Merrill Lynch High Quality & Dividend Yield Screen

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pobox2001
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Merrill Lynch High Quality & Dividend Yield Screen

Post by pobox2001 »

Is anyone familiar with the ML High Quality & Dividend Yield screen to select stocks? Based on the results I've been provided, it seems to have consistently out performed the overall market. It's outside my normal investment routine to buy a basket of individual stocks, but with the dismal investment options, I'm looking at various options. If I invested in their strategy, it'd only be small (10-15%) percentage of the total portfolio. My account would be assessed a 1.25% management fee annually. I'm not sure yet the cost (if any) for the individual stock trades as their suggested portfolio adjusts throughout the year. Meeting with them soon to get more details.

Any opinions out there? Is it worth the cost? Any specific questions I should ask in our meeting?

Thanks and Happy New Year.
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nisiprius
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by nisiprius »

1.25%? Do you really believe a simple mechanical screen can "consistently" outperform the total market by more than 1.25%?

Personally, I would not attend the meeting. It is my belief that if you want to follow such a strategy, you should look for a mutual fund that embodies it. I would be suspicious that the reason they are talking about baskets of stocks instead of a dividend-and-"high quality"-oriented mutual fund is that a) it gives an illusion of exclusivity and personal attention, b) the 1.25% fees go to them instead of to a fund company, c) it obfuscates everything because mutual funds are required to present certain kinds of information in a nice, uniform, easy-to-compare way and I'll bet they are not presenting their stuff in a way that makes comparisons to a mutual fund easy or even possible. If I did attend, here are some questions I'd be asking.

a) If this strategy is so good, why isn't Merrill Lynch (i.e. why isn't Bank of America's mutual fund company, BlackRock), offering it in the form of a mutual fund?

b) How, exactly, is a "strategy" involving picking individual stocks going to be better than a mutual fund following a similar strategy?

There are 7000 or so mutual funds, and there are many that follow popular strategies. A mutual fund will often have fees lower than 1.25%. And due to regulatory requirements, there is all sorts of information available about mutual funds, in the same format and easily compared across funds. Typically mutual funds invest in hundreds of stocks (and, due to economies of scale, can afford to do so), while typically an individual investor can't afford the time, effort, or money to manage more than a couple of dozen, so mutual funds generally offer more diversification.

I personally am an indexer and total market investor so it's hard for me to get behind this stuff, but there are many respected funds that follow a high-dividend strategy. As for "high quality," gosharooney, who knows what "high quality" means? There's a firm named GMO that talks a lot about "high quality" stocks, but I'm not sure they pick them mechanically. What exactly is Merrill Lynch's definition of "high quality?"

c) Any mutual fund is going to show me total return, including dividends, and minus costs, for 1, 3, 5, and 10 years, plus a ten-year growth chart. Are they showing you comparable information for their stock screening strategy? If not, do they have it, and why haven't they shown it to you already?

d) What, exactly, is meant by "consistent?" It's easy to toss heads five times in a row. Any serious gambler or card-player has experienced the equivalent of ten heads in a row. If you are looking at "results I've been provided," they could just be showing you the one that happened to get ten heads in a row. As you may or may not be aware, once-legendary investor Bill Miller managed a mutual fund that beat the S&P index fifteen years in a row--and then in just a couple of years gave back all of its lead.

d) As for "consistent," do they have records showing that they have consistently recommended this particular screen to clients for a long time--let's say more than fifteen years, to rule out the Bill Miller effect; that the screen has not changed at all in this time; and that it has not just beaten the S&P, but has beaten it after taking out 1.25% per year in fees?

e) Does "beaten the S&P" mean total growth, including dividends? Are the figures they are showing you showing total growth, including dividends, minus costs (including that 1.25% fee)? That's what every mutual fund shows you and that's what you should be comparing against.

f) Here's a biggy. What about risk? As you should be aware, it is pretty easy to beat the S&P simply by investing a portfolio that is riskier than the S&P. Riskier portfolios go up more than the S&P when the S&P is going up, and go down more than the S&P when the S&P is going down. Return doesn't mean anything. Are they claiming greater risk-adjusted return than the S&P? Don't let them give you a verbal explanation of why they think their approach ought to reduce risk, look for a chart or for numbers.

My personal rough-and-ready risk metric is this: by what percentage did the fund drop between January 2008 to March 2009?

g) By the way, why do you need to pay 1.25% for a stock screener? Is this a secret tool that only their advisors are allowed to access?
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Taylor Larimore
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by Taylor Larimore »

Hi nisiprius:

Nice Reply about a company that had to be bought-out to avoid bankruptcy from their own bad investments.

The best investment decision we ever made was to move our investments from Merrill Lynch to Vanguard in 1986.

Happy New Year!
Taylor
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nisiprius
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by nisiprius »

Thanks, Taylor. "But, wait, there's more."

P.S. One final thought. I am not NOT NOT recommending or suggesting this fund, I know zippo about it, it just occurred to me to do some Googling and look it up on Morningstar. This is a candidate for comparison to their strategy. Ask Merrill Lynch "Can you show me data back to 1994 that is comparable to the data I can get for BlackRock Equity Dividend fund? Can you tell me why, exactly, doing it with individual stocks and a stock screener is going to be better? Can you prove to me that the results are going to be all that different from what I'd get in BlackRock Equity Dividend fund, and why?"

I looked for BlackRock, because this is a fund company that, like Merrill Lynch, is a subsidiary of Band of America so it ought to be familiar and agreeable to Merrill Lynch. I Googled on "blackrock" and "dividend" and came up with "BlackRock Equity Dividend Fund." I did about 1% of the "due diligence" I'd perform if I were actually going to buy the fund. I can't really make head or tail of the investment strategy detailed in the Prospectus, it's one of those all-over-the-place wishy-washy statements typical of active funds, but I do see that "Fund management believes that stocks that have yields often provide more attractive long-term total return and greater price stability during periods of downward movements in market prices than stocks that do not pay dividends."

I dunno about share classes but you probably at least have a choice between class A, which only has a 1.02% ER but has a load, and class C, which has a 1.75% :!: :!: :!: ER but no load.

So here's the thing. This fund has been around since 1994. Past performance does not guarantee future results, but at least it has a long track record even if that track record doesn't mean much! You can and should play with the starting point yourself on the live chart.

I'll bet Merrill Lynch is only showing you their "screening strategy" performance for 10 years or less, am I right?

Well, this fund beat the S&P handily over the last ten years. As you can also see, although it did beat the S&P over all seventeen years, it didn't look good during the Great Bull Market of the 1990s. But then again, it didn't lose anything when the S&P receded. So, nice steady growth anyway. My personal risk metric--how much did it drop in 2008-2009--suggests that the reputation for dividend stocks doing better in recessions, well, OK, it dropped less, 39% when the S&P dropped 43% but as my kids would say "big whoop." Having any bond allocation to speak of would have helped much more.

Oh, did I say that I am NOT recommending this fund? Just a talking point. If I were going to look at it I'd look at lots of other "dividend strategy" funds and I'd make a critical examination of whether dividend strategies are valid and whether they are really any different/better than "value" strategies.

Whole megillah:
Image

Last ten years, looks great, an example of how cherry-picking or data mining the right period of time can make something look good when the whole record isn't quite as thrilling:
Image

2008-2009, yes, it plunged less but in 2009 would you have noticed or cared about the tiny difference?
Image
Last edited by nisiprius on Sat Dec 31, 2011 7:33 am, edited 1 time in total.
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livesoft
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by livesoft »

Nice post, but maybe an executive summary is needed at the top? :)

Either you believe in passively-managed low-expense-ratio index fund investing or you don't.
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by nisiprius »

livesoft wrote:Nice post, but maybe an executive summary is needed at the top? :)
I know. Depending on when you peeked at it I might have improved it. My posts are too long. I know it.
Either you believe in passively-managed low-expense-ratio index fund investing or you don't.
But even if you don't, you could still believe that for someone with, say, a six-figure portfolio, mutual funds are a usually a better way to invest than paying 1.25% to an advisor to have them pick individual stocks by using a screening tool.
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by dave2589 »

I am familiar with the ML dividend strategy. If you were to go this route, I would strongly suggest it be in an IRA, since they add and delete stocks as well as rebalance the portfolio on a monthly basis.

Please note I am not recommending this, just letting you know how they manage it. Could easily purchase DVY and avoid the high cost as well.

Have a happy, healthy and successful 2012!
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by pkcrafter »

A couple of more points--

1. How do you know ML's stock screen is going to provide winning stocks in the future? Anyone can show you a list of stocks that have done well.

2. And most obvious, if ML had a stock picking strategy that really worked, why would they tell anyone about it? No sir, they don't make their money buying the best stocks, they make their money convincing people they have something good to sell.

Here's a bit from the ML March 2010 screener:
Cardinal Health (CAH), Home Depot (HD) and VF Corp (VFC) are removed because their ROE’s are below that of the S&P 500. MMM is removed because its BofAML opinion is “Underperform”.
Why did these stocks underperform if they were added in the first place? They were dropped and all three have outperformed the S&P500 over the past year. Any system that swaps stocks on a monthly bases is highly suspect. You may not pay buy/sell fees directly, but the brokerage will generate profit from the trades.

My advice is don't get involved with ML on any level. Buy a mutual fund that invests in high-quality, dividend paying stocks for a fraction of the cost.

Paul
Last edited by pkcrafter on Sat Dec 31, 2011 9:41 am, edited 2 times in total.
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by edawg »

Some may be more tactful in their thoughts to your question, but as a reformed Wachovia Securities "client" I'll just say...

Please Lord, don't let them pay ML 1.25% to make them "broker"! :shock:
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by topper1296 »

I have a small % of my allocation in individual stocks (hold 12-15) because it is fun for me (I enjoy reading annual reports, analyst reports, and the other homework), however I do wonder one thing. If you're into selecting individual stocks, when would you ever want to pick a "low quality" stock?
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by nisiprius »

topper1296 wrote:I have a small % of my allocation in individual stocks (hold 12-15) because it is fun for me (I enjoy reading annual reports, analyst reports, and the other homework), however I do wonder one thing. If you're into selecting individual stocks, when would you ever want to pick a "low quality" stock?
Because the euphemistic name for that is "value stock?" Nobody would want a "low quality" stock, but who wouldn't want "value?" Plenty of people seem to want junk bonds, as long as they're called "high yield."

Perhaps those that do espouse "dividend investing" might suggest other mutual funds that follow such a strategy. The obvious, of course: Vanguard funds and ETFs with "dividend" in their names: Vanguard High Dividend Yield Index Fund, Vanguard Dividend Growth Fund, Vanguard Dividend Appreciation Index Fund. I recoil from anything associated with the phrase "magic formula," but Formula Investing's funds. "Spindex" funds that use modified indexes, Schwab's "Fundamental Index" funds, WisdomTree's.

Google, click click--now about these mysterious "high quality" stocks... Ah, U. S. news tells us the one stock fund you need to own in 2009, Jensen Quality Growth, JENSX: "Quality is important in a market like this. That's a no-brainer. But the folks at Jensen Portfolio take this quality business to an extreme. Stocks must clear a high hurdle to be included."
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by Valuethinker »

pobox2001 wrote:Is anyone familiar with the ML High Quality & Dividend Yield screen to select stocks? Based on the results I've been provided, it seems to have consistently out performed the overall market. It's outside my normal investment routine to buy a basket of individual stocks, but with the dismal investment options, I'm looking at various options. If I invested in their strategy, it'd only be small (10-15%) percentage of the total portfolio. My account would be assessed a 1.25% management fee annually. I'm not sure yet the cost (if any) for the individual stock trades as their suggested portfolio adjusts throughout the year. Meeting with them soon to get more details.

Any opinions out there? Is it worth the cost? Any specific questions I should ask in our meeting?

Thanks and Happy New Year.
Even if the strategy is good:

- it's unlikely to overcome account costs, dealing costs etc.

- the tax problem usually kills these strategies: ie the optimal portfolio pays no dividends and realizes no capital gains *until* you need the money (that's why Buffett pays no dividend on Berkshire Hathaway, and makes as few disposals as possible, his major 'disposal' was to his charitable trust/ The Gates Foundation).
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by dave2589 »

Agree, as an owner of BRK we should not forget that the Berkshire portfolio does own a number of high quality dividend paying stocks I.e JNJ KO INTC PG XOM etc etc.

And one day , it will more than likely start paying them out as well. Hopefully not for a long time though.
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by saurabhec »

Nisiprius,

Just for the record the famous French Fama value premium is based on a portfolio derived from the simplest of mechanical screens.
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by nisiprius »

saurabhec wrote:Nisiprius,

Just for the record the famous French Fama value premium is based on a portfolio derived from the simplest of mechanical screens.
:oops: You're right. Good point.
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Re: Merrill Lynch High Quality & Dividend Yield Screen

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:peace
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by BruceM »

I hold nothing but individual stocks, but whether one invests using individual stocks, actively managed mutual funds or ETFs is not the point. There are tens of thousands of portfolio managers looking at the same stocks ML is. For ML to consistently out perform the pros relies on lots of wishful thinking. And as others have mentioned, if this strategy consistently worked, ML sure wouldn't be wasting it on you and me...they'd be applying it to their private (definitely not retail free-luncher) uber net worth (>$10MM) clients, endowments, trusts, etc.

I think what ML (as I'm sure other retailers) is pitching to are those individuals who are
frustrated with poorly performing portfolios over the past several years...and this stock picking strategy is being pitched as the fix with is superior returns.

Aside from ML being one of the most unethical retailers out there, I suspect the retail market is desperate enough that this could prove to be a good profit center for them.

BruceM
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pobox2001
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by pobox2001 »

Ok....Ok.....Ok. I know (and I guess knew all along) it was bad idea. I guess after so many years of weak returns, your confidence in your plans begins to waiver.

I've been duly corrected and will stick to my original plans. Thanks for the needed attitude adjustment.

I sure hope 2012 is better year.
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by livesoft »

pobox2001 wrote:... I guess after so many years of weak returns, your confidence in your plans begins to waiver.
Are you not following one of the plans espoused in the "2011 Returns Thread" or the "2010 Returns Thread"? I would not consider those "weak returns". So instead of changing to a MerrillLynch plan, what's wrong with the many plans around here?
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alec
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by alec »

There's nothing wrong with higher dividend stocks, but paying 1.25% is ridiculous. It would be much cheaper to just use VEipx if you want active management
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by 2035Investor »

I invested $130k+ in this account ML High Growth Dividend Yield and it has been nothing more than a money maker for ML. Am negative -12% since inception and am sure with ML fees and it's undisclosed margin it makes on the weekly trades, it must be closer to 16%. My 2 cents would be to stay clear of this product.

I'm thinking of moving my whole portfolio ~$2MM to Vanguard. Does anyone have recommendations or thoughts around how to work best with Vanguard?
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by Grt2bOutdoors »

2035Investor wrote:I invested $130k+ in this account ML High Growth Dividend Yield and it has been nothing more than a money maker for ML. Am negative -12% since inception and am sure with ML fees and it's undisclosed margin it makes on the weekly trades, it must be closer to 16%. My 2 cents would be to stay clear of this product.

I'm thinking of moving my whole portfolio ~$2MM to Vanguard. Does anyone have recommendations or thoughts around how to work best with Vanguard?
Welcome to the forum! In all fairness, the market is down 10%+ in certain high yielding security sectors - industries like utilities, energy, master limited partnerships, infrastructure companies, etc. Not saying it's going to turn around tomorrow, but being down -12% doesn't sound so bad when some individual equities in the sectors I mentioned above are down 25%+.

How is your current portfolio structured? Are you holding proprietary only mutual funds, individual securities, cash? You will want to think the transfer process through carefully to avoid taking any gains that might bump you into a higher tax bracket. A portfolio that large will qualify you for Flagship status - and if you have any questions that you don't want to ask here, you can certainly give Vanguard a call, I'm sure they'd be willing to assist you.
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by 2035Investor »

From a lot of research done on this: I have found that ML is making a profit 3 ways:

Literally hundreds of trades were happening within my ML HQ DIV Screen over the time I had them 2014-2015. It raised my suspicion so I asked my broker and he assured me it was the best tactic and he "loves these funds because they make more money than anything else available and that he has them himself and that I would miss out if I wasn't in these funds". I was very skeptical but decided to trust him regardless.

After a while, when these funds kept losing money (during a bull market) I dug in a little deeper. Each stock within the High Quality Dividend Yield Auto Managed Fund was not only trading( buying and selling) every week but Merrill Lynch was market making and according to the transaction receipts making a profit or spread on each trade. To make matters worst the same stocks were being bought and sold over and over again, generally selling when the price decreased and buying the same ones again at a higher stock price. It is clear that this was a mix of market manipulation with these Merrill Lynch sponsored market making stocks and that account churning was happening due to the volume of trades. Based on my research Merrill Lynch was charging me 3 ways:

1) the wrap advisor fee .1%
2) taking a spread/profit on each buy and sell trade
3) transaction fees

Now, this might be fine if this was disclosed to me and I agreed to it but when I asked my advisor he assured me verbally and in writing that there were no fees outside of the monthly advisory fees of .1%.

When I asked my advisor about these questionable tactics he laughed ( in a way like admitting guilt) and said; "yeah we need to get you out of "those funds". Several weeks later I started researching the trading patterns and none of it made sense. I questioned him again and he quickly pawned me off to Merrill Lynch Compliance and I have never heard from him again.

What should I do?
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"What should I do?"

Post by Taylor Larimore »

What should I do?
2035 Investor:

Do what we did. Read my post above:
The best investment decision we ever made was to move our investments from Merrill Lynch to Vanguard in 1986.
Best wishes.
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by 2035Investor »

I've since fired my scumbag broker at ML but isn't this kind of activity illegal?
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by nedsaid »

Merrill Lynch is a subsidiary of Bank of America, Blackrock is not. In fact, Blackrock is the largest asset manager in the world, even larger than Vanguard.
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by 2035Investor »

this has nothing to do with BlackRock. Did you read the post?
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by Caligal »

2035Investor

Two years ago we were considering a ML advisor strategy (had not yet found Bogleheads). The HQDYS was also recommended to us at that time - as well as Private Equity, Hedge Funds (funds of funds) and a single stock that we were told was considered "bond like". All at the fabulous low cost of 1.3% AUM and lots of other expenses on top. Thankfully we discovered all of the great info on the internet which led us to our current portfolio consisting of low expense investments in Vanguard index funds, some fixed income in Stable Value (401K) and a few CDs (thanks to Kevin M on this forum). Although is has only been a short time (2 years) since we considered giving our portfolio to the ML advisor, I am convinced that avoiding his services has given us a fair chance at keeping our money and hopefully growing it some when the market cooperates. The money we put into a traditional bond fund vs. the individual stock recommended at the time has outperformed by a difference of 8% (including expenses) in two years. I still have the email from the advisor recommending the stock in lieu of a bond fund! Oh, and of course, it was recommended that we roll over our old 401ks to ML (which would have precluded us from any Roth conversions in the future).

Not sure how the new regulations on fiduciary responsibility will change how ML handles retirement portfolios, but hopefully things will become more transparent in the future.

Good luck and congratulations on dumping your advisor.
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Re: Merrill Lynch High Quality & Dividend Yield Screen

Post by nedsaid »

2035Investor wrote:this has nothing to do with BlackRock. Did you read the post?
I was correcting Nisiprius' error. Blackrock is not a subsidiary of Bank of America, Merrill Lynch is.
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