Bogleheads

ms121269 · Joined: 30 Mar 2007 Posts: 18 Location: NW Arkansas

I cannot believe folks think American Fund is a great place to invest even w/o all their HUGE expenses and load and fees and 12b-1 and etc.

I've talked with people who use them and it is like a Multilevel Scam or cult. They are above reproach and you cannot even carry on a logical discussion as to why they would use them with all the bad things they do. Usually it comes down to well my ELP said they are the best with the best returns and they will beat the rest the market hands down. What a load. Do a little research.

They 4 folks I know that are "investing" with them are paying premium rates and fees for everything and are con-vinced their funds will return above 20% because they are on the cutting edge of investing unlike the other companies. I ask for details and they are way short on details but full of, well emotionalism and huge expectations.

I am not a big fan of Robert Kiyosaki (mainly for promoting MML and his vague ideas of building wealth) so I really hate to admit I do agree with him on this. I heard Dave's take last weel and he totally disagees with Robert. Here are some quotes from his op-ed:

Essentially, John Bogle's position in "The Battle for the Soul of Capitalism" is that investors -- what he calls the true owners of major corporations and mutual funds -- are being robbed blind by corporation and mutual fund company managers. He refers to it as the shift from owner's capitalism to manager's capitalism.

To quote Bogle, "Simply put, fund managers have arrogated to themselves an excessive share of the financial markets' returns, and left fund investors with too small a share." Elaborating on that point, Bogle writes, "With today's dividend yields on stocks at about 1.8 percent, a typical equity funds expense ratio consumes fully 80 percent of a fund's income."

As I put it on the air that day, "Eighty percent is a bit greedy."

if investors had invested in the stock market back in 1985, they would have made $109,800 dollars over 20 years. That's including the ups and downs of the market. During the same period, investors who put the same $10,000 in mutual funds made only $29,700.

Sadly, over the years, fund managers have been both legally and illegally ripping off investors who count on their investments to provide a college education for their kids or retirement security for themselves. It seems that mutual fund managers, like the managers of our major corporations, have sold their souls for fast money, and have left the investors behind.

http://finance.yahoo.com/exper....icher/6720

Here is a good read on them:

http://toolsformoney.com/american_funds_model.htm

http://www.businessweek.com/ma...._mz020.htm

If you use AF please let me know why you do and if you think they have do you well.
_________________
"I would rather be certain of a good return than hopeful of a great one." Warren Buffett

"The enemy of a good portfolio is the search for the perfect portfolio." John C. Bogle

Mel Lindauer · Posted: Tue Apr 10, 2007 8:22 pm Post subject: Links don't work

Just wante to let you know that none of your links work, ms121269.

Regards,

Mel

ms121269 · Joined: 30 Mar 2007 Posts: 18 Location: NW Arkansas

Thanks Mel. I usually test them first but I rushed it. Sorry for that.
Mark
_________________
"I would rather be certain of a good return than hopeful of a great one." Warren Buffett

"The enemy of a good portfolio is the search for the perfect portfolio." John C. Bogle

Si Klegg · Joined: 10 Apr 2007 Posts: 11

I just changed jobs 5 months ago. My new company has a 401k through Vanguard. Two of the funds that are available are American funds. I just went to the toolsformoney.com site and found the link about American funds here.....

http://toolsformoney.com/american_funds_model.htm

All this is new news to me. My Vanguard 401k lists American Funds EuroPacific RERFX as a no load fund with an ER of 0.53% and American Funds Growth Fund RGAFX as a no load fund with an ER of 0.36%. Where are the high fees that the article talks about? Are they hidden? RERFX is the only foreign fund offered with my new 401k. Should I not invest in that fund?

Si

yobria · Joined: 20 Feb 2007 Posts: 2042 Location: SF CA USA

Take a population of our species and give it no sex education, and you get teenage mothers and STDs.

Take a population and give it no financial education in school, and you get American funds.

What's that saying, "If you think education is expensive..."

Nick

Lynn · Joined: 09 Apr 2007 Posts: 12

I met with a financial advisor at my credit union. American is what he tried to sell me too, with a 5.75% load and other fees etc., I determined this was not for me. He claimed to be totally non-biased but that American Funds and the credit union have goals that are aligned (it appears to be making $ for them and not me).

When I asked about no-load index funds, he tried to steer me away claiming better returns with American over time. This is obviously not including the load, higher expense ratio etc., but of course he didn't mention that.

jeff mc · Posted: Tue Apr 10, 2007 10:09 pm Post subject:

well, they're doing something 'right'... or at least their marketing and sales people are. they have 6 of the largest 14 mutual funds in the US today. i remember it historically was VG's 500 vs. fido's magellan battling for #1/#2. looks like the 500 is a 'fading star', and american funds are steadily getting market share and new money, while fido and VG seem to be losing traction to them.

i believe all 3 of vanguard's funds in top 14 are the S&P 500, just different classes of same index tracking fund. so, combined, they're a #1, but that's the only index fund in the group.

from: http://www.galttech.com/resear....-funds.php

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stratton · Joined: 04 Mar 2007 Posts: 7897 Location: Puget Sound

From what I know American Funds are no-load in 401K plans. Compare them to Dreyfuss like my 401K plan has and they are fabulous with lower ER and much better performance.

Paul

ms121269 · Joined: 30 Mar 2007 Posts: 18 Location: NW Arkansas

Amway, Enron and WorldCom were big too but that does not make it good nor bad in and of itself. They have VERY highly commissioned salespeople pushing their funds with outrages ZEAL and slick marketing. I have a feeling this will implode at some point but that might be a good thing. It is a shame so many folks are getting sucked in by their hype and arm twisting.

Well said Nick.
_________________
"I would rather be certain of a good return than hopeful of a great one." Warren Buffett

"The enemy of a good portfolio is the search for the perfect portfolio." John C. Bogle

bilperk · Joined: 20 Feb 2007 Posts: 364 Location: Florida

MS121269:

I think Charles Ellis and some other notables might disagree with you.

In his book " Capital: The story of long term investment Excellence", Charlie Ellis would tell you why American funds, managed by the Capital Group is the largest fund company in the world.

Other comments by names you might have heard of:

"...a perfect pairing of one of the most astute observers of the investment scene with one of the most outstanding investment firms ever created."
--From the Foreword by Burton G. Malkiel, author of A Random Walk Down Wall Street

Praise for CAPITAL

"At last! A revealing, insightful, knowledgeable perspective on one of the world’s great investment management organizations by the deft hand of Charley Ellis."
--John Neff
Professional Investor

"This is a great story about great people with a passion for long-term investment success through discipline, planning, and patience joined to imagination, innovation, and vision. Many valuable insights."
--Peter L. Bernstein
author of Against the Gods: The Remarkable Story of Risk

The reason people are devoted to this fund family is the management of Capital and the clear performance record of their funds.

The load is regrettable, but those seeking advice, when using a competent broker, may well find it far cheaper than paying an advisor 1% of your assets every year for life.

best,
_________________
Bill

ms121269 · Joined: 30 Mar 2007 Posts: 18 Location: NW Arkansas

bilperk · Joined: 20 Feb 2007 Posts: 364 Location: Florida

BrianTH · Joined: 20 Feb 2007 Posts: 1344

Loads and 12b-1 fees are not just regrettable. They are fundamentally contrary to the interests of investors, even investors in share classes without loads or 12b-1 fees, because they foster asset bloat.

Edit: And in the interests of full disclosure, RERFX is one of our major holdings, thanks to it being the only international option in our largest account (a 401K).

Jazztonight · Joined: 28 Feb 2007 Posts: 220

My 401(k) also offers American Funds. There are no load fees.

When I first joined this forum, Laura (she's great, isn't she?) recommended that I just use one of their less expensive funds, and keep my Intermediate bond portfolio there (ABNDX). It has an e.r. of about .6, so it's not terrible.

Everything else, I have in Vanguard, including my Roth's. I'm only investing in the 410k up to matching. It's not a lot, but it's free. I work PT for a very cheap company.

My son works for XM Radio, and they offer the Vanguard S&P Admiral as one of their 401k choices. Lucky him!

jim · Joined: 03 Apr 2007 Posts: 68

I did a lot of research before rolling over my 401K to Vanguard. That included American. Not sure where I picked it up but over time have been saved a lot of pain by one simple expression.

Follow the money. I to would like to see supporting evidence. My research indicated otherwise.

With VG I can follow the money to my own pocket.

Si Klegg · Joined: 10 Apr 2007 Posts: 11

alec · Joined: 02 Mar 2007 Posts: 1493

rob · Joined: 19 Feb 2007 Posts: 391 Location: Here

Not sure the hostility to American funds..... I suspect Bogle would like them. They seem more honest then most in the MF world. Okay, they have a load but assuming you can find a good advisor that might be well worth it (assuming it's not a salesman). I think I remember a quote along those lines from Bogle (along with Bridgeway) - not sure. I don't own any American funds cause I didn't go the adviser path.
_________________

Rob
Its a dangerous business going out your front door. - J.R.R.Tolkien

SpringMan · Joined: 21 Mar 2007 Posts: 2435 Location: Michigan

My wife's 401K is with Transamerica. The funds offered to her don't even have ticker symbols. They are tracking funds, many of which track American funds. We am not happy with the options but try to make the best of it. Even the stable value fund offered is only paying out 3.5%. Fortunately any loads are waived. We ended up going 1/3 each into three funds that track, RGACX Growth fund of America R3, SMVAX Wells Fargo Adv Smallcap Val, DVMVX Diversified Midcap Value. These funds have done okay but as soon as she retires we will roll her Transamerica 401K to her Vanguard IRA. Not having ticker symbols is a big problem for using portfolio tracking software too. Using the tracking ticker symbol does not work well because the share price is different. I imagine 401K plans like this account for a lot of American Funds bloat.
Regards,
_________________
Best Wishes,
SpringMan

yakers · Joined: 20 Feb 2007 Posts: 166 Location: Pasadena, CA

I find American Funds to be 'not bad'. They have a decent return after fees & load. I wish my wife's 403b had them as an option but she has much worse choices. My Roth is in VG Asset Allocation Fund and my wife has funds in Wellesley and I tend to recommend VG funds but of the load companies AF is better than most MFs. This hostility to AF without an analysis of how they compare to most of their competitiors is misplaced.

cfs · Joined: 23 Feb 2007 Posts: 563

American Funds is NOT a bad company. As a matter of facts, my first mutual fund was "Investment Company Of America" from American Funds. This was a GOOD fund and I made a lot of money. I no longer hold that mutual fund [closed my account with them approx a decade ago].

cfs
p.s. to Jazz, that was a good recommendation by Laura [and yes, Laura is great]
_________________
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ms121269 · Joined: 30 Mar 2007 Posts: 18 Location: NW Arkansas

Maybe, it is just the agents in Arkansas and Missouri (two separate agents) that were giving my friends some horrible advice. But I was and still am ticked off at how they were pressuring them into these loaded high E/R funds and slamming all other funds. These people were as bad as used car salespeople. Were told Vanguard, Fidelity and T. Rowe Price were awful companies and were not looking out for their best. "We're the biggest, we're the best." They made some incredible "promises" on returns. I will have to say the books and materials they were given were REALLY nice. The agents made them to believe a mere mortal could not invest their own money and only American Funds had the best returns. They kind of reminded me of what has happened when my wife has taken her car to a mechanic....."Yeah, were going to have to replace the _ _ _ _ _. I am surprised the car made it here." You know the rest of that story.

I am surprised so many BogleHeads like American Funds and even more shocked that someone thinks Mr. Bogle would like the way they do business. I don't know, but everything I have read from him and all his blogs I have strong doubts of that. The way he speaks out against loads, high E/R's & the way the "pros" think they can out pick the market and that the average person cannot invest own their own just seems to be the opposite of American Funds. If he does, why did he not run Vanguard like that?
_________________
"I would rather be certain of a good return than hopeful of a great one." Warren Buffett

"The enemy of a good portfolio is the search for the perfect portfolio." John C. Bogle

ms121269 · Joined: 30 Mar 2007 Posts: 18 Location: NW Arkansas

Just found this:

http://money.cnn.com/magazines..../index.htm

"They've gotten too big," blasts former Vanguard chairman John Bogle, a longtime critic of the fund industry who now runs the Bogle Financial Markets Research Center. "I'd expect below-average performance in the years ahead."

"They're a marketing machine," charges Bogle.

http://ag.ca.gov/newsalerts/release.php?id=586
_________________
"I would rather be certain of a good return than hopeful of a great one." Warren Buffett

"The enemy of a good portfolio is the search for the perfect portfolio." John C. Bogle

BrianTH · Joined: 20 Feb 2007 Posts: 1344

Again, I just don't think you can ignore how loads and 12b-1 fees are fundamentally contrary to the interests of investors.

Some people seem to treat them as just components of management expenses. That would actually be a lot better--although I am skeptical about the benefits of active management, at least with really high management fees, that is where your money would be going (to trying to improve the management of your funds).

But loads specifically go to provide sales commissions to third parties, and 12b-1 fees specifically go to marketing. There is just no way around it: these uses of the investor's money do nothing more than give ad guys and salesmen an incentive to attract investors ill-suited to the investment, and generally just promote asset bloat (which Bogle is rightly complaining about). And they simply have no relationship to better management.

So, I think it is perfectly appropriate to complain--loudly--about loads and 12b-1 fees, and even if your share class in particular does not have them. And I see no reason to make excuses for a fund company which does something which is fundamentally (and obviously) contrary to the interests of its investors.

ms121269 · Joined: 30 Mar 2007 Posts: 18 Location: NW Arkansas

Quote by bilperk:

"The article you linked is over 2 years old. The investigation is over and they have not been sanctioned or fined or thrown in jail that I have seen. "

The lawsuit is still active and is far from over. Here is the lates news on it:

http://www.investmentnews.com/....sueAlert04

In addition:

http://www.marketwatch.com/new....3FD098F%7D

"It has become clear that brokers at firms such as Edward Jones, Morgan Stanley, and others have sold funds because they have received kickbacks from fund firms to do so. And dozens of fund companies have helped them to create and foster a system in which matching an investor's goals with a particular mutual fund has less to do with the fund's attractiveness and suitability, and more to do with payments from the fund company. " - Morningstar take on American Funds
_________________
"I would rather be certain of a good return than hopeful of a great one." Warren Buffett

"The enemy of a good portfolio is the search for the perfect portfolio." John C. Bogle

Chas · Joined: 24 Mar 2007 Posts: 838 Location: America

Chas · Joined: 24 Mar 2007 Posts: 838 Location: America

tibbitts · Joined: 27 Feb 2007 Posts: 2723

I suspect that not very many of us produce or market products that are the absolue best possible value for our customers or clients. It may be that we are doing the best that we can within various constraints, but we all need to make a living.

Particularly with low net worth investors who have no knowledge of investing, what are the practical alternatives to loads? Fee-only advisors charging 3 or 4% annually? 100% allocation to bank savings accounts? What are the other options?

Paul

relay · Joined: 20 Feb 2007 Posts: 18 Location: NE Illinois

Hi ms121269,

Approx 2% of my portfolio is invested in American Investment Company of America. I bought this fund when I first started investing in 1993 because it was one of the funds my advisor (at the time) recommended. I have since dropped the advisor but have held onto ICA because (1) the load has already been paid, (2) it has a low ER and (3) the return has been acceptable. The balance of my portfolio is invested with Vanguard (59%) Fidelity (32%) and other (7%) funds, all no-load.

I no longer buy load funds or use advisors.

Regards,
relay.1

edge · Joined: 19 Feb 2007 Posts: 1051 Location: Great Falls VA

Relatively low expenses
Relatively low turnover
Good returns based on solid investment fundamentals

Not a particularly bad outfit in my opinion. I think using the broker channel for selling these is a very bad idea. If any group of people in the world know how to muck things up, its brokers.

Anyway, there are way way worse alternatives to be complaining about.

I have that EuroPacific fund in my 401k that I use.

bilperk · Joined: 20 Feb 2007 Posts: 364 Location: Florida

MS121269:

"The lawsuit is still active and is far from over. Here is the lates news on it:"

I stand corrected. Let's see how it is resolved. Attorney's Generals are politicians. All he has been given at this point is the right to sue.

As for load funds, almost 2/3 of mutual funds are load funds.

All I'm saying is that their MANAGEMENT COMPANY has done a remarkable job in making money in the investment industry for 50 years and American Funds is not the largest fund company because they stink.

best,
_________________
Bill

scraig · Joined: 06 Mar 2007 Posts: 62

tibbitts · Joined: 27 Feb 2007 Posts: 2723

is that a huge percentage of people have no idea what an index fund, or even a mutual fund, is. Everybody on this forum assumes that everybody else shares their knowledge and passion for do-it-yourself investing. Nobody is going to look for a "good book" to explain investing alternatives that (s)he doesn't even know exist.

We just had some carpet and tile installed in our house. Probably over on the "flooring diehards" forum, everybody thinks we were stupid for paying someone to install it for us because installing carpet and tile is so simple. Or they think we should have hired a "fee-only flooring advisor" to help us select the optimal flooring products, because all the salespeople we dealt with worked on commission or own their own business, and make more when we spend more.

Maybe there were some optimal flooring products for us that we weren't told about, and maybe we just didn't know who or what to ask. But we can't all be experts on everything, and there's a limit to how much effort we can put into learning about every possible alternative. It's like that with most people who want to invest. They don't want to learn about investing, they're willing to pay someone to help them.

As for fee-only planners, my experience is that fee-only planners simply can't serve the small-account market that the commission-based salespeople do.

So as I said, the majority of AF advisors/salespeople are probably better for a prospective investor than not investing at all. Yes, some may be so abusive that their customers would be better off at their bank, but I suspect most AF customers have benefitted from their investments.

Paul

Random Musings · Joined: 22 Feb 2007 Posts: 2410 Location: Pennsylvania

One of the problems with AF funds (as my fuzzy memory recalls, and it may be dead wrong in this case) are with respect to how the AF equity funds correlate with each other.

Saying that, there are many people who have benefitted from reputable advisors that will conduit the money first through a bond fund (to reduce the front-end load, if needed) and then provide decent asset class diversification with AF funds. As mentioned before, some people just can't or won't want to manage their own money - the key is to find an ethical advisor.

Looking forward, the asset bloat of some of those AF funds concerns me.

RM

edge · Joined: 19 Feb 2007 Posts: 1051 Location: Great Falls VA

BrianTH · Joined: 20 Feb 2007 Posts: 1344

Well, loads and 12b-1 fees could be illegal.

People then ask, who would pay people to give investors "advice"? This question is based on a false assumption: loads and 12b-1 fees do not pay people to give investors advice. They pay people to sell things to investors, and that is not the same thing at all.

Does this mean that investors would have to pay fee-based advisors? Sure, if they want to. But it is not actually that expensive to give decent advice to a lot of people at one time, and brokers could fund such modest efforts through fixed account fees or higher transaction costs. In other words, people who didn't want advice could use discount brokers, and people who did want advice could use more expensive full-service brokers, all without using loads or percentage fees. Again, what is expensive is persuading a lot of people to pay more to do something which is not in their interests, which is why loads are so high.

So, again, I think it is a false assumption that somehow loads and 12b-1 fees would have to be replaced dollar-for-dollar. Rather, good advice should cost only a tiny fraction of the non-advice sales pitches that loads and 12b-1 fees currently pay for.

tibbitts · Joined: 27 Feb 2007 Posts: 2723

The commisions are generally considered pay for both selling and for providing recommendations, just like in the flooring business. We can argue what percentage of both of course, and technically any salesperson IS paid strictly by sales, but it's understood that a part of the job function is to provide recommendations. Generally there are a variety of products to select from, possibly with similar commissions, and ultimately a salesperson may be held responsible (as has happened in some cases) if his or her recommendations are completely irresponsible.

I don't accept the idea that selecting contractors is less important than retirement savings to most people. Consider some of the recent surveys, some showing a total retirement savings of $50k-ish. If you combine just the general home maintainence/upgrade items over the course of a decade or two- flooring, roofing, kitchen and bath remodeling, hvac, etc. you could easily be looking at $50k. Or, if we look at transportation, take the typical household with two cars. Is a person who is clueless about buying and financing vehicles (pays high interest rates and full list price), but puts $50k savings in VG funds, worse off than someone who's gets great deals on their vehicles, but pays a 5% front end load on investments? Again, here on these INVESTING forums we tend to have participants with well above average INVESTMENTS, making INVESTING decisions a very important factor in our lives. But we forget that what may apply to us may not apply to most people. Maybe we think it should, but that's not for us to say.

The solution, of course, is for everybody to be skilled and educated on every topic so we can all make good decsions about everything. But that's just not practical. So let's not apply different standards to financial salespeople than to everyone else trying to make a living.

Paul

Nitsuj · Joined: 20 Feb 2007 Posts: 1344 Location: Indiana

BrianTH · Joined: 20 Feb 2007 Posts: 1344

Paul,

First, it would be a big step forward if everyone would acknowledge that these people are salespeople, and fundamentally no different than an appliance or used car salesperson operating on commission.

Second, in most scenarios I think it makes ample sense to try to separate the advice and sales components, precisely to rationalize the incentives. So, for example, one might build a house by contracting with an architect who gets a flat fee for the design, rather than going to someone for design advice who will get a percentage of however much you spend on the house.

Third, for those in the position of actually giving financial advice, it makes sense to regulate them, including how they get paid. I'm not a big fan of regulation in general, but here it makes sense: just as doctors, dentists, and lawyers need licenses to practice, and must follow certain rules to maintain their licenses, which can include rules regarding how they get paid, I think it would be suitable for financial advisors to be regulated in this fashion.

The reason that makes sense is basically transaction costs: the sorts of rules you need to make sure a doctor, dentist, lawyer, or financial advisor is looking out for your best interests could be placed in a contract, but making each person understand, negotiate, and sign such a contract for each professional they hire would be horribly wasteful. Accordingly, the regulatory scheme is essentially a carefully constructed form contract to which the parties are automatically bound (although often it can be modified if the parties so choose, but not necessarily in every respect), and that approach saves a lot of transaction costs.

So, I think it is fine for financial salespeople to be salespeople, as long as it is clear that they are not purporting to give advice. If they want to give advice, they should have to be licensed, and the licensing regulations should prevent them from taking things like sales commissions.

And that is indeed exactly how we do it in many other professions.

tibbitts · Joined: 27 Feb 2007 Posts: 2723

The architect example is very appropriate here. If you are doing a major, expensive project you might hire an architect. If you're doing a $10k buliding project, you probably don't hire an architect, you try to find a contractor you believe can build approximately what you want, and maybe you find some plans in a magazine at the newstand. The contractor is like a commissioned salesperson - generally the more you spend, the more (s)he makes. (S)he may not have an incentive or the ability to select the optimal materials or the most effiicient and elegant design, but the person who could do that just isn't going to get involved in your project for the amount of money involved.

As for licensing, depending on where you live, various types of contractors may have to be licensed. The requirements for that may be just paying a fee, having certain experience, taking an exam, etc. But when we start talking doctors and lawyers and other professional licensing requirements, again we have to look at costs. The education required to get the license is going to be reflected in the cost of the service.

So I'm suggesting that the fee-only relationship is more of a high-end option in may fields.

I also think we shouldn't assume that it's only expensive to pursuade people to buy something that isn't the best for them, Look at the posts here on the forum: we have hundreds of examples of people trying to persuade friends and relatives to do what would be good for them - low cost investing. I would argue this can be just as expensive a task and required just as much - or more - skill, as pursuading them to buy something that wouldn't be as good for them. Because with investing, what's intuitive and easy to understand is often not the best solution. Remember that almost everywhere else in life, experience and past success is a predictor of future success. As a salesperson or even as an advisor, you have to ask yourself just how hard you're willing to try to convince your customers that those rules don't apply to investing.

As for somehow legally separating advice from sales, I think that's very hard to do. Lots of eye doctors are affiliated with (or operate) eyeglass sales shops, and therefore have an incentive, I suppose, to suggest you need glasses even if you don't. Lots of doctors perform surgery and therefore have an incentive to suggest you need it even if it might not be the best option for you. I'm still not seeing the huge difference in the financial industry.

Paul

dm200

While I have moved to managing investments myself at Vanguard, not everyone is able or willing to do so. Many folks need and/or want advice and the services of an advisor. Hardly any of these folks work for free.

Do any of you do your job without compensation? Why, then would anyone be upset with a financial advisor they consulted who was compensated? As long as an advisor did not lie or be deceptive about this, there is no reason why such an advisor should be criticized.

Selling LOAD funds, like American funds, is one way advisors are compensated. If you don't want to utilize the services of such an advisor, then just buy noload funds, or use some other vehicle.

dan

edge · Joined: 19 Feb 2007 Posts: 1051 Location: Great Falls VA

edge · Joined: 19 Feb 2007 Posts: 1051 Location: Great Falls VA

BrianTH · Joined: 20 Feb 2007 Posts: 1344

Paul,

Of course, in certain fields there is no such thing as an unlicensed "low end" professional (again, that would include doctors and lawyers). The basic theory would be that even at the "low end" of these fields, the matters at stake are too important and too complex for a more ad hoc and unregulated approach. I think financial advice is much like that: good financial advice is inherently important and inherently complex, so the ad hoc unregulated approach is almost always going to be unsuitable.

As for what happens in the real world--keep in mind that we are trying to fight back against the mass of sales pitches and misinformation that is being funded by all these loads and 12b-1 fees. And those folks are clever--they are specifically appealing to any aspects of human nature that will make it easier to increase their profits. So, what you are observing is the end result of a systematic and very well-funded campaign designed to get investors to do things which are not in their best interests. And I do not think you can blame human nature per se for all of that, although it certainly leaves people vulnerable to these efforts.

Finally, I agree this problem is systematic and difficult to entirely extinguish, but that does not mean there is nothing to be done at all. I'm not too familiar with doctors, but I do know that it is standard advice to get second opinions on important procedures like surgery. I also know that for lawyers, there are a lot of rules governing compensation specifically designed to deal with this sort of problem.

So, yes, it is a widespread problem. But that is no reason to give up trying to deal with the problem, and one of the simplest ideas would be to start with prohibiting loads.

Dan,

Of course financial advisors should be paid. But paying them through loads so fundamentally distorts their incentives that one can no longer expect them to act in their client's best interests. So, this is not a criticism of paying for financial advice, but rather a criticism of a particular way of paying these people such that they are no longer truly giving advice, and are rather just making sales pitches.

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ms121269 · Joined: 30 Mar 2007 Posts: 18 Location: NW Arkansas

One of my friends that invested with American Funds is a genius with multiple degrees (in health care). She is your typical arrogant know it all that you would think would know better. No way. She took out her Vanguard investments and rolled them over into American Funds. I showed her the cost differences between the funds and the past returns minus expenses of all kinds and she still did it because the Financial Advisor told her to because he knows how great AF is and that it will return more than anything Vanguard has. Also, love this one. Told her Vanguard and the other discount fund providers have cheap, generic funds and the reason AF has more expenses is you get what you pay for and it goes back into the fund to help it perform better. It was a piled high and deep like her PhD. She is CON-vinced they are going to help her make a fortune. Anyway, I have been investing for over 25 years very successfully and have a net worth probably much, much higher than her Financial Advisor but I am a fool for not letting him invest my money for me. Some people are hopeless I hate to admit. But stupid is not illegal. However, I have helped a few folks from some bad choices in business and investing but I am just a non financial advisor, so what do I know.

Also, I do not want to slam the many great Financial Advisors out there that really are helping folks and looking out for thier customers best.
_________________
"I would rather be certain of a good return than hopeful of a great one." Warren Buffett

"The enemy of a good portfolio is the search for the perfect portfolio." John C. Bogle

simas · Joined: 04 Apr 2007 Posts: 10

American Funds are run in decent way with focus on long term returns using uncommon portfolio management approach (multiple managers/management groups). If the person does not have access to low cost, no load, low turnover index funds, one could do much worse than American Funds.

However, there is still an issue of conflicts of interest - I do hot know who owns Capital (the management company) and unless specifically stated that this is a non profit organization owned by mutual funds (like vanguard is) I fully expect the owner(s) running their company in order to turn (and maximize) profits. The problem is the only way to get profits is to charge me (the investor) the ER above the costs of doing business which means that for every dollar in their pocket it is a dollar that could have continued working for me (in form of lower expense ratio). No amount of marketing and materials is going to change the fact that business American Funds is in will ALWAYS conflict with my interests...

FD - we owned American Funds until recently and were satsfied with them.. As we learned more, we rolled the money into Vanguard accounts