Is Wells Fargo misleading my friend?
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Is Wells Fargo misleading my friend?
This portfolio was made for a friend who inherited money, by a Wells Fargo financial advisor in Ohio. He's in his late twenties.
40% WASCX
20% KEY
20% IDV
20% MDY
Is this a reasonable portfolio? Thanks Bogleheads!
40% WASCX
20% KEY
20% IDV
20% MDY
Is this a reasonable portfolio? Thanks Bogleheads!
Re: Is Wells Fargo misleading my friend?
Never mind, those may be things you are not accustomed to looking up.
Those are not funds that people here would suggest. The first one has a high expense ratio and a load (the investing fees are high), a lot of turnover, and a great deal of risk. The others are not so bad, but still are not things that fit into how most of the people here invest. It also does not have any bonds or other fixed income assets. And the tiny percentage of bonds (in the first fund) are mostly junk bonds.
If your friend is interested in Boglehead investing, have Him/Her check out this site and our wiki, starting here. http://www.bogleheads.org/wiki/Getting_started
I would stop short in saying it is a bad portfolio - it is just not the way people here invest.
Those are not funds that people here would suggest. The first one has a high expense ratio and a load (the investing fees are high), a lot of turnover, and a great deal of risk. The others are not so bad, but still are not things that fit into how most of the people here invest. It also does not have any bonds or other fixed income assets. And the tiny percentage of bonds (in the first fund) are mostly junk bonds.
If your friend is interested in Boglehead investing, have Him/Her check out this site and our wiki, starting here. http://www.bogleheads.org/wiki/Getting_started
I would stop short in saying it is a bad portfolio - it is just not the way people here invest.
Last edited by retiredjg on Thu Oct 23, 2014 5:42 pm, edited 1 time in total.
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Re: Is Wells Fargo misleading my friend?
For those as baffled as me:retiredjg wrote:I would stop short in saying it is a bad portfolio - it is just not the way people here invest.
40% WASCX Ivy Asset Strategy C WASCX, Morningstar four star performance, analyst rating neutral, expenses 1.68% which Morningstar calls "low," world allocation class, 21% cash 39% U.S. stock, 22% Non US stock, 6% bond, 13% "other"
20% KEY-- what's this? An individual stock, in KeyCorp, the bank holding company? That can't be right, can it?
20% IDV--iShares International Select Dividend, 0.50% ER
20% MDY--SPDR S&P MidCap 400, 0.25% ER
I would raise two red flags.
1) What is KEY? Did this advisor seriously put 20% of the portfolio into one single stock of one single company--there are several with that ticker symbol but presumably KeyCorp, the bank? Please tell me there's a typo somewhere and it's an ETF. If the advisor really recommended that a young person with no other individual stock holdings--as opposed to a somewhat diversified portfolio of 12-15 stocks... well, yeah, I'd be concerned about that.
2) Does your friend understand clearly that his portfolio is 85% stocks? Not that that's unreasonable, but does he understand it? Does he understand that he has the typical risks of "the stock market?"
For example, does he understand clearly that during 2008-2009,
WASCX dropped 33%,
KEY, if that's KeyCorp, dropped 77%,
IDV dropped 62%,
MDY dropped 52%.
AND THEREFORE his total portfolio--let's leave out KEY, I just don't know what that is--would have dropped 45%? If KEY is really the bank stock, then 52%.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Is Wells Fargo misleading my friend?
Of course Nisiprius is correct.
There are red flags all over the place...to a Boglehead. However, I try not to be too critical about subjects I don't know much about. That would include this portfolio. I could think it is a really bad idea (I do) but there could be redeeming factors I don't know about since this is so different from things that I understand.
And if KEY is an individual stock (I thought it was an ETF - no wonder things didn't make sense) Nisi is really correct that putting 20% of a portfolio into one individual stock is nuts.
However, I think this is a lost cause as my reading of the original post is that this is a done deal. But maybe not. If this isn't done already, encourage your friend to spend some time here before doing anything along the lines of that portfolio idea.
There are red flags all over the place...to a Boglehead. However, I try not to be too critical about subjects I don't know much about. That would include this portfolio. I could think it is a really bad idea (I do) but there could be redeeming factors I don't know about since this is so different from things that I understand.
And if KEY is an individual stock (I thought it was an ETF - no wonder things didn't make sense) Nisi is really correct that putting 20% of a portfolio into one individual stock is nuts.
However, I think this is a lost cause as my reading of the original post is that this is a done deal. But maybe not. If this isn't done already, encourage your friend to spend some time here before doing anything along the lines of that portfolio idea.
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Re: Is Wells Fargo misleading my friend?
I wouldn't worry so much about convincing him to change, but I would try to get him to understand his portfolio.
For example if he really has 20% of his portfolio in a single stock, and it's not just one in a "diversified portfolio of many single stocks" strategy... well... he should be reading the annual report he gets, and following news stories about KeyCorp.
For example if he really has 20% of his portfolio in a single stock, and it's not just one in a "diversified portfolio of many single stocks" strategy... well... he should be reading the annual report he gets, and following news stories about KeyCorp.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Is Wells Fargo misleading my friend?
This "adviser" from WF is a broker dealer. I heard one of their advisers give a talk a while back and he was terrible! This portfolio's four investments were just thrown together with no thought to long term growth, low costs and diversification (Are we kidding!). Broker dealers are not trained in asset allocation and certainly will not sell you non commissioned, low cost index funds that track the domestic and entire world markets. Your friend needs help from a genuine fiduciary adviser. You can do him a huge favor and help him find one from the National Association of Personal Financial Advisers or Garrett Planning Networks.
Never in the history of market day-traders’ has the obsession with so much massive, sophisticated, & powerful statistical machinery used by the brightest people on earth with such useless results.
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Re: Is Wells Fargo misleading my friend?
Yeah thats KEY corp. Why I don't know. Thanks for the input. Any idea what these particular funds have to do with Wells Fargo?
This is what I sent him:
This is what I was afraid of. The largest percent of your investment is rather dubious. Its lost 6.58 percent ytd. It also has a fee (expense ratio) of 1.68. You are paying nearly 2 percent annually for [(lousy) - admin LadyGeek] returns and dividends. The fund I mentioned (VTSAX) is up 4.78% YTD, has a .05% fee, and has a 1.78% dividend yield vs .03. All of these things are HUGE factors. Of course one year is not that great a sample. Attached is a pic of both funds performance directly compared VTSAX in yellow, WASCX in blue.
The KEY stock doesn't make sense to me either. 20% of your money should not be in one stock. And why Key Bank? I'm at a loss. On the bright side MDY is a solid choice.
I am by no means an expert but I'm pretty certain Wells Fargo doesn't have your best interests in mind. As far as I've read, this sort of thing is very common at banks. Many people recommend a consultation with a fee ONLY fiduciary (financial advisor), because they are much more likely to give you unbiased advice. I didn't find it was necessary for me, but I've had a ton of help from my dad on this. Alternatively you can call Vanguard and tell them your situation and see what they recommend. There are many variables involved with this and if you have a significant amount invested, I think it would be worth spending money on the fiduciary.
This is what I sent him:
This is what I was afraid of. The largest percent of your investment is rather dubious. Its lost 6.58 percent ytd. It also has a fee (expense ratio) of 1.68. You are paying nearly 2 percent annually for [(lousy) - admin LadyGeek] returns and dividends. The fund I mentioned (VTSAX) is up 4.78% YTD, has a .05% fee, and has a 1.78% dividend yield vs .03. All of these things are HUGE factors. Of course one year is not that great a sample. Attached is a pic of both funds performance directly compared VTSAX in yellow, WASCX in blue.
The KEY stock doesn't make sense to me either. 20% of your money should not be in one stock. And why Key Bank? I'm at a loss. On the bright side MDY is a solid choice.
I am by no means an expert but I'm pretty certain Wells Fargo doesn't have your best interests in mind. As far as I've read, this sort of thing is very common at banks. Many people recommend a consultation with a fee ONLY fiduciary (financial advisor), because they are much more likely to give you unbiased advice. I didn't find it was necessary for me, but I've had a ton of help from my dad on this. Alternatively you can call Vanguard and tell them your situation and see what they recommend. There are many variables involved with this and if you have a significant amount invested, I think it would be worth spending money on the fiduciary.
Re: Is Wells Fargo misleading my friend?
If he has not yet made the investments suggest that he open a Vanguard account, put all the money in money market account, then at his convenience contact a Vanguard advisor for suggestions. To rely on a stock broker from a commercial bank like Wells Fargo almost as bad as taking advice from an Edward Jones advisor who knocked on your door.
Re: Is Wells Fargo misleading my friend?
It is not so much Wells Fargo as the salesrep working there. He could go just about anywhere and get advised to invest in one of many dubious portfolios.
Re: Is Wells Fargo misleading my friend?
The extra red flag here is C shares, which carry a 1% 12b(1) fee. (This is why M* calls the fee low; these C shares are compared to other C shares.) A 12b(1) fee is a fee which funds charge for marketing (and much of it will go to the advisor here); unlike the fees paid to the fund manager, it is not for the benefit of the shareholders who must pay it.nisiprius wrote:For those as baffled as me:retiredjg wrote:I would stop short in saying it is a bad portfolio - it is just not the way people here invest.
40% WASCX Ivy Asset Strategy C WASCX, Morningstar four star performance, analyst rating neutral, expenses 1.68% which Morningstar calls "low," world allocation class, 21% cash 39% U.S. stock, 22% Non US stock, 6% bond, 13% "other"
This fund is only appropriate for a long-term investment, and for a long-term investment (eight years or more), the C shares are guaranteed to underperform the A shares (which have an up-front charge but much lower ongoing fees). Thus this advisor has probably proven that he doesn't have the investor's interests in mind. (I got a "free" consultation with an advisor once who gave me a similar recommendation.)
Re: Is Wells Fargo misleading my friend?
I agree that he has no business selling C class shares! One% 12b-1 fees, just for his benefit!grabiner wrote:The extra red flag here is C shares, which carry a 1% 12b(1) fee. (This is why M* calls the fee low; these C shares are compared to other C shares.) A 12b(1) fee is a fee which funds charge for marketing (and much of it will go to the advisor here); unlike the fees paid to the fund manager, it is not for the benefit of the shareholders who must pay it.nisiprius wrote:For those as baffled as me:retiredjg wrote:I would stop short in saying it is a bad portfolio - it is just not the way people here invest.
40% WASCX Ivy Asset Strategy C WASCX, Morningstar four star performance, analyst rating neutral, expenses 1.68% which Morningstar calls "low," world allocation class, 21% cash 39% U.S. stock, 22% Non US stock, 6% bond, 13% "other"
This fund is only appropriate for a long-term investment, and for a long-term investment (eight years or more), the C shares are guaranteed to underperform the A shares (which have an up-front charge but much lower ongoing fees). Thus this advisor has probably proven that he doesn't have the investor's interests in mind. (I got a "free" consultation with an advisor once who gave me a similar recommendation.)
Re: Is Wells Fargo misleading my friend?
I thought C shares had a back end load. I found that confusing since there is a front end load as well, but it is relatively small compared to some.
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Re: Is Wells Fargo misleading my friend?
Class C share funds,,I have owned them myself many years ago when I was an uninformed investor and relied on a broker. I have no regrets ,It was what I thought was right at the time .Anyway the class C share fund is not advisable for a long term investment,expensive,expensive.
" c-share is much different. There is no front-load but in order to compensate the broker, the fund charges a higher 12b-1 fee. In the case of the ICA c-share, the 12b-1 fee is 1%. This 1% is charged for as long as you own the fund"
http://allfinancialmatters.com/2010/04/ ... -c-shares/
" c-share is much different. There is no front-load but in order to compensate the broker, the fund charges a higher 12b-1 fee. In the case of the ICA c-share, the 12b-1 fee is 1%. This 1% is charged for as long as you own the fund"
http://allfinancialmatters.com/2010/04/ ... -c-shares/
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Re: Is Wells Fargo misleading my friend?
Usually not necessary to even look in detail at the portfolio in these cases...
This guy is a Broker, his/her job is to make money for his firm, and sell your friend their bonused/goal stuff anyway he can; stuff that meets only very poor regulatory standard called "suitability".
A Broker is typically no better for your wallet than a used car salesman at a buy here pay here lot. In fact some of the best brokers started selling cars... It is a selling job. These folks are just better dressed and perhaps a little bit better in arithmetic and presentation skills then the typical car guys.
He under NO obligation to take care of your friend properly.
He did not do a good job. But yeah, putting him in reputable, professionally audited stock mutual funds is suitable.
In all probability investing a single stock is not suitable. But we do not know all the facts of what your friend told him.
Ignorance is expensive.
This guy is a Broker, his/her job is to make money for his firm, and sell your friend their bonused/goal stuff anyway he can; stuff that meets only very poor regulatory standard called "suitability".
A Broker is typically no better for your wallet than a used car salesman at a buy here pay here lot. In fact some of the best brokers started selling cars... It is a selling job. These folks are just better dressed and perhaps a little bit better in arithmetic and presentation skills then the typical car guys.
He under NO obligation to take care of your friend properly.
He did not do a good job. But yeah, putting him in reputable, professionally audited stock mutual funds is suitable.
In all probability investing a single stock is not suitable. But we do not know all the facts of what your friend told him.
Ignorance is expensive.
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Re: Is Wells Fargo misleading my friend?
Thanks for the input. I will link this discussion to my friend and hope he decides to change course.
Re: Is Wells Fargo misleading my friend?
C shares usually have a 1% redemption fee if sold within one year. Traditional back-end load shares (B shares) have a much higher redemption fee, typically slightly more than enough to compensate for the 12b(1) fees that you do not pay on the B shares by selling them before until they convert to A shares.retiredjg wrote:I thought C shares had a back end load. I found that confusing since there is a front end load as well, but it is relatively small compared to some.
Re: Is Wells Fargo misleading my friend?
At least B shares eventually turn into A shares after x years, thus gaining the lower cost of owning A shares (once load is a sunk cost).
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Re: Is Wells Fargo misleading my friend?
I think the "20% in a single stock" is the really disturbing part. Since this is "inherited money" I'm assuming it is a reasonably substantial sum... and come to think of it, these days, isn't it perfectly reasonable to buy odd lots?
In a portfolio of, let's say, $100,000 or more, I can't think of any sensible reason for putting 20% of a substantial portfolio all into a single stock--as opposed to, let's say, 4% in each of five different stocks (even Jim Cramer says you need five!)
I mean, I might make an exception if the single stock were Berkshire Hathaway. I'd say "That's not my thing, I think it's a mistake, but it's not crazy." But all of it in the stock of
a) one
b) bank?
All in the financial sector? And not even a financial sector mutual fund or ETF?
That's crazy.
If there is a sensible reason, the advisor should have given the client such a nice, clear, coherent explanation that the client should be able to repeat the explanation.
In a portfolio of, let's say, $100,000 or more, I can't think of any sensible reason for putting 20% of a substantial portfolio all into a single stock--as opposed to, let's say, 4% in each of five different stocks (even Jim Cramer says you need five!)
I mean, I might make an exception if the single stock were Berkshire Hathaway. I'd say "That's not my thing, I think it's a mistake, but it's not crazy." But all of it in the stock of
a) one
b) bank?
All in the financial sector? And not even a financial sector mutual fund or ETF?
That's crazy.
If there is a sensible reason, the advisor should have given the client such a nice, clear, coherent explanation that the client should be able to repeat the explanation.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Is Wells Fargo misleading my friend?
I'm wondering if OP's friend inherited the KeyCorp shares and told the advisor that he wanted to hold onto them. Maybe the advisor talked OP's friend down from a much higher allocation to KEY? I'm not saying the portfolio's good, but it might be much better than 100% KEY! The advisor recommending putting new money imto KEY just doesn't make sense when he can get away with C shares and other things he's (presumably) much more highly incentivized to sell.nisiprius wrote:I think the "20% in a single stock" is the really disturbing part. Since this is "inherited money" I'm assuming it is a reasonably substantial sum... and come to think of it, these days, isn't it perfectly reasonable to buy odd lots?
In a portfolio of, let's say, $100,000 or more, I can't think of any sensible reason for putting 20% of a substantial portfolio all into a single stock--as opposed to, let's say, 4% in each of five different stocks (even Jim Cramer says you need five!)
I mean, I might make an exception if the single stock were Berkshire Hathaway. I'd say "That's not my thing, I think it's a mistake, but it's not crazy." But all of it in the stock of
a) one
b) bank?
All in the financial sector? And not even a financial sector mutual fund or ETF?
That's crazy.
If there is a sensible reason, the advisor should have given the client such a nice, clear, coherent explanation that the client should be able to repeat the explanation.
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Re: Is Wells Fargo misleading my friend?
Suggest that your friend read some good, short book on general investing such as Common Sense on Mutual Funds or The New Coffeehouse Investor. Suggest that he not do anything until he has read the book.
Warn your friend about the high fees and lack of diversification in the Wells Fargo proposal, and that they are not looking out for his best interests.
Warn your friend about the high fees and lack of diversification in the Wells Fargo proposal, and that they are not looking out for his best interests.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
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Re: Is Wells Fargo misleading my friend?
Perhaps you can also read and recommend a short 16-page booklet that is free online (or at Amazon.com with good reviews):
If You Can: How Millennials Can Get Rich Slowly by William Bernstein, a Boglehead who has written other investing books as well.
http://www.etf.com/docs/IfYouCan.pdf
Especially note Hurdle Number Five!
PBS has a good 1-hour video on the cost of high-cost funds (401k emphasis):
http://www.pbs.org/wgbh/pages/frontline ... nt-gamble/
Especially watch the 2nd half, which shows the cost of high fees over time, and the way compounding affects the increase over time.
If You Can: How Millennials Can Get Rich Slowly by William Bernstein, a Boglehead who has written other investing books as well.
http://www.etf.com/docs/IfYouCan.pdf
Especially note Hurdle Number Five!
PBS has a good 1-hour video on the cost of high-cost funds (401k emphasis):
http://www.pbs.org/wgbh/pages/frontline ... nt-gamble/
Especially watch the 2nd half, which shows the cost of high fees over time, and the way compounding affects the increase over time.
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Re: Is Wells Fargo misleading my friend?
I wondered about that, too, but it seemed odd that the allocation would be precisely 20%. It might be as you said if the "inheritance" was entirely KEY stock, for example. I hope the original poster will talk to his friend and resolve this point.NightOwl wrote:...I'm wondering if OP's friend inherited the KeyCorp shares and told the advisor that he wanted to hold onto them. Maybe the advisor talked OP's friend down from a much higher allocation to KEY? I'm not saying the portfolio's good, but it might be much better than 100% KEY! The advisor recommending putting new money imto KEY just doesn't make sense when he can get away with C shares and other things he's (presumably) much more highly incentivized to sell...
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.