Retirees who trusted their broker
- Thread starter CyclingInvestor
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frayne
Thinks s/he gets paid by the post
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 ?
You just can't fix stupid.
Or am I being too critical ?
frayne said:
It's hard to protect people from their own ignorance and greed, but sometimes it doesn't hurt to try. It sounds like some of these people will now be consuming social services (that we all pay for) because they were ripped off. And there was no mention of the broker having to pay anything back...
frayne said:
Maybe - it all depends how old you are, and what your background is. Speaking for myself, I did not have some of the "advantages of knowledge" that a lot of younger folks have today, through opportunities afforded through advanced education. Since college was not in my picture, both culturally and politically (talking about the draft of the '60's) a lot of "my generation" did not get to learn about managing investments, and really at that time, you did not need to (of my parents, only my father got as far as high school).
As my parents told me, get a good union job in a local plant (we had several "back then") and you will have a good lifestyle. Work till retirement, and your pension and SS will take care of you. The idea of anything beyond a high school education was unthinkable for them (of course I had no desire on my own, since I did not have friends/relatives that were "college bound").
Well, we know what happened to the "smokestack industries"!!!
Remember that the idea of a personal IRA did not come till the early '80's and I did not get offered a 401k till the mid 80's (I was already in my late 30's). Although I contributed to both, as they became available, I still "lost a lot of time" in that endevor.
Luckly I had the opportunity to attend college (nights), taking my first class at the age of 40. That is where I had the "luck" to gravitate toward all things financial (Macro/micro economics, statistics, investments, international business, accounting, etc.) where I was exposed to the FMOC, the Sharpe Ratio (performance analysis) and other "tools" that allowed me to attempt to make good decisions in my personal investments (funny, I just remembered where I was in the "crash" of '87 - college algebra
).Using the knowlege that was taught/learned over the years (including my own "home school" financial market/investment readings) allowed me to be confident in my financial decisions.
I don't believe a lot of the "common folk" (late 50 to late 60 in age) have either the knowlege or desire to manage their money. Is it their fault? Not really - things change...
- Ron
This timetable pretty well fits me, too. If I had relied on my 401k plan only, early retirement would not have been possible. I had to set up something I could manage without all the restrictions and controls.Ron'Da said:
If the 401k had been as accessible as it is now in the 1980s when I set it up, it would be worth a lot more today. The rules kept changing. The 401k and 403b were never meant to be a permanent retirement savings instrument anyway.Ron'Da said:
I think it is a reasonable expectation that investors who don't want to (or can't) manage their own portfolios should be able to hire someone to do it for a fair price. Do you do your own taxes? Or hire a CPA? It probably depends on your acuity with Turbo Tax! I am glad to hear that the broker in the article met with some consequences.
frayne
Thinks s/he gets paid by the post
I can relate being a child of the 60s, drafted, non-degreed and working manufacturing shift work for over thirty years. Had enough good sense to get interested in my financial future in my late thirties/early forties and was fortunate enough to stay my own course and able to retire at 55 with no debt and a pretty decent sized nest egg. Just have a tough time comprehending why people don't want to understand and take responsibility for their financial well being. As opposed to trusting a total stranger, Bogles my mind.
That's the problem. What is a "fair price" and how do you measure what you pay vs. what you get (it's not like buying a can of soup!)OkieTexan said:
Unfortunately, those that have 401K's can't even get "direction" from their employer or 401k provider, under the current laws.
Really, I think people are more intelligent about finances. They just don't understand that they need to be part of the process for intelligent decisions. And to do that, they must take the initiative to learn a little on their own. They don't get their respective "kick in the a--" until they are ready (or forced) to retire; then it is too late...
- Ron
Leonidas
Thinks s/he gets paid by the post
At about the same time I started investing I read an interview with Bill Cosby. The author noted that the interview was halted at several points so Cosby could review a check that his business manager wanted him to sign. Cosby had allowed previous business managers to sign checks and disburse money as they saw fit, and he had gone broke because of some poor decisions. Luckily, he was young enough to make more money and come back from that disaster, but Cosby never again gave anyone absolute authority over his money. Not a dime of his money got spent or invested without his review and signature from that time forward.
Cosby didn't say that nobody could be trusted, he just said that only a fool allows someone else to have control over his finances. His philosophy was that the only person who can be trusted to make those decisions is the person who made the money and will depend on it to feed and shelter his family and protect his future.
So, when I sat across the desk from someone explaining to me the options I had for investing my money, I chose Plan B - "We advise and you decide". I didn't have a clue about investing, but I realized that if I didn't learn that control over something really important would be out of my hands. There were times when I was operating in the dark and have only luck and a really great market to thank for smoothing over my ignorant mistakes, but I forced myself to learn the things I needed to know in order to live up to my responsibility. The folks in this article abdicated their responsibility and just allowed some slick sales guy to sell them some crap because he told them what they wanted to hear, "I'll make you a rich man!"
Cosby didn't say that nobody could be trusted, he just said that only a fool allows someone else to have control over his finances. His philosophy was that the only person who can be trusted to make those decisions is the person who made the money and will depend on it to feed and shelter his family and protect his future.
So, when I sat across the desk from someone explaining to me the options I had for investing my money, I chose Plan B - "We advise and you decide". I didn't have a clue about investing, but I realized that if I didn't learn that control over something really important would be out of my hands. There were times when I was operating in the dark and have only luck and a really great market to thank for smoothing over my ignorant mistakes, but I forced myself to learn the things I needed to know in order to live up to my responsibility. The folks in this article abdicated their responsibility and just allowed some slick sales guy to sell them some crap because he told them what they wanted to hear, "I'll make you a rich man!"
One friend of my FIL's who also took CBS' 1994 buyout used a trusted broker. (This is family story #214.) A few years later my FIL called him to talk about TIPS and was told "Nah, my advisor's got me in these high tech things-- Cicso, AOL, Nortel, EMC, all kinds of great stuff. I think they make computers. We're buying a house in San Francisco but we're going to get a mortgage so that we can keep our money in the stock market. It's amazing!"Leonidas said:
You know how it turned out. The difference is that my FIL's friend never bothered to learn anything about his investments-- he just learned to trust his advisor. For a while.
audreyh1
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
It's really sad because there sure seem to be a lot of sitting ducks out there for all these unscrupulous (and criminal) brokers.
There seems to be something about our culture where many people don't "feel qualified" to manage their own money. If instead there was a more prevalent attitude that many money managers (especially brokers!) are "sharks" people might be a lot more cautious.
But I hear about these stories over and over again! I have relatives (by marriage) who lost a lifetime of retirement savings in the 80s due to really inappropriate investments and heeding all sorts of risky "get rich quick" schemes. It seems folks somehow don't realize that they really could lose MOST of their money. It's more than denial, I think. It is perhaps simply unfathomable until they hear of stories of that exact outcome?
Of course in this particular example the broker really appealed to people's greed. That's a powerful appeal!
You hear these stories again and again - normal "blue-collar" working folks, actors, sports figures.
Didn't the NFL set something up to prevent players getting ripped off by unscrupulous financial advisors? Didn't they institute some type of oversight organization that qualified advisors?
Audrey
There seems to be something about our culture where many people don't "feel qualified" to manage their own money. If instead there was a more prevalent attitude that many money managers (especially brokers!) are "sharks" people might be a lot more cautious.
But I hear about these stories over and over again! I have relatives (by marriage) who lost a lifetime of retirement savings in the 80s due to really inappropriate investments and heeding all sorts of risky "get rich quick" schemes. It seems folks somehow don't realize that they really could lose MOST of their money. It's more than denial, I think. It is perhaps simply unfathomable until they hear of stories of that exact outcome?
Of course in this particular example the broker really appealed to people's greed. That's a powerful appeal!
You hear these stories again and again - normal "blue-collar" working folks, actors, sports figures.
Didn't the NFL set something up to prevent players getting ripped off by unscrupulous financial advisors? Didn't they institute some type of oversight organization that qualified advisors?
Audrey
FinanceDude
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audreyh1 said:
The NFL Player's Association set up an oversight committee because they felt their highly paid athletes were an easy target. So far, it's working pretty well. In the NBA and MLB, there is not an oversight committee.
One of my fellow advisors had a couple Tampa Bay Buccaners as clients. They were trying to get Warren Sapp to meet with him, because his teammates felt he wasn't spending his money wisely.
So, the advisor flew to Florida, and met with his Buccaner clients after the football season was over. There was a party at Warren Sapp's house, and the advisor got invited. The host gave a house tour, and showed the guests the $1 MILLION landscape job he had done for his mansion, and the TWO new Ferraris he just bought for cash.............
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.audreyh1 said:
One military couple, good friends of ours, retired in 2004 but she went back to work in her field because the tech wreck had "busted her portfolio back to when she was an ensign". She's brainy, quick, funny, and very personable-- the kind of officer who worked with flag officers & security staffs at the highest levels and at her civilian job met with Scott McNealy to jawbone DoD computer specs. She says that she got caught in the applications & prospects of the gear, not the fact that people stopped buying it and their triple-digit-P/E stocks.
Another military couple-- same situation. She just retired from the Reserves (another one of thousands not willing to risk another mobilization) and he's at a career decision point. Their discussions revolve around "What if 2000-2002 happens again?" because their portfolio dropped 70%. Even though he fishes & surfs I'm beginning to fear that he won't know what he'll do all day...
FinanceDude
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Ron'Da said:
Apparently there is blind ignorance to the 404C reporting requirements that plan sponsors take on.........and the SEC doesn't have the manpower to enforce it.........
donheff
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Lots of people are susceptible. In the late 90s I was deploying advanced networking infrastructure and Web systems and would probably have gone whole hog into technology. Two things stopped me - and honest adviser (I used at the time) who didn't think I should break up the diversified allocation she had us in and government conflict of interest requirements that prevented me from investing directly in companies I worked or might work with and drastically limited even broad tech sector mutual funds.Nords said:
I didn't learn anything about DIY until I retired. And I ain't no dummy!!! :
I've run accross the slick talking salesmen more than once in my line of work. The unfortunate part is that there are laws that prevent unregistered securities from being sold to the financially naive, but it happens anyway and the salesman just don't have any consequences to suffer.
Had a case where a client was convinced to remove money from insurance company cd's (rock solid, paying interest) and invest in unsecured unregistered promissory notes. Money lost, civil judgment with only some of the loss collected. Police wanted to file charges by AG wouldn't (at least last I heard). Salesman filed bankruptcy and no doubt is doing it again.
Buyer, be very aware.
Had a case where a client was convinced to remove money from insurance company cd's (rock solid, paying interest) and invest in unsecured unregistered promissory notes. Money lost, civil judgment with only some of the loss collected. Police wanted to file charges by AG wouldn't (at least last I heard). Salesman filed bankruptcy and no doubt is doing it again.
Buyer, be very aware.
JustCurious
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tnedator said:
They are some of the worst, with the highest fees. Think about it, who do you think pays for those tall buildings with marble floors?
JustCurious said:
I am not speaking of the fees per se, but the likelyhood of losing it all.
I am in a position where I can get BOA managed service for about .40. Currently, I average well above that on my portfolio of mutual funds that have performed well, but vary in their expense fees.
tnedator said:
I think you'll find the 40 basis points from B0fA to be just the tip of the cost iceberg. If they put you into MFs, then there wil be underlying expenses there (about the same as you'd pay yourself IF they buy low cost ones--they may not). Trading costs, etc.
There's no getting around the fact that mny advisors and brokers have a much different set of incentives than their clients. I laugh when people say "well, my advisor outperformed the market last year by 4%, I don't mind giving him his 2%." They have no idea what risk he assumed with their money to get that gain. It's a no-lose game for the advisor or broker: If he outperforms the market, he gets the juicy fees. When he underperforms, he will try to keep the client for awhile by pointing out sectors he did outperform, or by emphasizing the great record he had last year. At the very worst, the client leaves--maybe thousands of dollars poorer, and the broker/advisor hasn't lost a cent. Taking risks with someone else's money is easy.
samclem said:
Actually, .4 is the total fee. Any mutual fund expense fees (assuming they are from the BOA family of funds, Columbia and a couple others) are rebated back, so the full cost is .4.
This is much lower than standard fees, because I am able to piggy back on to a couple account holders with MUCH greater assets than mine.
So, when you look at Vanguard and the lowest mutual funds out their being in the .2 range give or take, and I can have a manged account with investments in any Columbia, or other BOA owned funds, for a total cost of .4, I am trying to figure out if there are other areas of concer besides the .2 additional cost.
On the flip side, I am not that familiar with Vanguard funds, but most of the funds I have through Schwab (T. Rowe Price, US Global, etc.) charge MUCH more than .2 or .4. Most are in the 1 to 2 range.
Edit: Also, rereading your post. There are no trading fees, or any other fees. The only time there are other fees is when you go with a private account manager, such as Marsico. In these private account manager situations, you have Marsicos group managing a sub portfolio that mirrors one of their fund strategies, but in which case you own all the individual stocks, so if at the end of the year you need to sell some stocks with built in capital losses, you can have them sell you out and put you in a similar category stock (Ford vs. GM) or keep you in cash for 30 days and then rebuy the stock, etc. For these private account manager sub accounts, you pay an extra 40-50 basis points, depending on the account manager. This is an optional service, but provides additional flexibility. The benefit of a mutual fund, without some of the negatives of a mutual fund.
Brat
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Rule 1: anything too good to be true probably isn't. I suspect you are being sold and there is more to know.
Hmm--I wonder what other costs are built into that vehicle.
The value of the B of A arrangement probably boils down to how you plan to handle your investments. If you believe that active management (i.e. having a manager pick selected stocks for the MFs), then the B of A arrangement sounds like an inexpensive way to buy into these funds (if there realy aren't any "catches" built in). If you believe (consistent with the majority of academic literature) that active managers do not add value, then you'll want to go with lower cost Vanguard index funds, simplify you life, and pocket the .2% annual difference.
One additional consideration: Is the B of A deal a permanent arrangement? Esp: is this a "teaser" ER, or a permanent one? Is it dependent on your present employer? If the larger accounts you are piggybackng on depart, will you be able to stay? This isn't a big deal if this is IRA or 401K money, but if this is a taxable accout, you could get burned really badly if you have to sell once the fees go up.
The value of the B of A arrangement probably boils down to how you plan to handle your investments. If you believe that active management (i.e. having a manager pick selected stocks for the MFs), then the B of A arrangement sounds like an inexpensive way to buy into these funds (if there realy aren't any "catches" built in). If you believe (consistent with the majority of academic literature) that active managers do not add value, then you'll want to go with lower cost Vanguard index funds, simplify you life, and pocket the .2% annual difference.
One additional consideration: Is the B of A deal a permanent arrangement? Esp: is this a "teaser" ER, or a permanent one? Is it dependent on your present employer? If the larger accounts you are piggybackng on depart, will you be able to stay? This isn't a big deal if this is IRA or 401K money, but if this is a taxable accout, you could get burned really badly if you have to sell once the fees go up.
haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
CyclingInvestor said:
Interesting thing about this story is that is really wasn’t outright fraud- the advice to take close to 10% and the poor fund choice would not have been all that rare in the late 90s. I remember reading in WSJ about people who had retired with $500,000 or something and intended to never go back to work again. The only thing different about some of these guys and the guys in the article above is the plan worked for some of them! It made a big difference which particular bag of crap you bet on.
In the past people who didn't consider themselves able to evaluate opportunities protected themselves with family and class leanings toward extreme conservatism. One thing that modern media culture rips apart pretty well is that old fashioned sense of staying with the tried and true. I can remember my Irish Grandmother dispensing the ethnic truths-“A fool and his money are soon parted”; “There’s no fool like an old fool”(this one mainly a warning to older men who might be tempted to leave Mama and take up with a floozie in Havana or New Orleans or somewhere dangerous.) I think most people felt mixed about these things, but I can tell you that many years later I do a silent check with my storehouse of maxims before doing anything that might fall into one of these categories of fool. Fool is something people did not want to be!
Outright fraud and embezzling of funds is also fairly common. It happened twice on a large scale in the small town where I lived. One major swindler was an elder of some fast growing church who sold phoney investments mostly to members of the congregation. More than once I shared with a few of these folks what I thought were the risks involved, but they figured I wasn't a Christian so why listen to heathen me?
HaHa, too bad for them that they didn't.
Ha
samclem said:
Not employer related, it is what they consider a 'family account' although it is actually made up of a small group of family and friends. The deal is nothing special, it is their standard rate chart, the only thing special is that in a case like this when we came over together, they averaged out the rate so that two of us that have substantially smaller accounts that would normally be charged in the 150 basis point range, get to take advantage of the larger accounts in our small group. Most of the funds for the larger accounts came from the sale of a business, and I anticipate the total assets of the 'family account' to go up, not down and over time the fee will be below 40 basis points.
Anyway, this is all new to me, so I am trying to figure it all out. I have been heavily invested in emerging markets (mostly Eastern Europe and Latin America) and they have done exceptionally well for me, but they are volatile. The size of my portfolio is now large enough that I want a more balanced portfolio and am trying to figure out how to proceed, as well as how far away I am from ER.
