Rick Ferri takes on high-cost advisors on Forbes

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Mel Lindauer
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Rick Ferri takes on high-cost advisors on Forbes

Post by Mel Lindauer » Thu Sep 09, 2010 6:53 pm

Hi Everyone:

Rick's latest Forbes column is sure to ruffle a lot of feathers in the high-cost advisor community. His latest column is titled "High-Fee Passive Advisor Hypocrisy". You can read it here:

http://www.forbes.com/2010/09/09/high-f ... ferri.html
Best Regards - Mel | | Semper Fi

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Post by Ed 2 » Thu Sep 09, 2010 7:04 pm

Rick's firm charges 0.25 is very reasonable and descent . I like this approach. :thumbsup
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Post by alec » Thu Sep 09, 2010 7:06 pm

I'm afraid, like in mutual funds, the only way that the high fee advisors are going to lower their fees is if there is enough competition from the likes of Rick and Derek. Kind of like what Vanguard did to the rest of the mutual fund industry.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair

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Post by Ed 2 » Thu Sep 09, 2010 7:07 pm

alec wrote:I'm afraid, like in mutual funds, the only way that the high fee advisors are going to lower their fees is if there is enough competition from the likes of Rick and Derek. Kind of like what Vanguard did to the rest of the mutual fund industry.
401k's next.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel

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Post by yobria » Thu Sep 09, 2010 7:09 pm

Are there really many high fee index advisors out there? Index funds don't come up much at the Registered Rep forums. These guys are generally pushing individual bonds and insurance products.

Nick

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Rick Ferri, CFA with guns blazing . .

Post by Taylor Larimore » Thu Sep 09, 2010 7:27 pm

Hi Bogleheads:

Marine fighter-pilot, Rick Ferri, has again gone into action with guns blazing.

His article reminds me of what President Harry Truman said:

"I don't give them Hell. I just tell the truth about them and they think it's Hell."
"Simplicity is the master key to financial success." -- Jack Bogle

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Post by pointyhairedboss » Thu Sep 09, 2010 7:33 pm

Thanks Rick... I am always a big fan of bluntness and naming names. Too many journalists write in such a vague and subtle way that the message has no impact and little meaning.

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Post by mickeyd » Thu Sep 09, 2010 7:40 pm

DIY investing is so simple that it's almost fun. Especially when I know that someone is paying 1.3% to someone else and I am not paying anyone.

Nice article, thanks for posting.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle

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Post by DTSC » Thu Sep 09, 2010 9:09 pm

Writing this article takes guts. He's going to get death threats. Good thing Rick is an ex-Marine and can take care of himself. Way to go, Rick! I've recommended a couple friends to his firm already.

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Post by FredPeterson » Thu Sep 09, 2010 9:30 pm

Since he talks about the subject he mentions in this thread: http://www.bogleheads.org/forum/viewtop ... highlight=

The question was never asked there, but I'll ask here: Is there a copy anywhere of all the posts in the LinkedIn thread?

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Post by Gano_REX » Thu Sep 09, 2010 9:32 pm

I have to admit, the Boglehead spirit has been rubbing off on me lately, and articles like this are starting to make me smile. But I've been wondering. I've been looking into the low cost advisors that do index strategies, and some of them use Charles Schwab as the firm for their clients. I used to have a Schwab account, and left them because they weren't close to the cheapest as far as fees and trading costs. So why do these advisors go with them instead of cheaper alternatives?

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Nice article, Rick!

Post by shawcroft » Thu Sep 09, 2010 10:07 pm

Rick is having a bit more of an impact than he might think. I was roped into going to one of those "investment seminars" recently (it was being given by the new son-in-law of an old friend and he needed warm bodies to impress the visiting dignitaries from Edward Jones).
Anyway, the following pitch comes to me toward the close of the evening by one of the "financial experts" from the Edward Jones headquarters in St Louis.

EJ: "How can we help you do better?"
Me: " I'm happy with where my things are right now"
EJ: "Surely you could benefit from a second opinion on your investments?"
Me: "Yes, I've been thinking about getting a second opinion from Rick Ferri who is an independent advisor"
EJ:" Who are you using now?"
Me: "The concepts of John Bogle and his colleagues applied to a diversified selection of index funds "

ABOUT FIVE SECONDS OF DEAD SILENCE FOLLOWS......

EJ: "We have financial advisors available to you who have decades of experience. Just being average satisfies you?"
Me: "You clearly do not understand how index funds operate. Anyway, since you asked, I believe I am far better off following that investment strategy than any high-cost, actively managed nonsense you guys might try to sucker me into".

Thus concluded his conversation with me.....A few of the other participants in the "seminar" were openly laughing at this exchange.

I doubt I will get any more invitations....alas!

Shawcroft

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Post by Adrian Nenu » Thu Sep 09, 2010 11:38 pm

Funny that Rick should mention Ric Edelman because Barron's has just named him the #1 financial advisor in the US. In this interview, Ric claims he loves to take investors with $50k portfolios and turn them into millionaires. I guess that's why he charges 1.3% - because he's the best! :wink:

http://www.cnbc.com/id/15840232?video=1587699662&play=1

Excellent article Rick!

Adrian
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Post by natureexplorer » Fri Sep 10, 2010 12:08 am

Other than Rick Ferri, which advisors fall into the category of charging less than 0.3% for a portfolio of $1,000,000?

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Post by Adrian Nenu » Fri Sep 10, 2010 12:21 am


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Post by Tyrobi » Fri Sep 10, 2010 12:26 am

Thank you Rick for exposing the truth.
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Post by jimkinny » Fri Sep 10, 2010 5:43 am

I agree with the above postings regarding our appreciation of the courage and honesty displayed by Rick Ferri in writing the Forbes article. I am saving it and will use it in the future for those seeking advice about how to find a financial advisor. I suspect Mr. Ferri might have been a bit irritated at being banned from the website in which he had questioned high advisor fees. Hopefully, Mr. Ferri will see an increase in business as a result.

Jim

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Best in class

Post by Taylor Larimore » Fri Sep 10, 2010 6:33 am

Hi Bogleheads:

Our mentor, Jack Bogle, is known as "The conscience of the mutual fund industry."

Rick Ferri is becoming known as "The conscience of the financial management industry."
"Simplicity is the master key to financial success." -- Jack Bogle

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Post by natureexplorer » Fri Sep 10, 2010 7:10 am

natureexplorer wrote:Other than Rick Ferri, which advisors fall into the category of charging less than 0.3% for a portfolio of $1,000,000?
Adrian Nenu wrote:http://www.evansonasset.com/index.cfm?Page=11

Evanson Asset Management
Adrian, thanks. Their expenses seem below average, but "$4,000 per year regardless of account size" is not less than 0.3% for a portfolio of $1,000,000.

Another thing that is often not mentioned is that using certain advisors will result in higher commissions costs. For example, Wells Trade allows free ETF trades and buying Vanguard bond funds without commission. But I believe Rick Ferri uses Schwab as custodian, which comes with higher commissions.

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Post by Mel Lindauer » Fri Sep 10, 2010 7:28 am

DTSC wrote:Writing this article takes guts. He's going to get death threats. Good thing Rick is an ex-Marine and can take care of himself. Way to go, Rick! I've recommended a couple friends to his firm already.
Rick and I were discussing which one of us would get the most death threats -- him for his high-cost advisor columns or me for my annuity columns. :D
Best Regards - Mel | | Semper Fi

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Post by p_qrs_t » Fri Sep 10, 2010 7:51 am

natureexplorer wrote:
natureexplorer wrote:Other than Rick Ferri, which advisors fall into the category of charging less than 0.3% for a portfolio of $1,000,000?
Adrian Nenu wrote:http://www.evansonasset.com/index.cfm?Page=11

Evanson Asset Management
Adrian, thanks. Their expenses seem below average, but "$4,000 per year regardless of account size" is not less than 0.3% for a portfolio of $1,000,000.

Another thing that is often not mentioned is that using certain advisors will result in higher commissions costs. For example, Wells Trade allows free ETF trades and buying Vanguard bond funds without commission. But I believe Rick Ferri uses Schwab as custodian, which comes with higher commissions.
For clarification, Steven Evanson charges $2000/year for the large majority of accounts, including mine...

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Re: Rick Ferri takes on high-cost advisors on Forbes

Post by ddb » Fri Sep 10, 2010 8:52 am

Mel Lindauer wrote:Hi Everyone:

Rick's latest Forbes column is sure to ruffle a lot of feathers in the high-cost advisor community. His latest column is titled "High-Fee Passive Advisor Hypocrisy". You can read it here:

http://www.forbes.com/2010/09/09/high-f ... ferri.html
Charging what the market will bear for ANY product or service is not unethical, immoral, or illegal (assuming no collusion or illegal pricing practices, and assuming that there is competition). The wonderful thing about any industry is that consumers have the choice and freedom to determine 1) whether to buy a product or service, and 2) from whom to buy said product or service.

In my opinion, Rick is going at this issue the wrong way. Is his goal to bash advisors or to help consumers? I'm guessing his goal is the latter, in which case it would be much more useful to provide consumer education on advisor selection and how to determine total costs of investing.

Additionally, it is difficult to claim that pricing should be "fair" without an explicit definition of what constitutes"fair". This unsupported statement from the article...
A fair fee for servicing a $1 million client should be no more than $5,000 annually, which is 0.50%, and that includes basic personal finance advice. Anything more is making the advisor very, very wealthy.
...makes good copy, but lacks any useful discussion. How do you define fair? Sounds like you're just picking a number out of a hat. Also, what if an investor has a portfolio of $80,000? What's the fair percentage annual fee on that? What about $14 million? Does the advisors' income play a role in what is fair? i.e. if the advisor earns $800,000 a year, are his fees to high? But what if another advisor charges the same fees and only earns $150,000 a year? Does this advisor charge more reasonable fees, even though they are the same?!

Generally speaking, I'm in favor of education, and not bashing. Mel's annuity series, although I disagreed with some parts of it, took a purely educational approach with very little negative comments about salespeople. Rick's approach seems to be to try to disparage people, and it just doesn't come off in the same way.

Rick, in your however many years of doing what you do, have you found that you are typically successful in getting other advisors to change their portfolio management strategies, business models, or pricing structures? I doubt it, so then why do you continue down that road? If the consumer gets educated, then the high-cost guys will eventually go out of business.

- DDB
"We have to encourage a return to traditional moral values. Most importantly, we have to promote general social concern, and less materialism in young people." - PB

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Post by yobria » Fri Sep 10, 2010 9:28 am

natureexplorer wrote:Other than Rick Ferri, which advisors fall into the category of charging less than 0.3% for a portfolio of $1,000,000?
Oh there are plenty - just use one who charges by the hour (like most service providers).

Nick

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Re: Rick Ferri takes on high-cost advisors on Forbes

Post by yobria » Fri Sep 10, 2010 9:40 am

ddb wrote:Charging what the market will bear for ANY product or service is not unethical, immoral, or illegal (assuming no collusion or illegal pricing practices, and assuming that there is competition).
Since "immoral" and "unethical" are value judgements, what you've just said is: I'm all for free competition, unless somebody does something that rubs me the wrong way.

Way to take a stand!

I'd say much of what most so called financial advisors do rubs me the wrong way.

Nick

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Re: Rick Ferri takes on high-cost advisors on Forbes

Post by dbr » Fri Sep 10, 2010 9:50 am

yobria wrote: Since "immoral" and "unethical" are value judgements, what you've just said is: I'm all for free competition, unless somebody does something that rubs me the wrong way.
I think your paraphrase of ddb captures in a nutshell how our economic and legal system actually works. Anything goes until it rubs someone the wrong way; then we regulate it.

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Allan Roth

Post by Taylor Larimore » Fri Sep 10, 2010 9:52 am

yobria wrote:
natureexplorer wrote:Other than Rick Ferri, which advisors fall into the category of charging less than 0.3% for a portfolio of $1,000,000?
Oh there are plenty - just use one who charges by the hour (like most service providers).

Nick
Hi Nick:

Boglehead contributor Allan Roth, charges by the hour.
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Rick Ferri takes on high-cost advisors on Forbes

Post by ddb » Fri Sep 10, 2010 10:09 am

yobria wrote:
ddb wrote:Charging what the market will bear for ANY product or service is not unethical, immoral, or illegal (assuming no collusion or illegal pricing practices, and assuming that there is competition).
Since "immoral" and "unethical" are value judgements, what you've just said is: I'm all for free competition, unless somebody does something that rubs me the wrong way.

Way to take a stand!

I'd say much of what most so called financial advisors do rubs me the wrong way.
I'm not sure I understand what you are saying. I AM all for free competition, done legally.

My broader point remains - if you want people to pay lower fees, then tell them to shop around for lower fees. This will be much more effective than trying to get the service-providers to reduce their fees. Most businessowners won't reduce fees unless they are forced to.

- DDB
"We have to encourage a return to traditional moral values. Most importantly, we have to promote general social concern, and less materialism in young people." - PB

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Post by Gano_REX » Fri Sep 10, 2010 10:40 am

natureexplorer wrote:
Another thing that is often not mentioned is that using certain advisors will result in higher commissions costs. For example, Wells Trade allows free ETF trades and buying Vanguard bond funds without commission. But I believe Rick Ferri uses Schwab as custodian, which comes with higher commissions.
That is what I'm wondering. Why does he choose the higher cost option for his clients?

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Post by maxfax » Fri Sep 10, 2010 10:56 am

The article seemed to me to be only an attack on the LinkedIn community. The OP previously started another thread on the subject of his expulsion. Time to get over it. Not everyone is going to agree with you - just because here you are surrounded by like minds.

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Post by gregw » Fri Sep 10, 2010 11:04 am

natureexplorer wrote:Other than Rick Ferri, which advisors fall into the category of charging less than 0.3% for a portfolio of $1,000,000?
I don't use them, but Scott Burn's firm, AssetBuilder, charges exactly 0.3% for a $1,000,000 portfolio.

http://assetbuilder.com/investing/asset ... _fees.aspx

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Re: Rick Ferri takes on high-cost advisors on Forbes

Post by ResNullius » Fri Sep 10, 2010 11:07 am

Mel Lindauer wrote:Hi Everyone:

Rick's latest Forbes column is sure to ruffle a lot of feathers in the high-cost advisor community. His latest column is titled "High-Fee Passive Advisor Hypocrisy". You can read it here:

http://www.forbes.com/2010/09/09/high-f ... ferri.html
Thanks for the link. I just read the article. I used to think that virtually ever investment advisor was a crook, fraud, and scammer. Ferri is the exception to the rule. Good for him.

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Re: Rick Ferri takes on high-cost advisors on Forbes

Post by 3CT_Paddler » Fri Sep 10, 2010 11:17 am

ddb wrote:
yobria wrote:
ddb wrote:Charging what the market will bear for ANY product or service is not unethical, immoral, or illegal (assuming no collusion or illegal pricing practices, and assuming that there is competition).
Since "immoral" and "unethical" are value judgements, what you've just said is: I'm all for free competition, unless somebody does something that rubs me the wrong way.

Way to take a stand!

I'd say much of what most so called financial advisors do rubs me the wrong way.
I'm not sure I understand what you are saying. I AM all for free competition, done legally.

My broader point remains - if you want people to pay lower fees, then tell them to shop around for lower fees. This will be much more effective than trying to get the service-providers to reduce their fees. Most businessowners won't reduce fees unless they are forced to.

- DDB
I think Ferri's point is that many of those guys are misrepresenting what they are giving their customers. It is one thing to charge a client 2% in fees and putting them in an active management fund in the hopes of beating the market. But to charge 1.5% fees for passive investing and take a significant chunk of what have been meager returns the past decade is borderline unethical.

Financial advisors are kind of like car mechanics... unless you know something about cars there is a chance that mechanic is going to charge you for parts and service you don't need. Some people don't know and they don't want to know... as long as the price seems reasonable they will pay it. So some mechanics charge what the "market" will bear, even if they are being dishonest. Ferri is calling out those financial advisors who are charging clients active management fees for passive management work. The clients are none the wiser, and those advisors are abusing that trust.

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Post by Toons » Fri Sep 10, 2010 11:53 am

How or when do you know if you need a financial advisor?
:D

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Read a good book

Post by Taylor Larimore » Fri Sep 10, 2010 12:12 pm

Toons wrote:How or when do you know if you need a financial advisor?
:D
Hi Toons:

If you don't know, you need to read a good book about mutual fund investing. Then you will know and also be able to evaluate an advisor if you decide to go that route.

This is a carefully selected list of investing books that will be helpful:

Books: Recommendations and Reviews
"Simplicity is the master key to financial success." -- Jack Bogle

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Post by Fallible » Fri Sep 10, 2010 12:34 pm

alec wrote:I'm afraid, like in mutual funds, the only way that the high fee advisors are going to lower their fees is if there is enough competition from the likes of Rick and Derek. Kind of like what Vanguard did to the rest of the mutual fund industry.
I agree, but an equally effective way to get these advisors to lower fees is for more investors to become better informed about fees and how to avoid them - and the advisors.

More Bogleheads needed!

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Post by kenbrumy » Fri Sep 10, 2010 12:52 pm

The article seems to be a rehash of a prior thread Rick started a week or so ago. That thread got the same sort of comments that this one has by many of the same people. That thread eventually got closed and this one is probably about ready too.

Low cost index funds have been shown by study after study to have a better performance than the overwhelming number of actively managed funds. Typically, a diversified index portfolio is in the top 80% of funds by any measure. Financial advisers that "manage" people's money have repeatedly been shown to provide little, if any, value to most investors other than to enforce a certain amount of discipline in maintaining a portfolio. There are, however, situations where I would recommend people seek professional assistance with a financial situation but I have typically suggested lawyers and CPAs.

The availability of low cost options has not eliminated the massive number of high cost advisers and high cost mutual funds. It is up to an individual consumer to become educated and make prudent decisions. No amount of pleading for "fairness" will ever cause the high cost financial services providers (that includes annuities) to lower their fees.

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Post by kenbrumy » Fri Sep 10, 2010 12:56 pm

yobria wrote:
natureexplorer wrote:Other than Rick Ferri, which advisors fall into the category of charging less than 0.3% for a portfolio of $1,000,000?
Oh there are plenty - just use one who charges by the hour (like most service providers).

Nick
I charge by the hour but my financial advice is free. :lol:

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Post by CABob » Fri Sep 10, 2010 1:24 pm

Toons wrote:How or when do you know if you need a financial advisor?
:D
I have come to the opinion that many go to advisors for the wrong reason so this is a good question.
Many go to advisors because they are lazy and don't want to read a few books.
Many go to advisors because they think that their portfolio performance will greatly exceed what they would do on their own.
Many go to advisors because they are "sold" the services.
Bob

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Post by Adrian Nenu » Fri Sep 10, 2010 1:41 pm

http://efmoody.com/daughter.html

How to find a financial advisor.

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Post by lazyday » Fri Sep 10, 2010 4:38 pm

kenbrumy wrote:Financial advisers that "manage" people's money have repeatedly been shown to provide little, if any, value to most investors other than to enforce a certain amount of discipline in maintaining a portfolio.
Isn't that a huge factor though? Haven't we all seen research several times, that shows investors destroying value in their portfolio by buying high and selling low?

You could just look at Morningstar's comparison of fund return to investor return, for the largest funds, to get an idea of how massive this problem is, in spite of some people using advice to own those funds. (Otherwise, probably the figures would be worse.)

Funds which are usually sold through advisors tend to have less value destruction by poor investor timing. Not just load funds, also see DFA.

IMO, the greatest value of this forum is to reduce this kind of behavior, and the second greatest is encouraging low costs. Though lots of posts around the market bottom make me wonder if all the group therapy really works, and if many people really need the one on one help on an advisor to stay the coarse, vs dramatically increasing cash after a crash. And most likely equity again some years from now after a boom. Might be well worth .25%.

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Post by GaryPantaloukas » Fri Sep 10, 2010 4:45 pm

lazyday wrote:
kenbrumy wrote:Financial advisers that "manage" people's money have repeatedly been shown to provide little, if any, value to most investors other than to enforce a certain amount of discipline in maintaining a portfolio.
Isn't that a huge factor though? Haven't we all seen research several times, that shows investors destroying value in their portfolio by buying high and selling low?

You could just look at Morningstar's comparison of fund return to investor return, for the largest funds, to get an idea of how massive this problem is, in spite of some people using advice to own those funds. (Otherwise, probably the figures would be worse.)

Funds which are usually sold through advisors tend to have less value destruction by poor investor timing. Not just load funds, also see DFA.

IMO, the greatest value of this forum is to reduce this kind of behavior, and the second greatest is encouraging low costs. Though lots of posts around the market bottom make me wonder if all the group therapy really works, and if many people really need the one on one help on an advisor to stay the coarse, vs dramatically increasing cash after a crash. And most likely equity again some years from now after a boom. Might be well worth .25%.
Might be worth .10%. But I doubt it. Want somebody to manage your emotions? Go see a shrink.

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Post by Gano_REX » Fri Sep 10, 2010 4:59 pm

I can't believe any online group would censor their member's dissenting opinions. Glad I'm not a member of one.

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Post by sschullo » Fri Sep 10, 2010 5:01 pm

Rick,
I have a similar story about Mercer Consultants and what the lead consultant did and did not do during their tenure with our 457b oversight committee. Shameful!
Thanks for the great article and for naming names.
Steve
Last edited by sschullo on Fri Sep 10, 2010 5:05 pm, edited 1 time in total.
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Post by GaryPantaloukas » Fri Sep 10, 2010 5:04 pm

Gano_REX wrote:I can't believe any online group would censor their member's dissenting opinions. Glad I'm not a member of one.
For once you and I agree.

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Post by kenbrumy » Fri Sep 10, 2010 5:07 pm

GaryPantaloukas wrote: Might be worth .10%. But I doubt it. Want somebody to manage your emotions? Go see a shrink.
I know a lot of people that bailed out of equities in early 2009 and many of them had financial advisers. I barely managed to keep contributing to equities in my retirement plans and somehow managed to put money into our Roths. It wasn't easy.

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Post by Gano_REX » Fri Sep 10, 2010 5:09 pm

GaryPantaloukas wrote:
Gano_REX wrote:I can't believe any online group would censor their member's dissenting opinions. Glad I'm not a member of one.
For once you and I agree.
.

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Post by dbr » Fri Sep 10, 2010 5:10 pm

I think it is a crapshoot as to which advisers would stabilize the decisions an investor might make and which would exacerbate the problem. There is nothing worse than having false confidence in a really bad decision because an adviser is recommending it.

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Post by GaryPantaloukas » Fri Sep 10, 2010 5:20 pm

Gano_REX wrote:
GaryPantaloukas wrote:
Gano_REX wrote:I can't believe any online group would censor their member's dissenting opinions. Glad I'm not a member of one.
For once you and I agree.
. I still think you are a jerk. Accusing Rick of kickbacks from Schwab. I'm sure he has a good explanation for it!
No accusation.

It's ok. I'm sure I will banned soon.

Warren McIntyre
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Post by Warren McIntyre » Fri Sep 10, 2010 5:35 pm

Great article by Rick Ferri.

I also mentioned Ric Edelman to make a point about fairness in an article a few months ago about hidden agendas in the financial world.

http://www.visionquestfinancial.com/blo ... endas.html

Warren McIntyre

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Post by Fallible » Fri Sep 10, 2010 6:16 pm

GaryPantaloukas wrote:
Want somebody to manage your emotions? Go see a shrink.[/quote wrote:
How about, Go look in the mirror...

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