asked him why he thought funds with these charges were best for us. He answered that while we could go to Vanguard/Fidelity/TRowe for much lower cost, we wouldn't be getting all the "best in class" funds that he has access to. And since our total is now 500k, if we rolled everything over to him (IRAs/403b), we would avoid loads, and ONLY have to pay 1-1.5% on top of the ERs.

I promptly replied - NO THANKS

Now I am in the process of creating a plan for moving our money. I have to sit down with turbotax to figure out the tax effect of getting out of these funds. I am nervous about the tax costs of transitioning to the portfolio we now want.

I know this was our own fault, but at least we are on the right path now. I really wish we had become enlightened years ago! Looking back I can't believe we invested that much money without reading up on it first.

 

[73ss454]

PBAT, your not alone.

Many of the folks including me went through the same thing your going through. I started reading this forum over 3 years ago and also had to go through all the moving to Vanguard. I was with ML and AG Edwards and was shocked when I started reading the books and this forum to see how much I was ripped of for. Live and learn and move on.

 

[theoldwizard]

I would dump the guy not because of recent losses, but because he is putting you in high risk investments that are not really paying that high of a return.

Check the Yahoo or Fidelity fund screeners. There a lots of mutual funds that have paid better than 10% for 5 and 10 year averages.

Demand for energy is not going down, so check into mutual funds in this sector. That and get some international funds. Fidelity has lots to choose from as do other big firms.

 

[Goonie]

I do have a small variable annuity that I bought in 2001 and that is not included in his fee structure because it generates a yearly fee on its own.

We need to get you on a plan to terminate services with your FA.

Figure out what your surrender charge is on the variable annuity.

By any chance, is your variable annuity in a tax-sheltered account? (IRA, 401k, 403b).

Before [-]while I was financially brain-dead[/-] I acquired much knowledge or a common sense approach to investing, I met with a FA. He was helpful to a point...however, he convinced me to put some of my stash in a VA (fortunately a very small amount).....in an IRA! It isn't doing 'bad'....it just isn't doing 'good'. Last year it was around 4.6% or 4.7% (IIRC). It isn't a large sum invested, but I KNOW I could have beat that by a mile!!!

I figured out the hit I'd take by drawing it out and moving it into something else, and it was too big of a hit at that time. I'll have to look at it again, but I think, if memory serves me, that it'll be worth the fees/charges/whatever sometime in 2008 to make the move. (I've got the cyphering scribbled down and stapled to the VA's paperwork)

Ain't hindsight a great thing?! IF only I had known then, what I've learned and know now!

The FA never made any great claims, boasts, or guarantees about returns, just the standard "it might/it may/it could"......"but also, it might not/ it may not /it could not". He left the final decision up to me, and I went with it. Oh, well....not a major big deal.

BTW, that was the last time I ever messed with a FA. I very seriously doubt that I'd ever deal with one again.....in fact, I think it's safe to say I'd NEVER deal with one again!

 

[Goonie]

It wouldnt take a whole lot of courage for me to say goodbye to someone who sold me a VA, once I understood that its probably one of the worst possible investments on the planet.

For the buyer anyhow. Pretty good investment for the seller...

EXACTLY!!! I came to that understanding....finally....within the last 2 years!

 

[2B]

2B. I think you've made some good points on the dangers of an FA, but it's a gross generalization to say that they're all that bad. Of course, some are even worse, but still, many are, I'm sure, very ethical and believe that they're doing the best for their client.

If you read what I wrote, I never said that a FA is "bad." I said repeatedly that they cost a lot of money that is not necessary and is not value added after a very small amount of self education.

And, we realize now that we were grossly negligent to just let our FA be our crutch. We're not happy with many of the choices they made and with our overall relationship with them, but it's our fault and no one else's.

Unfortunately, many people do use them as a crutch. A key purpose of this forum is to help people get past using them.

I also paid stupid fees and commissions for years. I have learned and moved on. I want to help others do the same.

 

[2B]

Uh oh. He said 'variable annuity'...2B's head just exploded.

How true.

That really makes it obvious to dump the FA. Anyone who would have you put money into a variable annuity is not your friend. If, by chance, it was inside an IRA or 403b that person is lowly scum and should be burnt at the stake.

 

[Goonie]

If, by chance, it was inside an IRA or 403b that person is lowly scum and should be burnt at the stake.

Aw, come on.....the [-]lowly scum[/-] poor FA is only trying to reach FI.

 

[oliverdickens]

At the risk of starting a firefight, I read all the time about how great MF are for low fees but aren't the management fees alwalys quoted only a part of the equation? What about the hidden fees that are impossible to determine such as the dollars spent to trade. Those are not part of the management fees. Also have to pay their light bills from somewhere and as it isn't charity for the investor.

Just looking at how does one really know what they are being charged these days with the only way it seems to really control is to be a totally independent, stock trader that uses a transaction based trading fee sight. One can certainly do that, but have to love it and take more risk.

No I am not a FA but just looking to get insight for those that understand MF better than I as to where to find the true cost of MF which again is much more than the management fees and thus to perform apples to apples comparison for any investment vehicle, one should know all the facts

Thanks for the education so I can find all the hidden costs

 

[cute fuzzy bunny]

Anyone who would have you put money into a variable annuity is not your friend.

See...I thought that but didnt say it. I must be getting nicer in my old age.

As far as funny fees...

In some managed funds, particularly ones that trade in instruments that are expensive to transact, and who thrash trade...trading costs can add up.

In index mutual funds and funds that tend to not change their contents very often, the trading fees are miniscule.

I think Alec did something a few years ago where he was able to cull these hidden fees out. Maybe I can find it.

 

[2B]

At the risk of starting a firefight, I read all the time about how great MF are for low fees but aren't the management fees alwalys quoted only a part of the equation? What about the hidden fees that are impossible to determine such as the dollars spent to trade. Those are not part of the management fees. Also have to pay their light bills from somewhere and as it isn't charity for the investor.

You bring up an interesting question. The answer is that the mutual fund covers their trading costs separate from the "published" management fee. If you dig deep into their prospectus, you can get an idea of what they have paid in the past for their trading and other "reimbursible" expenditures.

The answer is to favor low fee index funds that only trade to adjust for the index or to add/remove money from the market. There is no high level of portfolio turnover that happens in the actively managed funds.

Here's a link to a lot of info on this subject if someone wants to go into it. Some of the new people may not have found this site. It is a great source of information on a lot of FIRE subjects.

Investment fees, commissions, and financial advisors.

 

[Webzter]

At the risk of starting a firefight, I read all the time about how great MF are for low fees but aren't the management fees alwalys quoted only a part of the equation? What about the hidden fees that are impossible to determine such as the dollars spent to trade. Those are not part of the management fees. Also have to pay their light bills from somewhere and as it isn't charity for the investor.

No! MF's are not for low fees. There are a lot of mutual funds and even different fee structures within those funds. There are many issues that can bite you if you don't know all of the costs. For example, 'A' shares in a MF may charge a front-end load (and that may be waived with enough money moved in) while 'B' shares may charge a higher 12b-1 fee while also charging a back-load fee on sale (which decreases over time but is actually covered by the 12b-1 when you do the math).

On top of that, some MFs may trade a lot. If you're in a taxable account, then you may end up with a lot in capital gains and not even realize it until too late.

Index mutual funds, on the other hand, tend to charge less; if they're passively managed at least.

With an MF, if it's established, then the best quick view, I think, is just to look at the trailing returns on Morningstar. Those take into account all fees and benchmark against the index.

No matter the fund, know why you have it, what the risk is, and if you're being properly compensated for that risk. In that light, maybe another way to look at overhead fees is that, if you can reduce the fees without changing anything else then your reward increases without an increase in risk.

Just remember, risk isn't bad.. everything carries risk (even cash under your mattress since inflation will ensure you have a negative return then).

 

[Webzter]

See...I thought that but didnt say it. I must be getting nicer in my old age.

I'm sure we all have some even better descriptions if it turns out that he was sold a variable annuity inside of an IRA.

 

[cute fuzzy bunny]

Back to those "two words!" items. Maybe even some single word descriptions.

 

[crispus]

Sorry to say but the variable annuity is in an IRA.

I talked to my FA advisor today. I asked him why when I called you last month to go ask why our returns lagged the market by over one percent; he told me that you have less downside risk with their strategy. Today I reminded him of what he said and I was told that in a big downturn we loose the protection of the covered call. Also I was told I should not look at my account on days like these. I like my FA and I think he is trying to make me money, but he has to make a living and it cuts into my profit. I did not have the heart to tell him that I was looking to dump him. I will have to work on that.

 

[cute fuzzy bunny]

I was told I should not look at my account on days like these.

You owe me a new computer. I just spewed orange juice all over this one.

Just dont look at it on days like these...I'll bet the other FA guys reading this are scrambling to write that down... "Yes! The reason why you shouldnt worry about bad days, the ones I told you that you were paying me extra to avoid...is to just not look at them!"



Shoot, my back lawn needs mowing something fierce. I'm not gonna look at it.

 

[73ss454]

Sorry to say but the variable annuity is in an IRA.

I talked to my FA advisor today. I asked him why when I called you last month to go ask why our returns lagged the market by over one percent; he told me that you have less downside risk with their strategy. Today I reminded him of what he said and I was told that in a big downturn we loose the protection of the covered call. Also I was told I should not look at my account on days like these. I like my FA and I think he is trying to make me money, but he has to make a living and it cuts into my profit. I did not have the heart to tell him that I was looking to dump him. I will have to work on that.

Nothing wrong with supporting your FA, someone has to do it. When I dumped mine I was actually mad when I figured out what I was paying. I had no problem moving on even after 20 years.

 

[Webzter]

Sorry to say but the variable annuity is in an IRA.

I have good news and bad news. The good news is that I would have no problems terminating services if I were you.

The bad news is, I would do it because I would clearly feel that my FA is not on my side.

Here's the deal. An IRA is tax-advantaged. You contribute pre-tax and don't pay taxes until you take money out. If you live life right, and assuming our politicians don't come up with a way to really make us hurt, you'll be in a much lower tax bracket when you're not working and will be able to not pay as much in taxes then.

An annuity is also-tax advantaged.

Assume you only have $x dollars to invest every year. You should max out your 401k / IRA first. If you have extra dollars to invest after that then you should do so. However, in that case, you should put your most tax inefficient stuff in the IRA and then tax-efficient stuff in your regular account.

In essense, you've filled up your IRA with a tax-efficient holding. Absolutely the wrong thing to do (in my not so humble opinion).

Now, here's the thing, if you started life like most of us, you didn't know that. In fact, there's a good chance that you didn't know that when the FA sold you that variable annuity. No problem...

BUT, your FA did know that. Not only did your FA know that, there's also a good chance that he and his brokerage split an 8-12% commission plus any bonuses that might have been going on at that point. And, those commissions aren't really well known to the public (just like we don't really know how much that salesperson gets when he sells us that car).

I think this clearly shows that the FA isn't on your side. I may be cynical, but that's how I see it anyway.

I know you don't want to do anything rash and on a whim, so please please go back and read up on the stuff that's been outlined in the thread. Taking no action for a week probably won't put you in a significantly worse spot.

On the other hand, if you want out now, you could think about liquidating everything to a money market account (either at your current brokerage or t. rowe price, vanguard, etc) and then decide where to go from there.

 

[cute fuzzy bunny]

Good post. We went a little overboard and you shouldnt feel stupid or bad about this. You paid a pro to do something for you that you didnt feel comfortable enough or knowledgeable enough to do for yourself.

 

[megacorp-firee]

You owe me a new computer. I just spewed orange juice all over this one.

You're fault for eating and drinking while reading the posts on this thread... you shoulda known some of the FA quotes would be 'doozies'.

 

[2B]

Sorry to say but the variable annuity is in an IRA.

I like my FA and I think he is trying to make me money, but he has to make a living and it cuts into my profit. I did not have the heart to tell him that I was looking to dump him. I will have to work on that.

There is absolutely no reason on earth that would have anyone put any form of annuity inside an IRA other than the salesperson's commission. Variable annuities are also so far down the line of "suitable" investments for you that I am totally convinced this guy just has his hands in your pockets.

Find out how soon you can cash it out. What the penalties are and what the fees are. The question will be how long a time period will it take to justify cashing it out. Also, look into the possibility of transferring the annuity to Vanguard or Fidelity. You may or may not be able to inside the IRA.

This guy's primary objective is making himself money. He's not your friend. Get your money away from him ASAP.

 

[crispus]

You know FA's daughter is being Bat Mitzvah's in October and they wanted an upscale booklet to hand out at the party. I am a print salesman, so FA called me for a meeting to discus project at his home. I gave him the price and he said that looked great and he would get me the info in August. He called me a week later, very apologetically, to tell me he was not going to do the booklet. I guess his wife found a cheaper way to do it.

I could not help but notice his home a 1960's rancher in an established high end neighborhood. Inside was a brand new kitchen, several wall mounted flat screen TVs. We walked outside to a nicely landscaped patio with hot tub and in ground pool. It was a hot day and I felt like jumping in to the inviting crystal clear pool.

I am not a jealous person. We have learned to live well below my income and we do not have the extra money for many luxuries. I rely on my faith quite often to give me strength. But I can see that FA is doing quite well.