Retirees who trusted their broker

[Bram]

You just can't fix stupid.
Or am I being too critical ?

I don't think people are necessarily stupid, probably most aren't. I was mostly just a passive participant in my employers offering of a 403(b). I'm positive I wasn't alone in my thinking that investing, stock market, mutual funds, annuities, blah blah was VERY complicated and best left to the "experts" and those who are titled "Advisor". After all, you can dedicate an entire college education to pursue a career in dealing with those things.

I would guess that the man in the article was a passive participant in the accumulation of his $700K. It probably came thru hard work, yet the retirement savings was "easy" in that he didn't have to make decisions as to allocation, or study the pro/con of this or that. His was a sizeable chunk of money & he reasonably thought he could make it grow even bigger. We hear stories all the time of stock market millionaires. NONE of us ever expects to be duped, yet you hear of some really smart people who are taken by con artists.

My DH is very smart about fixing things around the house or in working on a motor vehicle. Some of his expertise has come thru trial & error. He just can't relate to people who glibly take their car to a shop & say "fix it" and pay out the nose for some minor 5¢ bolt-on widget. "Anybody could fix that," he says. Same with home repairs. Well *I* understand that some people just aren't inclined nor interested in learning how -or- even attempting to DIY.

To me it somewhat boils down to a matter of trust. In a perfect world one would be able to trust their broker, financial advisor, insurance salesman, home repair person, or auto mechanic. I think it's pretty simplistic to blame the victims of shysters in any of these or other fields.

 

[yakers]

To me it somewhat boils down to a matter of trust. In a perfect world one would be able to trust their broker, financial advisor, insurance salesman, home repair person, or auto mechanic.

But there is a real difference. I trust tradesmen and service people all the time. But these people, hopefully, know their trade and I can get recommendations, examples of their work or even performance bonding.

Its just most financial persons are *sales* persons and often don't know anythng about finance. Its bad because these sales people have a financial incentive to not work in your best interest.

 

[Bram]

Its just most financial persons are *sales* persons and often don't know anythng about finance. Its bad because these sales people have a financial incentive to not work in your best interest.

And therein lies the part of the problem..... it is not a widely held view to know them as "salesmen". Until their esteem approaches that of a used car salesman, people will continue to trust them & hand over their money. But even with a high degree of suspicion, people still get duped by a used car salesman's finesse.

And certainly during these times of a bull market these financial "salesmen" give every appearance of being financial geniuses, further enhancing their aura. They throw around the financial jargon, they have a bunch of letters of unknown meaning after their names.... quite impressive! "I have a financial advisor" can impress many of my colleages and friends. I was in the very same boat until I fortunately stumbled upon this forum a few months ago. I have the motivation, interest, & the time to learn more about finances/investing/DIY. But I think the financial salesmen will continue to have a job like shooting fish in a barrel. And I am not even saying that they're doing anything illegal or unscrupulous. It's just that many people would rather pay for the "service".

 

[saluki9]

But there is a real difference. I trust tradesmen and service people all the time. But these people, hopefully, know their trade and I can get recommendations, examples of their work or even performance bonding.

Its just most financial persons are *sales* persons and often don't know anythng about finance. Its bad because these sales people have a financial incentive to not work in your best interest.

I've got news for you. Your plumber, carpenter, lawyer, accountant, banker, and anybody else who performs a service for you is also a salesman.

Also, some of the brightest financial minds I know work in the advisory business. I find it funny that a crowd who shuns financial advice so much claims to be all knowing about the business.

 

[Texas Proud]

Sad, at least I'll have myself to blame if my portfolio goes belly up. One thing I fail to understand is these people work 25-30-35 years of their lives accumulating and building wealth and then piss it away trusting some slick dude with a good sales pitch about life on easy street.

You just can't fix stupid.

Or am I being too critical ?

Yes... too critical... (have not yet read the article... but).. there are many people who are good at what they do, and it is NOT finance... they saved for retirement and are about to live only off their nest egg... so they get something in the mail about a retirement seminar etc... everything looks professional... they have people who are living the high life... get a check evey month.... wow, this is what I need to protect myself from the cruel market (which they know very little about)..

Since their firm can't tell them anything, they are left to swim on thier own in the shark infested waters...

 

[Robert the Red]

It's not just the blue-collar types-- it's the smarter ones too who theoretically can find/trust good managers or do for themselves.

I was told (by my PhD advisor) that Caltech lost a substantial fraction of their endowment in the tech crash. It used to be one of the richest schools in the country, but fell way back in the list. Which explains why they've been begging heavily for money for the last few years.

 

[FinanceDude]

Also, some of the brightest financial minds I know work in the advisory business. I find it funny that a crowd who shuns financial advice so much claims to be all knowing about the business.

Investment PRODUCTS are a COMMODITY, Investment ADVICE is NOT..............

 

[kcowan]

Investment PRODUCTS are a COMMODITY, Investment ADVICE is NOT..............

There is also substantial disagreement among DIY types as to the best strategy for investment. Everyone seems to agree that "after MER" returns are the only thing that counts. But how to get those is a many splendored thing...

 

[FinanceDude]

There is also substantial disagreement among DIY types as to the best strategy for investment. Everyone seems to agree that "after MER" returns are the only thing that counts. But how to get those is a many splendored thing...

That's because this board is focused on virtually nothing bu RETURN, which in and of itself is a curious thing..............

 

[jazz4cash]

That's because this board is focused on virtually nothing bu RETURN, which in and of itself is a curious thing..............

I disagree, FD. I see an awful lot of discussion here on asset allocation, diversification, indexing, etc....none of which which puts emphasis on maximizing return.

 

[FinanceDude]

I disagree, FD. I see an awful lot of discussion here on asset allocation, diversification, indexing, etc....none of which which puts emphasis on maximizing return.

Then why do I see so many posts bragging about it? I guess I should say I USED to see those posts, before the Dow dropped 700 points..........

 

[Texas Proud]

Then why do I see so many posts bragging about it? I guess I should say I USED to see those posts, before the Dow dropped 700 points..........

My return is still good even though I am down from the high awhile back... but I look at return over 3 to 5 years.. and am doing better than 10% average.. have others done better... absolutely, but I am happy..

And people can run faster than me, bowl better, play golf better (this is not hard as I am about 35 hdcp :)... but I am still happy...

 

[Jarhead*]

play golf better (this is not hard as I am about 35 hdcp :)...

Now that sounds painful!

See a good pro, establish good fundamentals, spend at least 10 hours a week at a driving range, working on those, and developing "muscle memory" and you should be able to knock off at least 15 strokes.

Or, continue on, and torture the group that is playing behind you.

 

[OkieTexan]

Then why do I see so many posts bragging about it? I guess I should say I USED to see those posts, before the Dow dropped 700 points..........

It seems that when the bulls are in charge, we're all experts.
When the bears take over, well, we run for cover.
It is just the nature of the "two beasts".
Greed and fear are both powerful emotions that can force
anyone to abandon a solid plan in a panic.

There is also substantial disagreement among DIY types as to the best strategy for investment.

This is why I feel so fortunate to have found a good FA. Yes, it is more expensive; but he has saved me from shooting myself in the foot several times. It is impossible to put a value on that. Could I have done better myself? Maybe! Anyone should be able to make money in a bull market. But what happens when the bears (fear) strike? I am also fortunate to be able to afford to hire someone to manage the funds for me!

 

[loosechickens]

"This is why I feel so fortunate to have found a good FA. Yes, it is more expensive; but he has saved me from shooting myself in the foot several times. It is impossible to put a value on that. Could I have done better myself? Maybe! Anyone should be able to make money in a bull market. But what happens when the bears (fear) strike? I am also fortunate to be able to afford to hire someone to manage the funds for me!"
--------------------------------------------------------------------------------------------------------------------------------

We agree. Our Merrill Lynch broker and his son who is a Certified Financial Planner made us wealthy, and have kept us wealthy. They steered our little ship through the tech boom and bust, kept us well diversified and balanced, prevented me from jumping in with both feet during the tech run-up, and encouraged some adventuresome investments I wanted with a small percentage while keeping my feet firmly planted on the ground and in safe and moderate investments. We came through that debacle relatively unscathed.

I try to stay informed, and I discuss investments with our advisors, but I don't try to take out my own appendix, and I don't try to handle our portfolio by myself. I respect the fact that they do this all day every day. I don't WANT to spend my days comparing investment opportunities, running spreadsheets, doing comparisons, etc. That's what I pay them to do.

I don't begrudge one cent we have paid them over the years. They certainly sailed our little ship expertly and profitably. I understand that many prefer to do it themselves, even that they save money doing so. But I'd rather be out here in my RV seeing the world, and knowing that my money is being professionally cared for. They don't move without consulting me, and I have the final say, but with few exceptions, I've agreed with them and I've never been sorry. They've made it so that since we were 42 and 50, we've had an absolutely wonderful life. More power to them. If they have multimillion dollar homes themselves, they've earned it, because they've helped many others become multimillionares as well.

Not to denigrate those who prefer to do it themselves, but I hate to see brokers and planners treated as though they are just playing people for suckers. Many are nothing like that, and the fees they charge are well worth the results they achieve. I know ours are.

LooseChickens

 

[samclem]

Loosechickens,
I'm glad you are happy with your broker and your FA. In the final anaylsis, that is what matters most.

Our Merrill Lynch broker and his son who is a Certified Financial Planner made us wealthy, and have kept us wealthy.

Well, if you are wealthy, and if your broker and FA are honest, they'll be the first to tell you that you are the one most responsible for that outcome, not them. It was your capital that made this possible after all.

I try to stay informed, and I discuss investments with our advisors, but I don't try to take out my own appendix, and I don't try to handle our portfolio by myself. I respect the fact that they do this all day every day. I don't WANT to spend my days comparing investment opportunities, running spreadsheets, doing comparisons, etc. That's what I pay them to do.

I think we all know how self-surgery would likely turn out, but managing a portfolio is nothing like that. Many folks who manage their own investments, I'd guess including the majority of people who frequent this board, are getting better results than if they were paying an advisor. That's a lot different than what would be expected from self-surgery.

Not to denigrate those who prefer to do it themselves, but I hate to see brokers and planners treated as though they are just playing people for suckers. Many are nothing like that, and the fees they charge are well worth the results they achieve. I know ours are.

Here's the nub of the problem. The people who sell stocks and financial advice are often not working for you. Brokers are nearly ALWAYS the agent of their employer, not you--that means they are not legally bound to look out for your best interest (any more than a car salesman is). Financial advisors are slightly different, but many make their money by selling financial products with loads and fees--you can bet their customers never hear about the funds that could save them tens of thousands of dollars in fees. Some brokers and FAs have put their clients into terrible investments (annuities inside IRAs, high-load funds, products with inappropriate risk profiles, etc. Look at the stuff in this thread for instance) and have left them with insufficient funds for a secure retirement. In the end, the only way a client can know that they are not being fleeced is to learn about investments (it is not hard). And, once you learn that amount, it's not that hard to just do the whole thing yourself.

Anyway, perhaps you've found a FA and a broker who are doing this better than you could do yourself, even after their fees. If so, congratulations on your good luck.

 

[CybrMike]

There are few good brokers among a sea of sharks and crooks. Generally, I'd prefer to learn it myself so that if I screw up, I've got no one to blame but myself.

 

[bssc]

I find that a reasonably honest broker is better for some people just to get them started and keep them on track. Some people need to be nagged or don't want to think about retiring. I have friend who could have used one to put away some money when they were in their twenties instead of now in their forties.

That being said, I manage my own money and enjoy investing. I missed the tech bust because of Benjamin Graham and Al Frank.

 

[samclem]

And, sometimes eventhe charlatans and crooks perform a service. I started to think more about saving/retiring after hearing a pitch by a salesman (AJ Williams Company? Something like that) in the mid-80's. Their particular approach was to urge folks to exchange their expensive whole life policies, buy cheaper term insurance instead, and invest the difference. That's good advice, but the funds they pushed were very expensive, and the insurance was no bargain, either. Still, the color glossy material with graphs of historic market returns and really big accumulations after decades of doing this caught my eye and got me thinking. A made a few small wrong turns early in the game (when the lessons are cheapest), but eventually learned the ropes. Well, most of them. I'm still learning every day, mostly right here.

 

[FinanceDude]

.
Here's the nub of the problem. The people who sell stocks and financial advice are often not working for you. Brokers are nearly ALWAYS the agent of their employer, not you--that means they are not legally bound to look out for your best interest (any more than a car salesman is).

What about the Vanguard "advisor".........who are THEY working for??

 

[loosechickens]

really good points, samclem.......and I certainly don't disagree with the fact that should a person be so inclined, and enjoy managing their own investments, that it isn't rocket science, and one can learn to do a competent job of it. I agree that the "taking your own appendix out" was not a good example.

I think I just reacted to the attitude I see so often that the brokers and advisers are just suckering people, when there are certainly honest and competent professionals that do an excellent job for their clients. I just felt like I needed to stick up for our guys who have shepherded us so well over the years.

We were just lucky, I guess. Our broker DOES give us a lot of credit. We make his job a lot easier because we tend to live well below our means, giving him a good chunk of extra income to invest each year. He likes that. ;-)

Different strokes for different folks. My problem is that I try to stay informed in a general way, but the nitty gritty of comparing companies' performance, prospects, etc., just makes my eyes glaze over after an hour or two. I do best with reading general stuff, (and I've enjoyed reading over all the posts on this board), but I know I don't have the day to day interest to manage a complex portfolio competently. Too many distractions out here in this nomadic life..... <g>

each to his own, I guess..... LooseChickens

 

[FinanceDude]

And, sometimes eventhe charlatans and crooks perform a service. I started to think more about saving/retiring after hearing a pitch by a salesman (AJ Williams Company? Something like that) in the mid-80's. Their particular approach was to urge folks to exchange their expensive whole life policies, buy cheaper term insurance instead, and invest the difference. That's good advice, but the funds they pushed were very expensive, and the insurance was no bargain, either. Still, the color glossy material with graphs of historic market returns and really big accumulations after decades of doing this caught my eye and got me thinking. A made a few small wrong turns early in the game (when the lessons are cheapest), but eventually learned the ropes. Well, most of them. I'm still learning every day, mostly right here.

Well, I would NOT refer to AL Williams reps as FA's...............

 

[samclem]

What about the Vanguard "advisor".........who are THEY working for??

The same holds true for Vanguard. Anybody who gives advice should be assumed to be working for whoever pays them, and to have that entity's best interest foremost in their minds. That's why (IMO) the best arrangement is for customers to pay the FA based on an hourly rate, fixed fee, or even % of assets and to specifically agree (in writing) that any fees paid to the advisor by MFs, brokerage houses, etc will be refunded to the customer. Even then--caveat emptor is good advice.

 

[FinanceDude]

That's why (IMO) the best arrangement is for customers to pay the FA based on an hourly rate, fixed fee, or even % of assets and to specifically agree (in writing) that any fees paid to the advisor by MFs, brokerage houses, etc will be refunded to the customer. Even then--caveat emptor is good advice.

I am confused by this post..............the brokerage houses are the ONES who pay us, we are not allowed to take cash from customers directly for advice, all transactions are "arms-length"...............

 

[samclem]

I am confused by this post..............the brokerage houses are the ONES who pay us, we are not allowed to take cash from customers directly for advice, all transactions are "arms-length"...............

There are no fee-based FAs who perform services for customers for an hourly rate without compensation from others??