Financial consultant really bothered me

[Cody]

One of the reasons I became a DIYer is because of how I felt after conversations. I thought I was over it but I have been inquiring into immediate annuities to see if that could help us smooth out our income stream. So I went online to see if I could get several different "offers".

However the last phone conversation was flat out awful. The sales rep and I talked about what I wanted and needed. He then began to give me the sales pitch on alternative products and I quickly said I had no interest in them. Well he pushed and pushed.

But what really gave me that awful feeling was when I mentioned my money was at Vanguard. He then began to blast Vanguard.
The one that really got my blood boiling was this "I have read lots about VG and they have many funds that have stock turn over rates that exceed the market. He had looked one fund up there and it had a 400% turnover." I asked which one he said I don't remember."

He quoted some guy who had researched the subject and offered to sent me a DVD showing the truth.

Then he added that "Vanguard bamboozles people by saying they have low costs but they hid expenses, because the FEC, or whoever, oversees this stuff (my words), do not have to report turn over." So they are not low cost, in fact they hid costs.

Finally he said one of his clients invested $400,000 in one his products with his and earned 12% year since 2001. And he has another product that guarantees 7%. Vanguard is an illusion of low costs.

Could you address the turn over comment and the 7% comment.

I finally said "you have nothing to offer me, goodbye." But I felt like crap. I let it get to me.

Thanks,
Phil

[Easy Rhino]

the FEC? Federal Elections Commission?

[Cody]

My fault - but who oversees financial matters?

Thanks,
Cody

[synergy]

I am sorry that this salesperson is able to upset you. VG fees are what they are and if you suspect there are hidden costs you can compare the returns over a specific period with the index returns. If the returns are similar, less the posted fees, I don't know how there would be other "hidden" VG fees from selling stocks.

I hope you run as quickly as possible from this salesperson. I understand that it is sometimes intimidating to mange one's own investments but your instincts seem superior to what these experts are trying to force on you. Don't fall for this type of sales pitch and keep visiting this site and asking for specific help. You will be far ahead. Good luck!

[greg24]

Forget about it and don't engage ever again.

[staythecourse]

The older I get the more contrarian I become. I am starting to realize if everyone goes one way the correct answer is going the opposite.

If the FA point is about turnover that is easy to look up. Morningstar has info. on turnover rates AND even tax cost ratios (which you would presume would go up with higher turnover funds) so just look them up yourself.

I'm sure Vanguard has some active fund that has a 400% turnover, but the question is do they have a passive index fund that is either tax inefficient and/ or expensive? My answer would likely be no. That is what a Boglehead care about.

Good luck.

[Johm221122]

If vanguard has a fund with 400% turnover it is irrelevant, it is only funds that you hold that matter (and 400% turnover is also not relevant any way)
7% guaranteed could be SPIA, depending on your age

[scone]

Sorry about your experience. It's just as bad buying a mattress, a car, or a house. The stuff that comes out of a salescritter's mouth should be immediately consigned to the mental circular file, IMO. The only thing that really matters is the contract (and even that can be pretty wobbly these days), so to shut them up I ask for the legal paperwork, preferably on line. I don't give them my home address, or home phone number, if I can help it. In my experience, they'll either show up at your doorstep, or resell your name to every mailing list they can.

My email arrives at earthlink, which disinfects the most egregious spam before I see it, then I use webmail to make the first culling. I don the virtual hazmat gear, inspect the mail with virtual fireproof tongs, and decide: file, act, or trash. I don't even open the advertisements. Using this process, by the time something makes it into my real in-box, it's been pretty thoroughly vetted. That's about as close to a salescritter as I care to get.

Having said that, I can tell you, I've grown to trust the Boglehead, Vanguard, and Fidelity, sites. The Bogleheads are especially brilliant, because they aren't trying to sell me something.

[Grt2bOutdoors]

My fault - but who oversees financial matters?

Thanks,
Cody

SEC - Securities and Exchange Commission

then you have the newly established Consumer Financial Protection Bureau - created as mandated by the Dodd-Frank legislation

Federal Reserve Board - also has a hand in regulating financial institutions

Federal Deposit Insurance Corporation - aka FDIC

US Treasury - oversees the Secret Service who also investigates financial acts of fraud, counterfeiting, etc.

FBI - Federal Bureau of Investigation - investigates interstate financial acts of fraud, theft, bank robbery, check kiting, counterfeiting, etc.

U.S. Postal Police - investigates acts of fraud committed through use of the U.S. Postal system

So, all in all, we have a multitude of agencies who are responsible for regulating financially related matters. It really depends on the nature of the "crime".


Had it been me on the phone, I would have either "enlightened" the character or hung up the phone.

[FafnerMorell]

Don't be too impressed with the 7% guarantee - Bernie Madoff guaranteed 12%.

But, look at your Vanguard funds - the ones you actually have (not some strawmen he's arguing about). If they're index funds, the turnover should be very low (nowhere near 400%) and take a look at the actual costs (include taxes) as well as dividends/gains/etc. It just sounds like he's trying to prey upon your fears by raising a lot of vague possibilities - but if you've been with Vanguard for awhile, you should have plenty of statements to look at and see what's actually happening with your money.

[ObliviousInvestor]

Could you address the turn over comment and the 7% comment.

Well, the 400% turnover bit doesn't necessarily mean much. Off the top of my head, I tried to think of a Vanguard fund that would probably have high turnover.

How about Vanguard Short-Term Treasury Index Fund? Short maturities probably means high turnover by definition. Yep. 302% according to Morningstar. Does that make it a bad fund? Probably not. (For what it's worth, Morningstar has it ranked top 25% in its category over the last 10 years.)

And as others have mentioned anyway, all that matters here is the funds you own.

As far as the 7%, I suspect your common sense tells you the same thing mine does. How would an insurance company be able to provide a guaranteed 7% return (especially after paying this fellow's commission) when market interest rates are so low?

[livesoft]

Enroll in the local community college's debate class. You will always feel good after such conversations after you complete the curriculum.

[Novine]

Sounds like you handled it perfectly. The guy was peddling snake oil and you told him to take a hike. No sale for him and you kept your money safe from a con man.

[Cody]

My fault - but who oversees financial matters?

Thanks,
Cody

SEC - Securities and Exchange Commission

then you have the newly established Consumer Financial Protection Bureau - created as mandated by the Dodd-Frank legislation

Federal Reserve Board - also has a hand in regulating financial institutions

Federal Deposit Insurance Corporation - aka FDIC

US Treasury - oversees the Secret Service who also investigates financial acts of fraud, counterfeiting, etc.

FBI - Federal Bureau of Investigation - investigates interstate financial acts of fraud, theft, bank robbery, check kiting, counterfeiting, etc.

U.S. Postal Police - investigates acts of fraud committed through use of the U.S. Postal system

So, all in all, we have a multitude of agencies who are responsible for regulating financially related matters. It really depends on the nature of the "crime".


I feel better knowing we are protected by so many agencies.
Cody

[kenyan]

Here is the ultimate "hidden costs" test:

First, understand that an index is an imaginary construct that one cannot purchase. The S&P 500 is the most popular index.

An "index fund" is one that tries to match the index. Because fund companies have costs (expense ratio, turnover, cash holdings which drag on returns), they will not completely match the index. They also may not hold every stock in the index in the exact proportions of the index itself, but will try to basically match it. There are some methods they can use (e.g. securities lending) to recoup some of these costs, but that's beyond the scope of this exercise.

Now:
1. Go to www.morningstar.com

2. In the "quote" box up top, type VFIAX (Admiral Shares of the Vanguard 500 Index Fund)
A plot will be generated that will include the fund total return, the index total return, and a morningstar category for large blend.

3. Click on the "Growth of 10K" bar.

4. Hover over the heading for "Large Blend" and then click the 'x' button to remove it from the chart.

5. Now all you see is the Vanguard Index Fund and the Index itself, which again has zero costs. Kind of look the same, don't they? If Vanguard had all sorts of hidden costs added, they wouldn't be able to match the index. Over the ten years shown, the difference in return between the costless index and VFIAX is less than $30 on $10K invested. That's the proof in the pudding.

[Grt2bOutdoors]

Forgot to mention: IRS - Internal Revenue Service; they are very interested in those who fail to pay taxes owed or deliberately undertake actions to evade paying their fair share as mandated by tax law.

I wouldn't hesistate to blow the whistle on a suspected con artist living above their "reported" means assuming you have reasonable suspicion.

[dhodson]

Im betting he sells life insurance. His 7% would be his interpretation of the guarantees within the contract. For instance if one includes dividends (which actually arent guaranteed), then the increased return on the csv at some point in time in history may be 7%. Of course the cash surrender value or cash value starts off at zero and typically remains zero for a few years so the fact that it increases by any percentage guaranteed or not isnt amazing.

Normally these eye opening reports and truth dvds are to push whole life in my experience.

Leave an accurate review of your experience online.

[Taylor Larimore]

Hi Cody:

The adviser was ill-informed or a liar. You were wise to disengage as quickly as possible.

I have been inquiring into immediate annuities to see if that could help us smooth out our income stream.

Single Premium Immediate life annuities (SPIAs), unlike most annuities, are an easy-to-understand contract to provide the largest guaranteed lifetime income of any investment. In my opinion they are best purchased in mid-70s or early 80s.

This link should be helpful but be aware it contains a conflict-of-interest:

http://www.immediateannuities.com/

Best wishes.
Taylor

[Rager1]

In addition to the method kenyan recommends, on Vanguard's website, they publish historical returns of their funds, along with the returns of the "pure index" they attempt to match in that fund. The "pure index" they attempt to match has no costs at all...so the performance history of the "pure index" shows what one would earn if there were absolutely no costs.

If you do a side-by-side comparison of the two, you'll see how Vanguard's fund performed relative to the "no cost pure index". You'll also see that in some years, Vanguard actually outperforms the index. Since the performance numbers reported by Vanguard are inclusive of all of the costs involved in running the fund (i.e. turnover, spreads, management expenses, etc.), if you average the difference in costs between the fund and its "pure index", you'll see the actual cost of operating the fund over the number of years in the comparison.

For example, for Vanguard's Total Stock Market Index Investor Shares, for the 15 full years between 1996 and 2011, the average difference between the "pure (no cost) index" and the fund's performance is 8 basis points. For the Admiral shares (started 11/13/00), for the 11 full years between 2000 and 2011, this difference works out to 2 basis points (100 basis points equals 1%). I consider these costs as the actual costs to me.

So, in reality, Vanguard actually recoups some of the costs associated in running their funds and passes those savings back to its investors, resulting in an actual cost that is less than their reported expense ratio. (The SEC regulates how mutual funds calculate and report expense ratios).

The financial consultant obviously doesn't know what he/she is talking about.

Ed

[fishndoc]

Hi Cody:
The adviser was ill-informed or a liar. You were wise to disengage as quickly as possible.

Taylor hit the nail on the head; absolutely no reason to waste your time debating these guys, whether they are annuity salesmen or stock brokers (unless you are bored and want to waste their time).
Actually, it's likely most of these guys do know the truth, but admitting it would force them to find another way to make a living.

[nisiprius]

"Huge hidden fees in Vanguard funds" certainly seems to be a meme on the rise. I wonder if Ric Edelman invented it or if he was just surfing the wave?

[jdilla1107]

Hi Cody:
The adviser was ill-informed or a liar. You were wise to disengage as quickly as possible.

Taylor hit the nail on the head; absolutely no reason to waste your time debating these guys, whether they are annuity salesmen or stock brokers (unless you are bored and want to waste their time).
Actually, it's likely most of these guys do know the truth, but admitting it would force them to find another way to make a living.

I actually do not think that they "know the truth". From my experience, it is the Upton Sinclair quote:

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it."

You have to understand that when you come at one of these people with Bogleisms, you are implying that his livelihood is somewhat irrelevant. Some people (somewhat justifiably really) react negatively to this. I always try to convince myself that it's insulting to imply someone's livelihood is pointless and move on.

[baw703916]

I'm sure that Vanguard's money market funds have turnovers even higher than 400%.

[SVT]

Here is the ultimate "hidden costs" test:

First, understand that an index is an imaginary construct that one cannot purchase. The S&P 500 is the most popular index.

An "index fund" is one that tries to match the index. Because fund companies have costs (expense ratio, turnover, cash holdings which drag on returns), they will not completely match the index. They also may not hold every stock in the index in the exact proportions of the index itself, but will try to basically match it. There are some methods they can use (e.g. securities lending) to recoup some of these costs, but that's beyond the scope of this exercise.

Now:
1. Go to http://www.morningstar.com

2. In the "quote" box up top, type VFIAX (Admiral Shares of the Vanguard 500 Index Fund)
A plot will be generated that will include the fund total return, the index total return, and a morningstar category for large blend.

3. Click on the "Growth of 10K" bar.

4. Hover over the heading for "Large Blend" and then click the 'x' button to remove it from the chart.

5. Now all you see is the Vanguard Index Fund and the Index itself, which again has zero costs. Kind of look the same, don't they? If Vanguard had all sorts of hidden costs added, they wouldn't be able to match the index. Over the ten years shown, the difference in return between the costless index and VFIAX is less than $30 on $10K invested. That's the proof in the pudding.

Thanks for this. So do the Morningstar charts always include all expenses of the fund? I'm comparing some actively managed funds to Vanguard's indexes and was curious about this. I couldn't find this info on the Morningstar webpage.

[Cruncher]

Stayingthecourse:

The older I get the more contrarian I become. I am starting to realize if everyone goes one way the correct answer is going the opposite.

I said this exact thing not too long ago to some friends! Just this morning, the financial news was Warren Buffett was bailing on Munis. Of course, you know the "crowd" is gonna follow.

To the OP: "financial product" sales people are not fans of VG.

[hoppy08520]

To the OP: "financial product" sales people are not fans of [Vanguard].

Sooooooooooooooo true. I see this as part of my 401k plan. It seems that I'm stuck having to pay out percentages to a lot of useless barnacles (financial services companies) who want their cut of MY savings even though they provide no value to me.

These barnacles resent that Vanguard doesn't let them in on their cut. They're like the mafia -- complaining that Vanguard doesn't "wet their beak". Hence my 401k plan provider slaps on a surcharge expense ratio for Vanguard funds in my plan because Vanguard doesn't do kickbacks, so they'll just charge ME even though they already charge me for plan expenses somewhere else.

This is why they hate Vanguard -- by operating at cost, Vanguard is a thread to the livelihoods of these salespeople and their entitled viewpoint that they deserve a cut of our money.

Think about it -- I'm NOT suggesting that everyone invest at Vanguard, or that everyone invests in low-cost index funds, but if everyone did, then these parasites would be out of business. So of course they're going to bad mouth their competition.


They are trained professional sales people and then know all the tricks and lines and come-on's to persuade and frighten people into buying their crap.

[kenyan]

Thanks for this. So do the Morningstar charts always include all expenses of the fund? I'm comparing some actively managed funds to Vanguard's indexes and was curious about this. I couldn't find this info on the Morningstar webpage.

Morningstar charts will include regular expenses extracted in the form of expense ratios, as well as income from dividends/capital gains/etc. They will not account for excess one-time expenses such as Loads or early withdrawal penalties. Taxes are also (understandably, since it is not possible without knowing the exact situation) not addressed in their charts.

No Vanguard funds have Loads, FYI. Some international funds do have purchase fees, withdrawal fees, and/or early withdrawal penalties.

[Steelersfan]

When I get on a call like that I immediately start moving the phone away from my ear and as my finger starts to engage the disconnect button I say either:

"No, thank you", or

"I'm not interested"

I never hear what they say next.

It takes less than five seconds and leaves no lingering feelings, at least on my part.

[stevewolfe]

Vanguard Short-Term Federal sports (according to Morningstar) a 411% turnover rate. Vanguard Short-Term Treasury fund sports a 302% turnover rate. So when he says 400% it's true, but he's being misleading by throwing it out there like it's a blanket statement.

[thomase]

Vanguard and the boglehead's investing concepts are a threat to the livelihood of this sales person hence the irrational attacks. I wouldn't bother to debate the sales person, just say you're not interested and leave it at that. It use to really bother me when folks I knew would say they bought or sold something because they saw it was trending up or down, these are folks that would buy a stock then sell it a day or two later. But you can't save the world, nor do you need to convert everyone to be a boglehead.

[Cody]

You are all so helpful. And I appreciate that greatly.

Ok then, how do I actually go about an inquiry into fixed annuities? I started with Vanguard and the fellow there was greatly different in his approach to helping me. Knowledgeable and not pushy at all. I have to return his call Monday.

But there are other companies I should probably contact. How do I avoid my original post problem with them?

Best,
Cody

[sscritic]

When I get on a call like that I immediately start moving the phone away from my ear and as my finger starts to engage the disconnect button I say either:

"No, thank you", or

"I'm not interested"

I never hear what they say next.

It takes less than five seconds and leaves no lingering feelings, at least on my part.

This works when they call you, but I understood the OP called them or invited the call.

went online to see if I could get several different "offers".

However the last phone conversation was flat out awful.

If I call someone else, I feel some obligation to listen for at least a while.

[pkcrafter]

If you interested in a SPIA (single payment immediate annuity) the question of Vanguard should have never come up. Don't waste your time with anyone who tries to change the subject.

Did you check here? I don't think anyone will call you.

http://www.immediateannuities.com/


Paul

[Watty]

If vanguard has a fund with 400% turnover it is irrelevant, it is only funds that you hold that matter (and 400% turnover is also not relevant any way)

It is meaningless

A short term bond fund that investing in 90 day securities would turn over 4 times a year.

One good thing about the guy was that he was so bad at his sales job. Some of them can be pretty slick.

[pingo]

Thanks for this. So do the Morningstar charts always include all expenses of the fund? I'm comparing some actively managed funds to Vanguard's indexes and was curious about this. I couldn't find this info on the Morningstar webpage.

Morningstar charts will include regular expenses extracted in the form of expense ratios, as well as income from dividends/capital gains/etc. They will not account for excess one-time expenses such as Loads or early withdrawal penalties. Taxes are also (understandably, since it is not possible without knowing the exact situation) not addressed in their charts.

No Vanguard funds have Loads, FYI. Some international funds do have purchase fees, withdrawal fees, and/or early withdrawal penalties.

Other than the exceptions Kenyan points out, the expenses are included in Morningstar fund returns, especially asset turnover. If I understand correctly, no one even has to subtract the transaction costs of asset turnover from a fund's return. Rather, the fund pays the costs of transactions from money in the fund, which results in less money in the fund. Whatever's left is the fund's return, so returns from a source like M* will always be net of turnover.

It's like a pitcher of water: we just look at the water inside the pitcher. Water that has been poured out is not there for us to measure.

The calculations (or digging into SAI's or whathaveyou) that M* has to do is in order to figure out what a fund's asset turnover is, so that we can have an accurate understanding of unseen costs that produce a drag on returns. That, however, is an additional step they have to take. It is not one that is taken to accurately measure fund returns. (At least, that is how I understand it.)

As we're seeing in this thread, bond funds tend to have high turnover by nature. Compare Vanguard bond funds to Pimco bond funds and I'm sure sure you'll get an idea what high turnover really is.