Should I just fire this Advisor?

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Should I just fire this Advisor?

Postby MONSFDMM » Wed May 22, 2013 1:02 am

Hi - getting back to investing after not being able to pay attention for the last few years. Historically always used plain old Vanguard and started to move into a few other things. Met with a financial advisor and he has proposed the following alphabet soup of funds that appear to be loaded with front end costs and my sense is that is just not right. Nothing here I could not create myself with some diligence and Vanguard. Would welcome any feedback/perspective.

39yr old male in CA with stay at home wife/3kids below 8 so many years of investing/retirement funding/college to go.

He is a good guy but the funds are 1) too many, 2) too loaded with costs, 3) seem designed to go through his brokerage preffered relationships.

Many thanks for your perspective and I'm about to set off reading all the Wiki pages.

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Re: Should I just fire this Advisor?

Postby Savvy » Wed May 22, 2013 1:07 pm

Hello and welcome to the forum!

He is trying to make it complicated but it doesn't need to be.

Ask him if he is a fiduciary and ask him what that means.
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Re: Should I just fire this Advisor?

Postby WHL » Wed May 22, 2013 1:11 pm

Run away, block his email and phone number, and read here!
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Re: Should I just fire this Advisor?

Postby chaz » Wed May 22, 2013 1:11 pm

Look at the forum wiki.

Good luck.
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Re: Should I just fire this Advisor?

Postby dhodson » Wed May 22, 2013 1:15 pm

the question is what value is he bringing to the table?

if he isnt helping you at least stay the course (which i would doubt) then likely he isnt bringing much.

All of these people seem like nice folks. If they didnt then you wouldnt have initially hired them.
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Re: Should I just fire this Advisor?

Postby ogd » Wed May 22, 2013 1:22 pm

The sad truth is that this "good guy" is a salesman who is trying to make the most he can out of your relationship. The loads in particular are inexcusable. I second the recommendation to run as fast as you can.
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Re: Should I just fire this Advisor?

Postby Rolyatroba » Wed May 22, 2013 1:29 pm

Yes...read here as an earlier post mentioned, but if you don't have a lot of time, go to the wiki and look at the Boglehead Investment Philosophy, then check out the Lazy Portfolios page. If you have a little more time study up on Asset Allocation (primarily to figure out your own), and Tilting.

Seriously, those funds have what most here would consider horrifying loads and annual expenses, and if you were able to get historical data on the funds, I'd bet all of the Lazy Portfolios would beat over 10+ years.

Edit: Increase the importance of what I said on Asset Allocation...put that in between Investment Philosophy Lazy Portfolios. :)
Last edited by Rolyatroba on Wed May 22, 2013 1:44 pm, edited 1 time in total.
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Re: Should I just fire this Advisor?

Postby Dale_G » Wed May 22, 2013 1:38 pm

MONSFDMM - you don't indicate the percentages that the advisor suggests, but it doesn't make any difference. The multitude of funds is designed to make investing look complicated. It is an attempt to make you dependent on the "wisdom" of the advisor.

.... my sense is that is just not right. Nothing here I could not create myself with some diligence and Vanguard.

Edit: Actually you don't want to create anything that looks like the advisor suggested!

Your suspicions correct. In this day and age there is no need to pay loads or high expense ratios - especially for a gobbledygook portfolio.

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Last edited by Dale_G on Wed May 22, 2013 1:41 pm, edited 1 time in total.
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Re: Should I just fire this Advisor?

Postby BolderBoy » Wed May 22, 2013 1:41 pm

WHL wrote:Run away, block his email and phone number, and read here!

+2
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Re: Should I just fire this Advisor?

Postby prudent » Wed May 22, 2013 1:49 pm

I know what I would say. I wouldn't try to debate specific fund selections or complain about loads. I would just say, "Wow, this is a lot more complicated than I expected. I really am not comfortable with something that elaborate. Thanks for your input, but I've decided I"m just going to stick with my three fund portfolio at Vanguard because it's simple and easy for me to understand, and I will still be able to do my own taxes. Sorry for taking up your time, I should have realized the only thing I would be comfortable with is my simple basic portfolio."
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Re: Should I just fire this Advisor?

Postby RNJ » Wed May 22, 2013 2:02 pm

Do people really still pay - - uh, what are they called again? Loads? :wink:

You can do better. So yes, fire him.
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Re: Should I just fire this Advisor?

Postby matjen » Wed May 22, 2013 2:04 pm

Yes. Do it on your own or hire one of the many more reasonable financial advisers out there that will use low cost funds and would never think of a loaded fund.
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Re: Should I just fire this Advisor?

Postby HomerJ » Wed May 22, 2013 2:13 pm

Those expense ratios are very high...

And there's way too many funds...

You can get a ton of diversification with just 3 Vanguard funds...

Total Stock Market Index - 0.05% expenses
Total International Stock Market Index - 0.16% expenses
Total Bond Market Index - 0.10% expenses

If you have $100,000 invested in Total Stock Market Index, you pay $50 a year in expenses...
Most of your stock funds above charge $1000 or more....

That's 20x as much...

That's a huge difference... Now, if those funds consistently beat TSM by 1% or more, then the fees would be worth it... But they don't... 30% of funds may beat TSM each year, but it's rarely the SAME funds. In the long run, investing in TSM is cheaper AND is more likely to give better returns.

Again, think about those expenses in these terms... Your goal is to make 5%, maybe 7%, maybe even 9% a year right? Giving away 1% of that gain to the mutual funds is huge... That's like giving away 11%-20% of your gains each year... Those international funds take away nearly 2%... That's insane.

Read some books on the wiki, and you'll find you can easily do it yourself with a passive simple investments
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Re: Should I just fire this Advisor?

Postby Tortoise » Wed May 22, 2013 2:14 pm

Not only do many of these funds come with front end loads, but their expense ratios are high. Consider Vanguard Total Stock Market Admiral shares (with over $10k in account) has ER of 0.05% and Vanguard FTSE All-World ex-US Index Fund Admiral shares has ER of 0.15%.

As others have said, this advisor is not your friend. He is a salesman.
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Re: Should I just fire this Advisor?

Postby retiredjg » Wed May 22, 2013 2:20 pm

Welcome to the forum!

...but the funds are 1) too many, 2) too loaded with costs, 3) seem designed to go through his brokerage preffered relationships.

Yes, yes, and yes. Your instincts are right. You can do much better than this.
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Re: Should I just fire this Advisor?

Postby cheese_breath » Wed May 22, 2013 2:30 pm

MONSFDMM wrote:He is a good guy

No he's not. He's trying to take advantage of you for his benefit. Beware, we all have a tendency to trust 'good guys' more than 'bad guys' and more susceptible to them taking advantage of us.
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Re: Should I just fire this Advisor?

Postby nisiprius » Wed May 22, 2013 3:14 pm

In my opinion:

There's not one good fund in that list, and I am including Vanguard Prime Money Market because there is no reason to have any kind of money market account when FDIC-insured internet savings accounts are paying 0.75%.

I believe that for every single fund in that list, if you wanted a fund in that category, you could find a good, solid, name-brand mutual fund or ETF with no load and with a significantly lower expense ratio. And I don't mean just at Vanguard, either. This is not a recommendation, but, just for example, the expense ratio on Fidelity Contrafund (a classic example of a star-manager beat-the-market five-star stock fund) is "only" 0.74%.

And the funds don't make sense. This isn't some sophisticated DFA-like slice-and-dice portfolio, this is some weird... stuff. Full of weird things like bets on single regions (Pacific) and even single countries (China).

As for loads, read this and then guess when it was written:
Conventional mutual funds may be the only firms in town which, if they raised the price of their merchandise, would sell more of it. The reason is that built into the price of each share is a hefty sales commission that has proved, over the years, to be a powerful incentive to a legion of hard-selling salesmen….

No-load funds in general are no better than load funds in general, but the point is—as proved year after year by Forbes magazine and others—that they are no worse either. Why anyone would want to invest $1,000, say, in a load fund, knowing that only $920 of it will go to work for him, when he could invest the same amount in a no-load and see the whole $1,000 invested, is beyond us.
Highlight this text to read the answer more clearly: Charles and Susan Ellis, New York magazine, 1972.
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Re: Should I just fire this Advisor?

Postby NHRATA01 » Wed May 22, 2013 3:54 pm

Ugh, Ivy Asset A....that was the wonder my adviser had me in during the early years of my Roth IRA before I started doing research and took the reigns myself (I now have a 4-fund Vanguard index portfolio - the 3 above + REIT). One year when I finally took a close look at the statement and saw the fees, thanks to the sales load, of $280 off my 5K I said this is stupid, there's got to be a better way. And sure enough, thanks to research and stumbling on this forum, there is.

Also some of his choices make no sense from a redundancy standpoint - is it really necessary to have 2 separate CA muni funds? Or 2 money market cash funds???

I echo the sentiments, tell him thanks but no thanks.
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Re: Should I just fire this Advisor?

Postby EmergDoc » Wed May 22, 2013 3:57 pm

If you're going to use an advisor, get one authorized to use DFA funds and pay him a flat fee or a fee based on assets under management.

If you're not, buy Vanguard index funds.

Lose this guy.
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Re: Should I just fire this Advisor?

Postby Grt2bOutdoors » Wed May 22, 2013 4:00 pm

First glance - why are you paying an upfront sales charge?

Second glance - if you are paying anything more than 0.25 bps for ANY fund, you are paying way too much!

Third thought - Where is your financial advisor's yacht parked? Have you been to his house? Is there Cristal in the refrigerator? Did you get a postcard from his last vacation jaunt? Guess what? You paid for all of it!!

Start reading the wiki - especially some of the books on the recommended list - I recommend Larry Swedroe's The Only Guide to a Winning Investment Strategy. and Dr. Bernstein's Four Pillars of Investing. Followed by Rick Ferri's All About Asset Allocation. After reading those three - you will know more about investing than your financial advisor does.
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Re: Should I just fire this Advisor?

Postby lawman3966 » Wed May 22, 2013 4:02 pm

Since you're smart enough to come to this site and ask for guidance here, I'm surprised that you even have to ask.

5% loads and 1.8% ERs?? I give myself credit for not losing my lunch upon reading that.

I endorse blocking this guys email, phone number, Twitter account, and any other means he might have of spreading these toxic ideas to you.

You'll save yourself the price of a house by the time you retire if you just go with the 3-fund portfolio over your advisor's proposed nonsense.
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Re: Should I just fire this Advisor?

Postby Grt2bOutdoors » Wed May 22, 2013 4:02 pm

HomerJ wrote:Those expense ratios are very high...

And there's way too many funds...

You can get a ton of diversification with just 3 Vanguard funds...

Total Stock Market Index - 0.05% expenses
Total International Stock Market Index - 0.16% expenses
Total Bond Market Index - 0.10% expenses

If you have $100,000 invested in Total Stock Market Index, you pay $50 a year in expenses...
Most of your stock funds above charge $1000 or more....

That's 20x as much...

That's a huge difference... Now, if those funds consistently beat TSM by 1% or more, then the fees would be worth it... But they don't... 30% of funds may beat TSM each year, but it's rarely the SAME funds. In the long run, investing in TSM is cheaper AND is more likely to give better returns.

Again, think about those expenses in these terms... Your goal is to make 5%, maybe 7%, maybe even 9% a year right? Giving away 1% of that gain to the mutual funds is huge... That's like giving away 11%-20% of your gains each year... Those international funds take away nearly 2%... That's insane.

Read some books on the wiki, and you'll find you can easily do it yourself with a passive simple investments


Or in Jack Bogle's words : You put up 100% of the Capital, take 100% of the Risk, you get back 30% of the Returns. The other 70% went to the croupier at the casino (the investment manager, the financial advisor, the tax man). Get out of the casino and become the "market".
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Re: Should I just fire this Advisor?

Postby Clearly_Irrational » Wed May 22, 2013 4:24 pm

Politely explain that his mean-variance optimizer appears to be broken and that you'll be looking elsewhere until it's fixed.
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Re: Should I just fire this Advisor?

Postby khh » Wed May 22, 2013 4:28 pm

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Re: Should I just fire this Advisor? -- Yes.

Postby Taylor Larimore » Wed May 22, 2013 4:43 pm

Monsfdmm:

Welcome to the Bogleheads Forum!

Research has shown that the best predictor of future (category) returns is "low cost" (it is not "past performance"). Morningstar admits that "low cost" is better than its Star Ratings for predicting mutual fund returns.

Your "advisor" (often a euphemism for salesperson), is picking high-expense funds for his benefit--not yours. I would ditch the so-called advisor. We have several fine low-cost advisors contributing to this forum (who would never recommend load funds) if you really need an advisor.

Investing seldom needs to be complicated. Consider this:

The Three Fund Portfolio

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Should I just fire this Advisor?

Postby StormShadow » Wed May 22, 2013 4:49 pm

Should I just fire this Advisor?

Yes

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Re: Should I just fire this Advisor?

Postby TomatoTomahto » Wed May 22, 2013 5:02 pm

In the past, it was probably customary to respond to such an insult to your intelligence by insisting on a duel. I would not dignify this with a response.

Mind boggling. Spend a few hours reading; you'll be ahead of the game.
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Re: Should I just fire this Advisor?

Postby playtothebeat » Wed May 22, 2013 5:17 pm

First, see if he'll buy you a nice lunch or dinner so that he can give you his presentation.

Second, tell him politely that you have done your due diligence and learned that index funds are the best way to go.

Third, look back at this moment 30 years later and go buy yourself something nice with all the extra money you'll have made by saving on fees.
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Re: Should I just fire this Advisor?

Postby likegarden » Wed May 22, 2013 7:41 pm

This 'advisor' probably will ask for a wrap fee around 1% in addition.
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Re: Should I just fire this Advisor?

Postby bottlecap » Wed May 22, 2013 9:56 pm

Yup. Yup. Yup.
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Re: Should I just fire this Advisor?

Postby gym4866 » Wed May 22, 2013 11:23 pm

I REGARD TO DALE G.'S COMMENT ABOUT HIGHT EXPENSE FEE'S. WHAT IS CONSIDERED A HIGH EXPENSE FEE ?? ( I'M CHANGING SOME THINGS AROUND AND THE FIDELITY ADVISOR I'M WORKING WITH HAS ME IN (PER MY REQUEST) SOME TOTAL INDEX FUNDS WITH LOW FEE'S BUT HAS ME IN SOME FEE'S THAT ARE COMING IN AT 0.75 AND O.77....WOULD THESE BE CONSIDERED HIGH ???
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Re: Should I just fire this Advisor?

Postby Duckie » Wed May 22, 2013 11:54 pm

gym4866 wrote:WHAT IS CONSIDERED A HIGH EXPENSE FEE ?? ( I'M CHANGING SOME THINGS AROUND AND THE FIDELITY ADVISOR I'M WORKING WITH HAS ME IN (PER MY REQUEST) SOME TOTAL INDEX FUNDS WITH LOW FEE'S BUT HAS ME IN SOME FEE'S THAT ARE COMING IN AT 0.75 AND O.77....WOULD THESE BE CONSIDERED HIGH ???

They are high for a taxable account or an IRA where you could have your accounts at any fund company. They are middling in an employer's plan where you're stuck with limited options. Unless you want something odd, Fidelity has inexpensive Spartan index funds that cover all the basics.
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Re: Should I just fire this Advisor?

Postby Mel Lindauer » Thu May 23, 2013 12:18 am

OMG! Yes, yes and yes. You can own a nicely-diversified portfolio in a single low-cost Vanguard Target target date fund. This stuff isn't rocket science as your current advisor (really salesperson) apparently wants you to think.

Say goodbye to him/her and say hello to Vanguard.
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Re: Should I just fire this Advisor?

Postby brxn » Thu May 23, 2013 12:18 am

If you know enough to be suspicious of this setup, and you know enough to come here looking for answers, then you are well-equipped to run all of this yourself. He is taking advantage of you for his own profit and you should immediately end the relationship permanently. Doesn't need to be a big deal and you don't owe him any explanation. This first step (deciding to educate yourself) is often the hardest ... congratulations!
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Re: Should I just fire this Advisor?

Postby Robert C F » Thu May 23, 2013 12:51 am

Without balances for accounts can only ballpark your expense ratio, looks like you are paying at least 1% and likely more in expense ratios.

You can set up an index portfolio for around 0.2%, which is likely to perform as well and maybe better.

Which means you are paying this "nice guy" and his employer at least 0.8% x your average balance per year (in good years and bad) for being nice. Wouldn't you rather have the money?

Take your money and run.

Vanguard has a "concierge" department that will make a three party call with you and your current brokerage service phone line and step you through the transfer of assets. Having the Vanguard rep on the phone with you cuts the hard sell they likely will give you if you do it on your own.

You don't mention which brokerage you are with, some have good index products (e.g. Fidelity). My former Fidelity "advisor" used every means of persuasion and obfuscation to dissuade me from using the lower cost Fidelity funds when I asked him about the Fidelity index products.

Remember car salesman also call themselves advisors and they are also nice. Best wishes!
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Re: Should I just fire this Advisor?

Postby StormShadow » Thu May 23, 2013 12:53 am

Mel Lindauer wrote:OMG! Yes, yes and yes. You can own a nicely-diversified portfolio in a single low-cost Vanguard Target target date fund. This stuff isn't rocket science as your current advisor (really salesperson) apparently wants you to think.

Say goodbye to him/her and say hello to Vanguard.

Also... buy the book co-authored by Mr. Lindauer: "The Bogleheads' Guide to Investing".
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