Comments on: Fire your financial adviser, unless they are a fiduciary Fri, 05 Dec 2014 11:27:18 +0000 hourly 1 By: johnwasik Wed, 26 Jan 2011 03:36:39 +0000 First, let’s talk about equity-indexed annuities. I say they’ve been troubled because of marketing abuses. Don’t take my word for it. NASAA, the group that represents state securities regulators, found that these kinds of annuities have been cited in one-third of investment abuses involving seniors. See ent_NASAA_Headlines/9280.cfm. Marketing of these vehicles are poorly policed and commissions are high — 6% is hardly a bargain in a world in which ETFs can be sold at NO commission and provide much better coverage of most asset classes. And to set the record straight, the fiduciary or fee-only model is not without its flaws. Bernie Madoff was supposed to be a fiduciary. But right now, it’s a better model that places legal responsibility squarely with the advisor, who must do right by the client instead of being hostage to a quota/commission schedule. The SEC made a huge leap forward, but it’s up to individual investors to police their advisors. No agency will ever have enough cops on the beat.

By: ARJTurgot2 Wed, 26 Jan 2011 01:49:47 +0000 Vanguard has started selling a variety of annuities, although it still works through insurance companies. I would imagine other firms will eventually follow. The load is significantly under that charged by the local CFP/adviser community. It will be hysterical to see the adviser dance as the profitability is drained from that product.

From Bloomberg 1/24/2011:
“Vanguard Group Inc., the asset manager that pioneered low-cost passive funds for retail investors, gathered more client money last year than any competitor, becoming the world’s largest mutual-fund company and closing ground on its competitors in exchange-traded funds. ”

And the problem with the 6% load is IT NEVER GOES AWAY AND ALWAYS IMPAIRS THE RETURN ON THE ASSETS. You don’t ‘recover’ from the reduction in the asset base.

By: Tical Tue, 25 Jan 2011 20:53:01 +0000 Take away commisions, replace with fees. Take away abitration, bring in lawyers and ability to sue. This is just moving money from the left hand to the right hand.
Fiduciaries will only have you sign something saying you are aware of the risks and agree to it, which like the prospectus investors are not going to read anyway.

Although some brokers do not always act in their client’s best interest a majority of them actually have been in business for years and are actually interested in maintaining client relationships.

The statement “FINRA missed the 2008 meltdown” also shows you don’t understand FINRA’s role in the indutry. There are not there to forecast or judge the merits of an investment vehicle.

By: breezinthru Tue, 25 Jan 2011 19:46:14 +0000 @BHOlied

Thanks for the advice but I’ve been doing quite well. I moved my managed money back into stocks at the end of November to ride the QE2 lift. I don’t know yet how long I’ll be leaving it there, but I picked a fund with no penalty for an early exit.

In case you’re looking for some free advice, I had my personally managed money in APL until about three months ago. I’ve been in WTR since then. I’ve been doing very well with that, much better than 2%.

I know… not very diversified, but as you mentioned, I don’t have time to fully research hundreds of companies. Besides, it’s not all of my money.

I do have a screener though and a brain and I’m not excessively greedy. I don’t try to outsmart the market everyday. I buy and hold until it seems prudent to buy something else or to cash out for a while.

Whip out your calculator and work out how much the compounding effect of 1% commission over the course of many years has been costing you.

BTW, a leech is actually a good analogy. I’m from Minnesota and there are plenty of leeches in our lakes. They don’t take much of your blood, you don’t usually even notice them, it’s usually someone else who will point one out, but they will keep sucking off a little blood for as long you let them.

By: paintcan Tue, 25 Jan 2011 18:59:09 +0000 I have to agree with the comments that say it’s best to manage your own money but that may require that only those with MBA’s will ever be able to invest in equities and bonds.

But that is not what the financial industry really wants. It needs the less informed and those who view stocks as a form of gambling. It feeds on them or the markets will shrink and become far less volatile. Without the volatility the brokers don’t make their larger commissions.

And @Ugotabesick – there are real dangers to trying to be your own physician and it is illegal to try to treat anyone else without certification by the AMA. There is also the adage – “A man who defends himself in court has a fool for a lawyer”. But modern society doesn’t want self reliant people even as it complains about the burden or rising health care costs and consumer lawsuits. It would put many service type jobs out of business.

But obviously people haven’t learned much of a lesson since Madoff’s scam, or the older Dot Com mania, that companies like Facebook – with no real assets to speak off – and little factual data to base their investment on, can still raise $1.5 billion on what are essentially rumors and blandishments. The fact that most of the stock has not been offered on the exchange – and the reputed value of the company is derived from the small number of shares that were actually offered – should give pause to anyone who thinks that that value will hold when greater amounts of stock are put up for auction. I can’t help but think of that as a fraud and a scam. If any of the major owners of Facebook stock – the founder and his co-conspirators, were to try to sell their stock, the price would most likely plunge, the way the price of diamonds would collapse if De Beers ever released the tons of gems they hold in storage.

On Wall Street, fraud is as much an abstraction as many of its product lines.

By: DLW678 Tue, 25 Jan 2011 18:39:14 +0000 Just because someone is compensated by fees rather than any other approach guarantees nothing. In fact, a large percentage of brokers also act as Fudiciaries and have the same requirements. Unfortunately, most fee only advisors are quite limited in what they can provide their clients as evidenced by their relatively poor performance during the last downturn. Furthermore, there’s a reason that congress and SEC very explicity state that compensation and Fidiciary responsibility are completely independent issues.

By: BHOlied Tue, 25 Jan 2011 18:14:54 +0000 @breezingthru,
of course financial advisors lost clients money. If you can’t handle the risk, invest in treasuries and enjoy your 2%.

You cannot have gains without risk, period. And fiduciaries in the right environment have no gain from “mismanaging” your assets. If a fee-only advisor is managing your money and it goes down, their revenue is directly impacted. They can ONLY gain when your assets rise.

I laughed out loud when i read your “leeches” comment. Average fee charged on assets is 1%. What a bunch of jerks! haha – how much are you paying on those mutual funds?

Some people spend their entire careers learning and researching and you’re encouraging people to believe that you can do it in your spare time? Now that is bad advice.

“Its easy to beat their performance”? How would you even begin to know?

The point of the article is to NOT invest with or follow advice from those who are untrained, untested and NOT held to a fiduciary standard.

If you are like breezin you can sit on your couch holding your life savings in your lap and pray that you get lucky because luck is what you’ll need.

By: BHOlied Tue, 25 Jan 2011 18:04:26 +0000 I’ll second the plug. Fee-only advisors earn money based on your assets, period. They sell nothing except advice.

To vialli10 – diversifying doesn’t always work, note the financial crisis.

And this has nothing to do with lawyes and legal fees. Its about NOT trusting someone who is motivated to sell you something you don’t need (insurance & brokers)

Good article.

By: csodak Tue, 25 Jan 2011 15:42:41 +0000 This measure will have no affect on how financial advisers shift their behavior onto the path of reacting to incentives. The SEC is still woefully underfunded.

What nearly every American does not understand is that this behavior has been endorsed from the top down and if particularly affects those who walk the edge of ethics.

By: breezinthru Tue, 25 Jan 2011 15:10:01 +0000 I expect that most of these professional advisors have lost a lot of money for their clients over the past five years.

With fiduciaries, the only thing you gain is someone who is perhaps less likely to intentionally mismanage your money for his own gain.

I agree with Ugottabesick that it’s far better to do your own research and peel those leeches off from your money.

It’s easy to beat their performance and you don’t have to pay yourself a commission.