Financial Advisor

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
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hailey83333
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Joined: Thu Jun 26, 2014 10:13 am

Financial Advisor

Post by hailey83333 »

My husband and I are expecting our first and only baby this summer and are trying to get our finances in order. We have been speaking with an advisor from Edward Jones about various financial topics, including rolling over my husband's old 401(k)s (he has 2 that total about $17K) into an IRA, choosing a 529 college savings plan, and taking some of our savings and investing in stocks (Merck, Proctor & Gamble, and Kinder Morgan). This adviser (who is a long-time friend of my husband's) advocates that we open a Virginia 529 plan that uses American Funds, even though our contributions wouldn't be tax deductible for us since we don't live in VA (We live in Idaho). He also advocates rolling my husband's old 401K's into an IRA through Edward Jones that uses American Funds. Frankly I am not sure that we are getting advice that is best. I think we will pay more in using Edward Jones as the middleman. He also gave us some info on life insurance but the rates seem high compared to estimates I found through Select Quotes. Any thoughts?
livesoft
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Re: Financial Advisor

Post by livesoft »

Welcome to the forum. You are not getting the best advice from this advisor because they are not allowed to give the best advice since they work for Edward Jones. If you search the forum for Edward Jones, you will find many things to read about them.

Do you want to pay a lot for advice? Pay a little for advice? Pay nothing for advice? Or not get any advice and do it completely by yourself?
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sport
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Re: Financial Advisor

Post by sport »

Ask this "advisor" how he would be paid to provide this advice. The honest answer would be that he gets commissions on your purchases. That really means he is a salesman and not an advisor. You may have seen recent news about our federal government trying to make stock brokers (advisors) have a fiduciary responsibility to their clients. This would mean that they would be required to put their client's interests ahead of their own. The investment industry is very much opposed to this change in their requirements. I wonder why that is? :greedy

It is generally good practice to avoid purchasing financial products from friends, relatives, or that nice person you met at church. Dealing with someone close to you can make you too trusting, and cloud your judgment about what is suitable for you.
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retiredjg
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Re: Financial Advisor

Post by retiredjg »

There is no question that you will pay significantly higher fees at a place like Edward Jones. Most people here do not believe that paying those fees will result in more money for you. In fact, you will probably have less money in the long run.

For example, if you invest $100 in an American Funds stock fund, only $94.25 gets invested. So you are starting off 5.75% "behind" and have to make that up to start making profit. This is because the American Funds funds have a front end load - a commission you pay to the salesperson for selling you the product. This same fund will also have a higher daily cost (expense ratio) that will put it further behind.

Why not skip all the fees and invest at a place like Vanguard where all of your money is always working for you?

A second red flag is the idea of using a long time friend as an investing advisor. Yes, a lot of people do it and it is the "natural" thing to do - go to someone you trust and have known a long time. But when/if you realize how much of these fees are going into the friend's pocket instead of your pockets, it will be hard to be very friendly after that.

Edward Jones is not a good solution. Investing is pretty simple once you get a few basics under your belt. Start here. https://www.bogleheads.org/wiki/Getting_started Be sure to watch the videos.

By the way, it is very rarely a good idea to have a friend get involved in your financial matters. Don't go that route.
cherijoh
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Re: Financial Advisor

Post by cherijoh »

I strongly recommend you get a copy of William Bernstein's booklet "If You Can". It is available to download from Amazon for $0.99. It will save you tons of grief and set you on the path to financial independence. Stay far, far away from that EJ guy.

Edit: I just noticed that Dr. Bernstein is offering it for free from his website.
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BL
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Re: Financial Advisor

Post by BL »

I do hope we can dissuade you from this. Also don't make a quick move with your 401ks. Depending on what low-ER funds you have in the 401k, you may do much better staying there, especially compared to moving to EJ. If you move to Vanguard, or other low cost brokers, you might be fine either way.

First, it is expensive to buy and own these funds: loads (5.75% front or 1% deferred), 12b-1 kickback fees from the funds included in the high-Expense Ratio % (usually about 1/4% for load funds (Class A), 1% for deferred load funds (Class C), pushing high-cost insurance, annuities, college funds, etc. There is no fiduciary responsibility to sell you what is in your best interest, so there is definitely a conflict of interest. He won't make much money if you are smart and buy term insurance, and find a low-ER Index fund instead of the expensive ones he is proposing.

Second, you would eventually get smart and want to get out(hopefully). Now you have to divorce your friend. It would be much more comfortable to divorce someone who is simply someone you do business with rather than a friend.

Compare costs: 5.75% load lost up front and >0.60% ERs OR 1% deferred load and >1.40% ER
with Vanguard's <0.20% ERs and no other costs.

After a few years, the compounding really means you have lost a lot of money. He will probably put you into a lot of funds that will look too complicated for you to handle. At Vanguard you could begin with a single balanced index fund that manages itself. Later, if you choose, you could break it into a 3-4 fund portfolio that is easy to manage yourself.

Please take your time and read in the Wiki, Getting Started, as well as watch the short videos and read a recommended book or two. Here is a short one that includes a lot of what you need to stay out of expensive trouble:
http://www.etf.com/docs/IfYouCan.pdf
EDT: This is the same William Bernstein book mentioned above!

There are threads here you can search for about getting away from financial planners, including EJ.
Last edited by BL on Sun May 03, 2015 12:31 pm, edited 2 times in total.
Topic Author
hailey83333
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Joined: Thu Jun 26, 2014 10:13 am

Re: Financial Advisor

Post by hailey83333 »

Thanks for all the advice. I had strongly suspected that I would hear what you are telling me, but I like having many opinions. We will stick with Vanguard.
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Taylor Larimore
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The best financial decision.

Post by Taylor Larimore »

hailey83333 wrote:Thanks for all the advice. I had strongly suspected that I would hear what you are telling me, but I like having many opinions. We will stick with Vanguard.
Hailey:

In 1986 we moved all our investments to Vanguard (from Merrill Lynch). It was the best financial decision we ever made.

I am confident you will feel the same.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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nedsaid
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Re: Financial Advisor

Post by nedsaid »

The biggest problem with advisors isn't so much the upfront sales loads, it is the churn. (The loads are bad enough). The churn happens when the advisor tells you to sell one investment so that he can sell you another one.

Some advisors tend to have their clients sell their funds and perhaps buy the new fund from another fund family and charge you the 5.75% load all over again. Also, the load funds tend to have higher expense ratios than their no-load cousins and you also have that ongoing drain on your funds. Much of this is due to the 0.25% 12b-1 fees that load funds charge, this is typical though 12b-1 fees can be higher or lower. Note that if you switch from one fund to another within a fund family and have already paid the load, you should not have to pay the load again but only pay a minimal transaction fee.

If one bought American Funds, paid the load once, and held on one would do okay. The American Funds are actually a good fund family. If someone has an unethical advisor who churns the account, this puts a client in a hole that he will not get out of. The other problem you run into is that the more trades you make, the more incorrect buy/sell decisions you will make. That also depresses performance.

Individual stocks are another ripe area for churn, that is turning over your investments. People are a little less squeamish trading stocks rather than trading funds. But the fees add up just the same.

Another troubling aspect of Edward Jones and other such outfits is that fund companies will pay for shelf space. In other words, make payments to brokerage companies so that their funds will be on a firm's "select list." American Funds has such an arrangement with Edward Jones. Ameriprise does exactly the same thing but with other fund groups. It is not hard to imagine how this might affect a brokerage firm's objectivity and the objectivity of their advisors.

I do work with an independent broker with a Brokerage IRA and a Brokerage Roth IRA. I own loaded mutual funds, individual stocks, and ETFs based on indexes through him. I have bought loaded funds through him in part to compensate him for whatever time he has spent with me. It also was my first shot at diversifying away from the individual stocks. The funds I have purchased from him have lower expense ratios than their competitors. I will pay the load on the same money only once. Since he is independent, he also gets whatever 12b-1 fees that the funds produce. I have never switched any of the funds I have purchased. Even in that account, I am mostly buy and hold. Since he is established and doesn't have a sales manager, he doesn't feel pressured to churn his clients. He actually has told me many times to stick with what I have.

The great majority of my investing is with index funds and other no-load mutual funds. I don't trade very much and have been working down the expenses of maintaining my portfolio. I am certainly not advocating that people rush out to financial advisors and buy loaded funds. If people ask, I recommend to them the big three no-load fund families: Vanguard, Fidelity, and T Rowe Price. I also point out to that the big three also have brokerage services and will offer a bit of free financial advice. (I have Fidelity accounts and I own Vanguard funds and ETFs).

The great appeal of Edward Jones is that they are everywhere and there is a friendly representative in every office. I have two older family members who have accounts with them (one of them knows better). For an elderly person, the neighborhood office is often too great of a temptation. They are better than nothing but I believe strongly that investors who are willing to acquire knowledge and do a bit more legwork can save themselves a lot of money by going to a no-load shop like Vanguard.

The Edward Jones portfolios that I see posted here I have not been terribly impressed with. Not bad but could be better even with choices of load funds. I see a lot of overlap. But I can tell you that there are a lot worse things out there than paying a load on American Funds. There are worse things than the clunky portfolios put together by investment advisors that I have seen posted here.

Why do I say this? I do taxes on the side and over the years have talked to hundreds of people. I am very surprised how clueless many people are about personal finance in general and about investing in particular. Edward Jones and Ameriprise are better than nothing. If you get a good advisor, that person can teach you a lot. The problem with Edward Jones and Ameriprise is that investors can do so much better if they were willing to educate themselves. The fees really add up over time.
A fool and his money are good for business.
ddurrett896
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Re: Financial Advisor

Post by ddurrett896 »

hailey83333 wrote:This adviser (who is a long-time friend of my husband's) advocates that we open a Virginia 529 plan that uses American Funds, even though our contributions wouldn't be tax deductible for us since we don't live in VA (We live in Idaho).
I had a family friend who was my advisor and he worked for American Funds. I just took his advice and invested $. After finding this forum and realizing how much I was paying with the load and high ER, I switched to Vanguard. I thank God I discovered this at 27 and not 57!

My Virginia 529 was thru American Funds and I switched it to the Virginia inVESt because I'm in VA and get the deduction. I have no clue why he would advise VA with you in Idaho...go with the Nevada plan if you can meet the minimum which I think is $3,000 or Iowa if you can't. Both have good funds available.
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White Coat Investor
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Re: Financial Advisor

Post by White Coat Investor »

As a general rule, Edward Jones and American Funds are to be avoided. The sad, but honest, truth.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
sawhorse
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Re: Financial Advisor

Post by sawhorse »

A while back, someone on the forum said that Edward Jones charged them a high amount ($500?) to close the accounts. That alone would make me hesitate to put any money there.
gerntz
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Re: Financial Advisor

Post by gerntz »

nedsaid wrote:The biggest problem with advisors isn't so much the upfront sales loads, it is the churn. (The loads are bad enough). The churn happens when the advisor tells you to sell one investment so that he can sell you another one.

Some advisors tend to have their clients sell their funds and perhaps buy the new fund from another fund family and charge you the 5.75% load all over again.
You are incorrectly lumping all advisors into the categories of upfront sales load & churn. Many are way more ethical than that. Some charge a flat fee that, depending on assets amount & the fee size, is a decent deal: reasonably priced advice for some things you may not wish to deal with. I understand your bias represents the views of many/most/overwhelmingly most that post here, but it's less than accurate. Sticking with Vg is a good choice if not the best & better than the EJ option.
Grt2bOutdoors
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Re: Financial Advisor

Post by Grt2bOutdoors »

Hello and welcome to the forum!
I suppose your husband's long time friend is "preying" on your insecurities of being new parents.

The cheapest 529 plan is the NY State 529 Direct Plan at 0.17% expense ratio, investments are managed by Vanguard, but there is no tax deduction for Idaho residents. http://www.nysaves.org
Other 529 plans used by forum members are the Utah 529 plan - http://www.uesp.org
Nevada 529 plan - aka The Vanguard 529 Plan

Now, for the kicker that the EJ guy conveniently forgot to tell you (must be all that pollen in the spring air :oops: ) - the Idaho 529 plan found at http://www.idsaves.org offers married filing jointly couples up to an 8,000 deduction off of their state income tax returns for contributions made to the plan, annually. The investment funds are Vanguard index funds (more pollen, I guess :oops: ) If you withdraw to transfer to another state's plan, they will clawback the tax savings as commonly found in other states that offer the same type of tax deduction. The Idaho plan charges 0.69% per year on assets held in the plan, somewhat high but the tax savings may make up for it - you'd have to do the math.

For term insurance needs - use a quotation service like Select Quotes or term4sale.com. Cut the middleman out and save yourselves some money. Edward Jones and "saving money" are antonyms.
Vanguard and low cost are synonyms. :D
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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nedsaid
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Re: Financial Advisor

Post by nedsaid »

gerntz wrote:
nedsaid wrote:The biggest problem with advisors isn't so much the upfront sales loads, it is the churn. (The loads are bad enough). The churn happens when the advisor tells you to sell one investment so that he can sell you another one.

Some advisors tend to have their clients sell their funds and perhaps buy the new fund from another fund family and charge you the 5.75% load all over again.
You are incorrectly lumping all advisors into the categories of upfront sales load & churn. Many are way more ethical than that. Some charge a flat fee that, depending on assets amount & the fee size, is a decent deal: reasonably priced advice for some things you may not wish to deal with. I understand your bias represents the views of many/most/overwhelmingly most that post here, but it's less than accurate. Sticking with Vg is a good choice if not the best & better than the EJ option.
I said "some advisors." I am not saying that all advisors churn their clients. I also am aware that there are advisors who are compensated by an assets under management fee and some who are compensated by commissions.

But yes, I have seen churning with my own eyes. It does happen.

I think most financial advisors are ethical and want to do the best things for their clients but I can tell you that these guys sometimes face unreal sales pressure. That is why you want to deal with somebody that has an established clientele. If an advisor has a large asset base, he is less likely to churn your account. Now that my broker is independent, I don't get the flavor of the month pitch anymore as he does not have a sales manager and can do what he wants. I have a family member who works with a broker and I noticed that his/her bond investments don't seem to work out very well. My suspicion is that he/she has gotten the stuff that the firm doesn't want to own anymore for its own account.

I have worked with four brokers who were all at a major brokerage firm. Broker One was a personal friend who was in the business for a year. Broker two served me for a few years and he certainly did not churn me. Broker three wanted me to move all my assets to him and I declined, he lost interest in me and I was shuffled off to Broker four. Broker four was great, he went to another firm and went independent and my account followed him to his new firm. My experiences with these guys was pretty good but I was small fry. Broker two eventually became office manager and dumped me and broker three was not too interested in me. Broker four has been great and I talk to him maybe once a month.

I have had a couple friends in the insurance business and I heard a lot about the inner workings of that business.

I also worked in the back office of a bank's brokerage department. I did the accounting for the daily mutual fund trades made from the bank branches. Our department calculated the sales commissions for the representatives based on their contracts with the bank. We also deposited the 12b-1 checks that came in from the fund companies and I saw the statements that went with it. Some of those 12b-1 checks were pretty sweet for the bank!

I have also worked with a couple of financial advisors and had my portfolio reviewed by a few different financial companies that offered the service.

I have posted many times about financial advisors and many of my comments have been positive. You just have not read very many of my other posts on this topic.

Edit: I am also aware that there are advisors who do not manage assets and charge by the hour for their services.
A fool and his money are good for business.
gerntz
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Re: Financial Advisor

Post by gerntz »

nedsaid wrote:
gerntz wrote:
nedsaid wrote:The biggest problem with advisors isn't so much the upfront sales loads, it is the churn. (The loads are bad enough). The churn happens when the advisor tells you to sell one investment so that he can sell you another one.

Some advisors tend to have their clients sell their funds and perhaps buy the new fund from another fund family and charge you the 5.75% load all over again.
You are incorrectly lumping all advisors into the categories of upfront sales load & churn. Many are way more ethical than that. Some charge a flat fee that, depending on assets amount & the fee size, is a decent deal: reasonably priced advice for some things you may not wish to deal with. I understand your bias represents the views of many/most/overwhelmingly most that post here, but it's less than accurate. Sticking with Vg is a good choice if not the best & better than the EJ option.
I said "some advisors." I am not saying that all advisors churn their clients. I also am aware that there are advisors who are compensated by an assets under management fee and some who are compensated by commissions.
There's no "some" in "The biggest problem with advisors isn't so much the upfront sales loads, it is the churn."
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Bogle_Feet
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Re: Financial Advisor

Post by Bogle_Feet »

Frankly I am not sure that we are getting advice that is best. I think we will pay more in using Edward Jones as the middleman.
You went to a salesman. They will give you the most expensive free advice you will ever get because they are non-fiduciaries. As expected, they are motivated to convince to execute transactions by buying expensive products like actively managed funds. If you want to eliminate conflict of interest then you have to either A) do it yourself (it's easy) or B) go to NAPFA.org and find a fee-only fiduciary.

Don't get fooled by no-load funds either. If there's no front end load then they simply have high ongoing fees (AKA expense ratio).
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goingup
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Re: Financial Advisor

Post by goingup »

Welcome!
I can appreciate your thinking. You're probably very busy right now, getting ready for your baby's arrival this summer. Having a broker (friend) at Ed Jones take care of your financial life must sound very appealing.

The problem with Edward Jones is that the brokers are salespeople who will make your portfolio complicated and expensive. The funds they'll recommend will have "loads" and the expense ratios are more than you'll pay for index funds at Vanguard or Fidelity. You'll be offered expensive insurance, annuities, etc. If you start there it's hard to get untangled.

Suggestions so far have been great. Get term-life quotes on line. We use USAA, but there are many fine firms. Sounds like Idaho has a 529 Plan with tax benefits. Does your husband currently have a 401K plan with good low-cost mutual funds? Often the best idea is to roll old 401K plans into a current 401K. If that isn't possible, rolling them to Vanguard or Fidelity is a good course of action.

There's no rush about all of this. Come back here with additional questions. :)
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