1st post, questionable Financial Advisor

[SakuICS]

Hi everyone. I invested around $2100 slightly over a year ago, with my brother who works for Ameriprise(yes, I know). Right now, the last time it was checked the investment was around $1500(this was before the latest drop). I trust(ed) my brother at the time I invested. Also, yes Im aware of the fact that Im a total newbie when it comes to finance

Now, having actually started reading some investment advice from a broad range of sources it seems I am doing everything wrong. The financial advice account cost from in the hundreds(don't remember) and there is a $20 quarterly fee, along with transaction fees and another yearly fee which is supposed to be quite high along with the loaded fund of funds.

Now, it isn't alot of money in fee's if you are investing $200k. But it is percantage-wise with this little money and this early in the market. It has probably eaten up over 10% of the investment yearly in fee's. Yet, my brother told me if I had not invested with him, the $1500 would be even lower. Why he would reccommend that I make checks out to Ameriprise for transactions of $100 when the transaction fee is over $20? It seems either crazy, or like someone is willing to scam their own family to get ahead in that organization.

Now, after I thought I had had real conversations with him..looking up some of the stuff he told me and finding out it was scripted..to your own family? Anytime, his financial knowledge is questioned he starts getting angry, but he has more of a salesman type personality.

What advise do you have?

 

[haha]

What advise do you have?

Yikes! Pray a lot, and ask for help from your mother.

Ha

 

[bssc]

This of this as a learning experience. You can leave the money there and let it get eaten up by fees or pull it out. I would not recommend putting in any additional money.

While the market has declined, it has not declined 40%. For example, one year ago, on June 6, 2007, SPY (SP500 ETF) closed at 151.84. Assuming you paid a $20 commission at an online broker, your remaining $2080 would have bought 13 shares for a total of 1973.92. You also would have had some money in a cash account. Fast forward to June 6, 2008, those 13 shares were valued at 136.29. They would have been worth 1771.77 for a loss of 202.15 which includes Friday's drop. So, with the cash of 106.08 (which would have earned some interest) you would have has 1871.85 which is significantly higher that the 1500 you have now.

Keep in mind that those fees go to your brother. I assume that he has already tried to sell you "The Plan". As you will see here, do it yourself (DIY) is considered by most the way to go for the reasons you have realized. After all, a 4% Safe Withdrawal Rate (SWR) is not going to sustain you if 2.5% is going to your financial advisor or loaded mutual fund. 10% is even higher.

My unsolicited advice is to never get mix friends and family with money. I would at stop sending him money at the least. Personally I would withdraw all the money and make it clear why you are doing so. If he takes it personally, he hasn't been a financial advisor long enough.

 

[chinaco]

Consider it a donation to help your brother get established as an agent... or whatever.

IMHO - I wold not invest anymore money with Ameriprise. Use a low cost Mutual Fund company like Vanguard.

Oh... I would pull the remaining money out of Ameriprise and place it in no-load funds.

 

[chris2008]

You may wish to give a warning to your parents, very carefully not to appear as blackmailing your brother...

 

[Midpack]

It is YOUR money, beyond that I agree with the advice above. At the very least don't put more at Ameriprise, I would pull it altogether although I see no reason to hammer your brother at the time. You do need to learn to manage your money, we all started knowing little or nothing so I am not criticizing you. If anyone makes a statement like 'you would have lost more at XYZ company, they should be showing you just exactly how AND you should be capable of looking up this kind of data and calculating it yourself. Most of us here are not rocket scientists, you can do this. And if you want to invest in a 'set it and forget it' fashion, go with target funds at Vanguard, Fidelity or Schwab. It will cost you more than DIY asset allocation, but it will be a screaming bargain compared to Ameriprise (my wife worked there for about 16 months - shameful business practices coming from the top).

You are young and it's a relatively small amount of money. We have all made mistakes investing, the trick is to avoid mistakes as much as you can and never repeat the ones you do make.

 

[kombat]

It seems either crazy, or like someone is willing to scam their own family to get ahead in that organization. [...] looking up some of the stuff he told me and finding out it was scripted..to your own family?

This is common to any MLM scam, like Amway (now Quixtar), Primerica, Avon, Tupperware, or whatever. The salespeople have no storefront or marketing program, so the only audience they have for generating sales are friends and family. However, after they've already sold to (or alienated) their pool of friends and family, they find the job isn't nearly as easy as their "upline" portrayed it to be.

You seem surprised that your brother would "play" you like this. My question is - who else would he be doing it to? He has no storefront, he's not a real business, it's not like they'll stand on the street corner soliciting strangers. Trusting and naive family members are the low-hanging fruit that generate easy sales for him.

If I were you, I would cut my losses, sell whatever's left with Ameriprise and open an account with a more reputable company like Fidelity or Vanguard, and invest the cash in a low-fee index fund. Try not to hold it against your brother - he simply drank the Kool-Aid and believed the lies the recruiter told him. It's possible that at one time in the past, he really did believe he was helping you. Don't let it create bad blood in your family, it really is a small amount of money we're talking about here. It's not worth losing good relations.

 

[FIREd]

To keep the peace with your brother I would recommend you leave the money you already invested with him where it is. It is a fairly small amount of money to pay to learn 2 invaluable lessons so early in life: 1) don't mix family and business and 2) don't use a financial advisor. In the mean time, open an account elsewhere (Vanguard, Fidelity, T Row Price...) and invest your extra money there.

 

[CuppaJoe]

To keep the peace with your brother I would recommend you leave the money you already invested with him where it is. It is a fairly small amount of money to pay to learn 2 invaluable lessons so early in life: 1) don't mix family and business and 2) don't use a financial advisor. In the mean time, open an account elsewhere (Vanguard, Fidelity, T Row Price...) and invest your extra money there.

YES! You haven't really made a mistake, you've paid an initiation fee: now you are an investor! I would have never started buying mutual funds in 1972 on my own; a friend became a stockbroker and got me started (for a fee). It took me about ten years to really start doing it myself but I don't regret buying into that load fund which by dumb luck became unloaded for a while. I still have a small position (it's an unloaded account in an again loaded fund). 5% front loaded! I still remember her chalkboard lessons in how mutual funds work. And the fund has done extremely well over the years.

 

[SakuICS]

Thanks for all the advice. Have alot of learning to do about investments as you can see. It doesn't seem quite as bad as Amway and I doubt he thought doing that was bad at the time. But will read up alot more before initiating financial decisions. Also, I have not put money in the account in quite a while. We all mistakes, some of us just happen to be more gullible

Thank you again

 

[bssc]

Having been in a similar situation with my sister, I would ask for all my money back and complain loudly to all family members. At the very least, you should get what you have left back and your other family members (especially the parents who are usually most susceptible).

 

[aida2003]

Oh my, if I were you, I'd move the money from your brother to Vanguard. I'd put in a 'safe' fund like VTSMX or STAR fund (this one has a much lower initial investment) and start learning about investing.

 

[amerijunk]

I'd pull my money out from Ameriprise. As you can see, the fees have taken a big hit out of your initial investment and will continue as long as you keep your money with them. Ameriprise takes the bulk of their fees upfront so whether you make or lose money they'll always make money. I wouldn't blame your brother as he's a victim just like you. When Ameriprise hires someone new, the new person must sign up family and friends or they'll be let go. Also Ameriprise doesn't train people on investing instead they train on memorizing a script. In a lot of ways, Ameriprise is similar to a MLM in the sense they must sign up family and friends to get ahead. If your brother complains about you leaving, you just need to ask him how he'd feel if he were in your shoes. [moderator edit]

Good luck.

 

[innova]

I don't have much to add beyond what everyone here has said.. except one thing:

Now, it isn't alot of money in fee's if you are investing $200k.

Don't get caught in the trap of thinking like that. Fees matter, no matter the size of the account. There is a very defined correlation between fees and performance, so always demand the lowest fees. As a wise man said "You get exactly what you DON'T pay for".

 

[samclem]

$2000 isn't a lot of money, and you may believe it is worth it to keep peace in the family to just leave it where t is.

If your investments return 8% per year, (which is slightly less than the long-term average of US stocks, but many people believe things may not be so rosy in the future, so we'll use 8% for argument's sake), then they will double in value every 9 years. At that rate, every dollar you invest will be worth $32 in 45 years. $2000 would grow to $64,000. The fees will eventually whittle this account down to nothing, so that's the price you'll pay if you leave the money there. Now, after inflation, that $64,000 won't be worth what it is today, but still, we're not talking about a ham sandwich here.

So. you'll need to make a choice. Some would say that you've already learned a lot about investing and that you might want to stop paying tuition. When you show your brother what you've learned about fees and the importance of low-cost investing, maybe he'll respect you enough not to try this again.

 

[bssc]

I noticed that the site Amerijunk posted has this cancellation and fee refund form.

 

[Milton]

I agree with CuppaJoe: the lost money should be considered as 'tuition' for the lesson that you've learned. Pretty much all novice investors go through similar experiences; it's part of the price we pay for not promoting financial education as part of the high school cirriculum. But as samclem notes, now that you've learned the lesson, there is no need to go on paying any more. If I were you, I'd pull the remaining money out of the account pronto, and re-invest it in a low cost index fund.

Don't wait until you've recovered your losses: even if this eventually happens (with those high fees, and an uncertain market, who knows?), the opportunity cost of not putting the money to work elsewhere is too high to pay. And don't worry about upsetting your brother: he is the one who decided to sell an inferior product. More importantly, it sounds like he is telling you nonsense ("if I had not invested with him, the $1500 would be even lower". That's simply untrue, ... obviously you'd have been better off putting the money in a money market fund or similar fixed income product, or just keeping the $2,000 in small bills under your mattress).

I disagree with the suggestion that you should complain to your parents. You and your brother are now adults. His conduct is no longer your parents' responsibility, and there really isn't much that they can do to remedy the situation. Also, you should be able to stand on your own two feet, without crying to Mommy and Daddy. Involving other (innocent) family members will just cause them needless unpleasantness and stress.

P.S. Excellent post, innova.