Hello fellow Bogleheads. I am mostly a lurker, but once again I need some help, so I am turning to y'all:
My wife and I had been working with an 'independent' Ameriprise financial advisor for the last 10 years or so. We were actually quite satisfied with the advice and the performance of our investments (exceeding every benchmark I can think of by a couple of percentage points). Our advisor retired last year, and sold his customers to a younger guy in the same office. The new guy is definitely less of an 'advisor' and more of an 'investment manager'.
During our last meeting, I raised two points, and I was not at all satisfied with his answers. I am very certain that "I'm right and he is wrong", but it would be very helpful if some more wiser folks here could chime in...
1. We are in a wrap account with an asset-based fee, paying 0.75%. Given the size of our portfolio, I asked him to lower it to 0.5% (which we had agreed to with our old advisor upon hitting a level of assets under management). He went into a detailed presentation about the different classes of mutual fund shares (front load, deferred load, but never mentioning no-load). He said that by having our funds in the wrap account, we pay no front-end or deferred loads (which I know is true), and we also do not pay the fund's management fee, but only his fee (the 0.75%). This last part really threw me off. "Do you mean to tell me that we are paying a lower expense ratio than what is listed in the prospectus for the class of shares we own?" I even pulled out an old prospectus for a bond fund, pointed to the 0.8% "Management Fee" and asked "do you mean to tell me we are not paying this 0.8% on this fund? His answer "Yes". At this point I was still very confused, so I asked "So, if I looked at the performance of this fund over the years, the performance of the shares in my account would be better than what is listed in the prospectus for the same class of share over the same time period" ...."Yes"
I just cannot get this through my head. If I understand mutual funds correctly, the management fee is just part of the fund's expenses, and it reduces the performance of the fund's shares. If you own 100 shares of ABCDX at JoesBrokerage.com and I own 100 shares of ABCDX in my fancy Ameriprise account, will they not always have the same NAV and therefore the same percentage growth/decline over time? ...maybe you had to pay more for your 100 shares because of the 5.25% sales charge, but once we own the same number of shares, they don't change value based on who owns them!
I asked him to provide me something in writing explaning this, and he said he would forward something to me....it's only been a few days, but I am extremely curious to see what he'll send.
Maybe he was trying to say that without being in the wrap account I just could not have bought that class of shares without the 5.25% front end fee? -- My wife was with me the whole time, and we just can't figure out if he was just not explaining himself well, if he was outright lying, or if he just doesn't understand how a mutual fund's expenses affect the NAV (I don't know which one is worse) ...of course, I could just be wrong, too...
2. The second point was about mutual fund performance. I noticed one fund he had suggested last year has performed poorly over the last 3, 5 and 10 year period (according to the prospectus). The fund is JCMAX. During our meeting, he brought up the fund performance screen in his Ameriprise website (which is different from what I have access to). According to Ameriprise, JCMAX has outperformed the 'midcap' benchmark for the last 3, 5 and 10 years. In addition, it shows it is near the top rated funds for its category with Morningstar. We did this exercise with two or three funds I had looked at, where according to the prospectus it had under-performed the benchmark (clearly defined in the prospectus), but according to the Ameriprise 'research' website, it had over-performed their nebulous benchmark (i.e., website performance numbers match the prospectus, but the benchmark numbers do not). By nebulous I mean they don't call out a specific index (for example "Russell Mid-Cap Index"), but rather say something like "Real Estate", or "Large Cap", etc. He could not really explain what the actual benchmark was or why it was different than what the mutual fund company itself publishes in the prospectus.
I will admit I am not an expert in finance, but I am an engineer and I know all about comparing expected, measured and published specifications. Is it unreasonable to think that if a mutual fund whose objective is to invest in mid-cap companies is underperforming the Russell Mid-Cap index, it kind of [stinks --admin LadyGeek]
? (even if Morningstar thinks it's a great fund?)
Again, looking at our account's historical performance, I can honestly say that our old advisor deserved every penny we paid him, but I am not so sure about the new guy. Am I being overly paranoid, or is it time to move on?
Thanks for the advice, especially if you read all the way down here!