Lost one to the Dark Side

[wildcat]

Have a friend that decided he wanted to become a financial advisor. He is a pretty smart guy and I prior to the job he agreed with me 100% that indexing was the way to go. Fast forward...2 weeks on the job I get a phone call.

Him - "What do you think I should put people's money into?"
Me -"Still Index funds"
Him - "Yeah but the guys around here want me to better than average"
:

Me - "Why don't you just put the majority of their money in some Vanguard Index funds and play with a small portion in ETFs?"
Him - "I can but I just don't make any money on either one of them"

Me - "So what kind of allocation and funds do your people like?"
Him - "Actively managed & 60/40 allocation. They don't really believe in international exposure. They really like American Funds. They always say look at how well actively managed funds performed during the donwturn."

Me - "So how are you going to get your cliebts?"
Him - "I have to do some cold calling and cold walking" (TH is familiar with that one)

Me - "So how much do those guys make for what they do?"
Him - "Most of them are making at least $150,000"
Me - "And they come to work at 9 am?"

The Dark Side has taken over my friend. He did ask me to come in next week to see what goes on...should be interesting

 

[HFWR]

After being downsized a few years back, I interviewed with some financial and insurance companies. Aside from living off commissions, and cold-calling, what turned me off was the focus on selling whole-life, annuities, actively managed funds. Just didn't think I could do it..........

 

[brewer12345]

The cold calling and pressure to sell obviously overpriced garbbage to clients who don't know any better is what has always stopped me from even considering this sort of profession. If I were to do this as a second career, I would probably only do it as a fee-only planner. The hardest part would be drumming up clients, since I have zero interest in cold-calling and most potential clents are far more interested in the sizzle rather than the steak.

 

[wildcat]

Well I think I have a few problems with what he and the others said. 1) too focused on short-term - or they believe the active managed funds are the best b/c of the last downturn and index funds are only average. Over a longer time horizon index funds are in the top quartile. 2) most of the "work" or allocation they do can be done by anyone with a little effort (would be hard for me to pitch ideas that are simple). Those guys get paid way too frigging much for the amount of work 3) cold calling/walking and as Brewer said pitching the sizzle...index funds are boring but it works

 

[brewer12345]

FWIW, Amercian funds haven't been a bad choice. They seem to do a reasonable job and don't have too many laggards. The problem is that they are expensive compared to ETFs and index funds. When you add in the commission that gets paid to the advisor, it puts a real dent in performance.

As far as the "work" to be done:

Based on personal experience working with family members, the hardest part is getting clients to do what is best for them. Some are pretty easy and do what you suggest based on your work to interpret their situation and risk tolerance into a portfolio. Others are either way too aggressive or are paranoid about the possibility of short term losses. Especially the latter group are tough to work with if you are really doing your job and trying to get your clients to do what is best for them. I suspect that a fair proportion of advisors just throw up their hands and let their overly conservative clients plunk too much into short term bond funds and collect the commissions. Personally, I couldn't live with myself if I gave in too easily.

 

[wildcat]

The problem is that they are expensive compared to ETFs and index funds. When you add in the commission that gets paid to the advisor, it puts a real dent in performance

Exactly

I suspect that a fair proportion of advisors just throw up their hands and let their overly conservative clients plunk too much into short term bond funds and collect the commissions

Seems to be the case at this partcular shop. Hence 40% bonds for every client.

I am going to stay quiet and avoid coming across as an a**hole when I stop by next week.

 

[cute fuzzy bunny]

There are a great class of people who will always pay to have someone else do something they cant or wont learn themselves. You should see the markup on drywall work and thats not hard to do either.

Had a 'king of the hill' style chat with my neighbors last night for a couple of hours. Towards the end they both confessed that they're getting older, have no money put aside for retirement and are scared to death by what appears to be something too complicated to understand. One is considering chipping in with his brother who is a brilliant florida real estate investor who is targetting a $450k lot in ft meyers to build a 400k home on that 'they can all then use'...turns out theres a property just like it around the corner for 1.2M. The other is about to turn a pile of cash over to some brokerage (I think it was tweedy brown) to manage for him for 2% a year. Also wants to put money away for the kids college education but may end up using it to help them start a business when they get to that age.

I've been invited (again) to go fishing. Guess I need to get a license and a pole and remember to say at least once every 5 minutes "do not blame me if you do what I tell you to do and lose money"

 

[brewer12345]

Hmmm, I don't necessarily think that 60/40 is a bad default option/starting point, its just that its not really optmal for everyone.

 

[cute fuzzy bunny]

And you dont have to pay 2% for the pleasure either...

 

[wildcat]

Hmmm, I don't necessarily think that 60/40 is a bad default option/starting point, its just that its not really optmal for everyone.

Point being it is not optimal for all clients and neither is no intl' exposure; 60/40 will certainly give you a nice return over time but I don't see myself jumping in just yet. Die hard 80/20

 

[brewer12345]

Point being it is not optimal for all clients and neither is no intl' exposure; 60/40 will certainly give you a nice return over time but I don't see myself jumping in just yet.  Die hard 80/20

If you don't count unhedged international bond exposure, I am more like 90/10 myself.

 

[Nords]

If I was going to embrace the Dark Side then I'd do it like this guy and his assistant with their Holistic Life Planning approach.

Fee only, of course!

 

[wildcat]

From their website:

Since we are fee-only financial planners and investment managers, we make specific investment recommendations based solely on your circumstances, goals and individual needs. We offer no financial products for sale

Better. No financial products for sale

 

[cute fuzzy bunny]

If I was going to embrace the Dark Side then I'd do it like this guy and his assistant with their Holistic Life Planning approach.

Its working for Ricky Williams.

Anyone else good and sick and tired of ricky williams?
Fee only, of course!

 

[Dawg52]

My sister in law just got hooked up with a FP at Morgan Keegan. My brother passed away a little over 2 months ago and I tried telling her just to sit tight for awhile. She got all nervous about her financial situation so her son led her to this guy. MK handles the investment side of the bank that my nephew works. To make a long story short, her and my nephew were wooed into going with all his recommendations which include annuities, muni funds, stock funds and a LTC plan. She was also impressed that he didn't charge them a fee for his advice. :  The LTC plan includes a death benefit and is paid up in a one lump sum amount. I know from our company agent that it  is simply cheaper to  buy a life insurance policy and a straight LTC plan than to bundle several features together. I still haven't seen all the numbers but I'm scared to death fees are gonna eat her alive. My brother left her a nice sum of money to work with and I just hope this guy will at the very minimun preserve her nest egg.  

 

[Jarhead*]

There are a great class of people who will always pay to have someone else do something they cant or wont learn themselves.  You should see the markup on drywall work and thats not hard to do either.

Had a 'king of the hill' style chat with my neighbors last night for a couple of hours.  Towards the end they both confessed that they're getting older, have no money put aside for retirement and are scared to death by what appears to be something too complicated to understand.  One is considering chipping in with his brother who is a brilliant florida real estate investor who is targetting a $450k lot in ft meyers to build a 400k home on that 'they can all then use'...turns out theres a property just like it around the corner for 1.2M.  The other is about to turn a pile of cash over to some brokerage (I think it was tweedy brown) to manage for him for 2% a year.  Also wants to put money away for the kids college education but may end up using it to help them start a business when they get to that age.

I've been invited (again) to go fishing.  Guess I need to get a license and a pole and remember to say at least once every 5 minutes "do not blame me if you do what I tell you to do and lose money"

TH: Giving friends, relatives, neighbors, investment advice is a "rookie error". Give that poor guy an investment book you believe in, and let him make his own decisions.
A fishing trip with questions and answers on investments, especially in this environment, is an accident waiting to happen.
If they trap you into going fishing with that in mind, tell them you lost your voice, but would be glad to go anyway.

 

[cute fuzzy bunny]

I know.

He's mostly looking for what to do about investing for college for his two boys. Something I may look into although at this stage I'm more likely to just pay for it out of my main taxable account if he wants to go.

I printed out the info on the golden state scholarshare 529 program and circled the aggressive age based balanced portfolio (his kids are 3 and 4) as a suggestion.

On the other thing, I ordered him a bunch of vanguard brochures and if he really presses me I'll suggest he buys lifestrategy moderate growth or vanguard target retirement 2025 or 2035 (they're about 30). Then tell him he'll probably lose half of his money if he does it. After telling him 10-20 times that I hate doing it.

I just hate watching someone getting vampired.

 

[unclemick]

I'm with ex - Jarhead - gave them copies of Bogle's 1994 book - my oldest nephew read it - ten years of TSP and 1994 -2004 of history he's well set. My sister obviously never bothered and still asks questions from time to time - I give her advice I know she will ignore - like what to read and how to make up her own mind - 'too busy - tell me what to buy NOW! - before I spend the money on something else.

Grrrrrrrh!