Ready
Thinks s/he gets paid by the post
We had some cousins visit us this week. The husband started his own company last year and did very well. Somehow the topic of 401Ks came up, and he mentioned that he opened up a self employed 401K a few months ago. He told me that "a guy" drove out two hours to visit him and he handed him a check for $85K to open up the 401K. Something about the phrase "a guy" had me feeling a bit suspicious, so I asked him if he would like me to look at the investments that were selected.
We logged into his account, and I found that he had been invested in a variety of mutual funds from Goldman Sachs and Franklin Templeton. I looked at the GS fund and found it had an expense ratio of 2.22%. And, it was a class C share, with a back end load of 1%. It also had a 12b-1 fee of about 1%. So from what I could tell, he was paying about 4% in fees to be in these funds.
He called the broker at my urging and put him on speakerphone. I inquired as to why he was selecting these funds with such high fees rather than index funds. He mumbled something about managing risk and said he had to head into a meeting, so the call ended somewhat abruptly.
A few hours later my cousin called him back. The broker asked if he was on a speakerphone. My cousin said yes, but I was in another room (which I wasn't). The broker then tried to discredit my ideas on index funds and told him not to listen to me. He assured him that if anything happens, he is going to be there for him and his wife and baby.
At that point, I lost my patience and blurted out that he was full of sh*t. He became pretty defensive, but I was pissed. I said "are you a certified financial planner?" His response - "NO". OK, are you acting as a fiduciary in making these fund recommendations. Again - "NO". Then I said "then you have no business making financial recommendations here as you are not qualified to do so".
I asked him what percentage of actively managed funds that he oversees have consistently out performed index funds for 20 years or longer. He said it was probably a low number, maybe 5%.
So I said, OK then why would you recommend funds that have only a 5% chance of beating an index. And oh by the way, why are you selling class C shares - could it be so that you can help yourself to a 1% kickback. And do those funds also have 12b-1 fees that are somehow finding their way into your pocket?
We ended up having a heated discussion for another few minutes. I told him I thought he was a crook, and he could care less about my cousin. His only interest was in lining his own pocket with hefty commissions. He even mentioned that he was only planning on keeping the money in those funds for six to nine months, thinking I wouldn't pick up on the fact that with Class C shares he gets a commission every time he sells the funds within the account.
My cousin was pretty taken back by the whole conversation. After it was over, I found out this broker was actually his brother's best friend. Although interestingly enough, his brother doesn't do any business with him.
I was slightly embarrassed by how rude I was once I found out about the family friendship. But it didn't change my conclusion.
I tried to get them to set up a Vanguard account while they were still here, but I couldn't quite pin them down to do it. I told them I would help them select funds, and also help them find a fee only financial planner in their area if they wanted some assistance.
My cousin could clearly see he was being taken advantage of. But because I couldn't get the account set up before they left, I just have this feeling that the broker is going to wait until they are back home, away from me, and he is going to try to tell him I don't know what I'm talking about.
I haven't seen these cousins for six years, and we don't talk regularly. So I don't want to overstep my bounds in trying to help. I'm curious what people's thoughts are on whether to just let it rest at this point or try to stay involved, at least to confirm the Vanguard account has been set up. My cousins were very appreciative of my involvement, but I think they just don't like dealing with financial matters.
I've read so much about Ameriprise's antics in this forum, but this is the first time I've seen a family member be so taken advantage of. It was really quite disturbing. It's been bothering me all week.
We logged into his account, and I found that he had been invested in a variety of mutual funds from Goldman Sachs and Franklin Templeton. I looked at the GS fund and found it had an expense ratio of 2.22%. And, it was a class C share, with a back end load of 1%. It also had a 12b-1 fee of about 1%. So from what I could tell, he was paying about 4% in fees to be in these funds.
He called the broker at my urging and put him on speakerphone. I inquired as to why he was selecting these funds with such high fees rather than index funds. He mumbled something about managing risk and said he had to head into a meeting, so the call ended somewhat abruptly.
A few hours later my cousin called him back. The broker asked if he was on a speakerphone. My cousin said yes, but I was in another room (which I wasn't). The broker then tried to discredit my ideas on index funds and told him not to listen to me. He assured him that if anything happens, he is going to be there for him and his wife and baby.
At that point, I lost my patience and blurted out that he was full of sh*t. He became pretty defensive, but I was pissed. I said "are you a certified financial planner?" His response - "NO". OK, are you acting as a fiduciary in making these fund recommendations. Again - "NO". Then I said "then you have no business making financial recommendations here as you are not qualified to do so".
I asked him what percentage of actively managed funds that he oversees have consistently out performed index funds for 20 years or longer. He said it was probably a low number, maybe 5%.
So I said, OK then why would you recommend funds that have only a 5% chance of beating an index. And oh by the way, why are you selling class C shares - could it be so that you can help yourself to a 1% kickback. And do those funds also have 12b-1 fees that are somehow finding their way into your pocket?
We ended up having a heated discussion for another few minutes. I told him I thought he was a crook, and he could care less about my cousin. His only interest was in lining his own pocket with hefty commissions. He even mentioned that he was only planning on keeping the money in those funds for six to nine months, thinking I wouldn't pick up on the fact that with Class C shares he gets a commission every time he sells the funds within the account.
My cousin was pretty taken back by the whole conversation. After it was over, I found out this broker was actually his brother's best friend. Although interestingly enough, his brother doesn't do any business with him.
I was slightly embarrassed by how rude I was once I found out about the family friendship. But it didn't change my conclusion.
I tried to get them to set up a Vanguard account while they were still here, but I couldn't quite pin them down to do it. I told them I would help them select funds, and also help them find a fee only financial planner in their area if they wanted some assistance.
My cousin could clearly see he was being taken advantage of. But because I couldn't get the account set up before they left, I just have this feeling that the broker is going to wait until they are back home, away from me, and he is going to try to tell him I don't know what I'm talking about.
I haven't seen these cousins for six years, and we don't talk regularly. So I don't want to overstep my bounds in trying to help. I'm curious what people's thoughts are on whether to just let it rest at this point or try to stay involved, at least to confirm the Vanguard account has been set up. My cousins were very appreciative of my involvement, but I think they just don't like dealing with financial matters.
I've read so much about Ameriprise's antics in this forum, but this is the first time I've seen a family member be so taken advantage of. It was really quite disturbing. It's been bothering me all week.
That must have been a hell of a conversation. 
