Were These Investment Advisors Lying or Incompetent?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
gouldnm
Posts: 546
Joined: Sun Nov 29, 2009 8:54 pm

Were These Investment Advisors Lying or Incompetent?

Post by gouldnm » Wed Mar 26, 2014 2:16 pm

I sit on the Board of my synagogue. We recently received a very large donation and have been trying to decide how to invest it. While I personally favor Vanguard, other members of the Board feel we need a more "hands on" approach and insisted on inviting several investment advisors to talk.

Last night we heard a couple from Morgan Stanley. They said that their annual fee for managing our account would be 1.25%. Their funds normally carry a 1% end load, but they said that they would wave the load since we would be paying the annual fee. So far so good.

The funds they list in their recommended portfolio all have expense rations of around 2%. One was even as high as 2.5%. These ERs were listed in the fine print disclosure that they provided. I asked about the expense ratios and they said the numbers should be lower than what was listed in the disclosure statement, and that they would have to get back to me. I also asked if they knew the difference between a net ER and a gross ER (both were listed), and they said they would have to get back to me about that as well. I was surprised that they didn't know this, since they were both CFPs.

Here is my question: They claim that the actual ERs will be lower than what was listed in the disclosure statement, yet I always thought that the ER represents the operating costs of a mutual fund, and has nothing to do with who is actually selling that fund. I understand that Morgan Stanley can reduce the sales load, but can they actually reduce the operating costs? Or did these advisors just not know what they were talking about? Or even worse, could they have been lying?

Any comments or advice would be greatly appreciated.

Buysider
Posts: 721
Joined: Sun May 18, 2008 9:36 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by Buysider » Wed Mar 26, 2014 2:19 pm

Which program were they recommending? If you see the tickers, the expenses are what they are. One possible explanation is they are using an SMA platform, where the expenses do vary based on the account size and how badly the broker's children need braces.

gouldnm
Posts: 546
Joined: Sun Nov 29, 2009 8:54 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by gouldnm » Wed Mar 26, 2014 2:27 pm

Buysider wrote:Which program were they recommending? If you see the tickers, the expenses are what they are. One possible explanation is they are using an SMA platform, where the expenses do vary based on the account size and how badly the broker's children need braces.
I am not sure what you mean by "which program"? Their portfolio listed a set of funds, each at a certain percentage.

I checked the tickers, and the data I found online matches what was in the disclosure statement.

What is an "SMA platform"?

Longdog
Posts: 1096
Joined: Sun Feb 09, 2014 6:56 pm
Location: Philadelphia

Re: Were These Investment Advisors Lying or Incompetent?

Post by Longdog » Wed Mar 26, 2014 2:35 pm

gouldnm wrote:The funds they list in their recommended portfolio all have expense rations of around 2%. One was even as high as 2.5%. These ERs were listed in the fine print disclosure that they provided. I asked about the expense ratios and they said the numbers should be lower than what was listed in the disclosure statement, and that they would have to get back to me. I also asked if they knew the difference between a net ER and a gross ER (both were listed), and they said they would have to get back to me about that as well. I was surprised that they didn't know this, since they were both CFPs.

Here is my question: They claim that the actual ERs will be lower than what was listed in the disclosure statement, yet I always thought that the ER represents the operating costs of a mutual fund, and has nothing to do with who is actually selling that fund. I understand that Morgan Stanley can reduce the sales load, but can they actually reduce the operating costs? Or did these advisors just not know what they were talking about? Or even worse, could they have been lying?

Any comments or advice would be greatly appreciated.
Believe only what is in writing!
Steve

User avatar
rob
Posts: 2970
Joined: Mon Feb 19, 2007 6:49 pm
Location: Here

Re: Were These Investment Advisors Lying or Incompetent?

Post by rob » Wed Mar 26, 2014 2:42 pm

So... are you saying the expenses were listed as x in writing and they said they would be lower verbally....... One of those has to be believed and it isn't the verbal :(
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

gouldnm
Posts: 546
Joined: Sun Nov 29, 2009 8:54 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by gouldnm » Wed Mar 26, 2014 2:44 pm

rob wrote:So... are you saying the expenses were listed as x in writing and they said they would be lower verbally....... One of those has to be believed and it isn't the verbal :(
They stated verbally that the actual expense ratios should be lower than what was in writing, and that they would go back to their offices and check and get back to me via e-mail (in writing).

I am just wondering what kind of tricks they could possibly pull. I just don't see any way that the ERs could be lower than what is in the disclosure statement.

User avatar
InvestorNewb
Posts: 1591
Joined: Mon Sep 03, 2012 11:27 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by InvestorNewb » Wed Mar 26, 2014 2:48 pm

gouldnm wrote:I also asked if they knew the difference between a net ER and a gross ER (both were listed), and they said they would have to get back to me about that as well.
Seems condescending to put someone on the spot like that. They were invited to give the presentation after all.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)

gouldnm
Posts: 546
Joined: Sun Nov 29, 2009 8:54 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by gouldnm » Wed Mar 26, 2014 2:51 pm

InvestorNewb wrote:
gouldnm wrote:I also asked if they knew the difference between a net ER and a gross ER (both were listed), and they said they would have to get back to me about that as well.
Seems condescending to put someone on the spot like that. They were invited to give the presentation after all.
I wasn't deliberately trying to put them on the spot. It was an honest question. I wasn't sure myself what the difference was and wanted clarification.

User avatar
InvestorNewb
Posts: 1591
Joined: Mon Sep 03, 2012 11:27 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by InvestorNewb » Wed Mar 26, 2014 2:55 pm

gouldnm wrote:
InvestorNewb wrote:
gouldnm wrote:I also asked if they knew the difference between a net ER and a gross ER (both were listed), and they said they would have to get back to me about that as well.
Seems condescending to put someone on the spot like that. They were invited to give the presentation after all.
I wasn't deliberately trying to put them on the spot. It was an honest question. I wasn't sure myself what the difference was and wanted clarification.
Oh okay... when I read your post it seemed as if you knew the answer, and were trying to put them on the "hot seat" so to speak.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)

jdb
Posts: 1447
Joined: Wed Dec 05, 2012 8:21 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by jdb » Wed Mar 26, 2014 3:41 pm

Welcome to the often frustrating world of being a member of a Board selecting an investment advisor. I have been one of a five member Board for a number of years with oversight over retirement funds now in excess of $100 million. Just finished a beauty contest for advisor selection including Vanguard and the company you mentioned amongst others. Like you I voted for Vanguard and like you was out voted by those who wanted more hand holding. But you are being too harsh. In my experience most of these advisors are competent and generally honest. But they are working in highly lucrative area where want to maximize margins which is best accomplished by lack of transparency in total expenses and perhaps some dissimulation. They can be flexible to certain extent on overall costs depending on how much they want your business. Some use more proprietary funds and others use more third party funds. Not sure of specific answer to your ER fund question but key is overall expenses and getting it in writing at the outset. You get what you pay for, hand holding comes with more expenses and less transparency and lot less use of low cost index funds. I think hard for advisors to beat a simple Vanguard low cost index fund 60-40 or 50-50 allocation though suspect you and I are in minority among board members choosing advisors. But the players are for the most part hard working professionals and deserve respect. And regardless of advisor selected it is ultimately the responsibility of you and other Board members to decide upon the overall investment allocation between stocks and bonds etc. that the advisor would implement. Good luck.
Last edited by jdb on Wed Mar 26, 2014 4:55 pm, edited 2 times in total.

User avatar
bertilak
Posts: 6050
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Were These Investment Advisors Lying or Incompetent?

Post by bertilak » Wed Mar 26, 2014 3:54 pm

gouldnm wrote:I was surprised that they didn't know this, since they were both CFPs.
Oh, they know. What they also know is you won't like the answer if they give it to you straight so they are stalling until either you forget or they can give you a delayed, non-responsive, answer and you will run out of energy before they do.

I would stay away from these guys. Unfortunately it isn't up to you alone. You need to get yourself well educated so you can be convincing to your colleagues. And then get them educated -- not an easy task ahead of you. Two ideas come to mind, but don't just jump on these. Others may have better advice...
  1. Find a nice simple something for your colleagues to read. I recommend a book by Mike Piper. It is less than 100 pages with large type and is a very quick and easy read. It is about the fastest "leg up" I have seen.
  2. Fallback position: Split it in two. Do one half the Boglehead way (buy and hold index funds) and one half the Morgan Stanley way. Give it at least a year then come to a consensus.
Things are not all that complicated and if they create complications to make you feel lie their management is worth those monstrous costs they are doing you no favors.

Yes the ERs in combination with their management fees are unreasonable. Lets say you can expect an average of 10% from the stock market and adding in some bonds brings that down to 8%. That means their fees (2+1.25=3.25) are nearly 40% of what your portfolio can be expected to earn and YOU are taking all the risk.

These Morgan Stanley guys know much more about salesmanship than they do about investing -- and work harder at it, too.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

livesoft
Posts: 62244
Joined: Thu Mar 01, 2007 8:00 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by livesoft » Wed Mar 26, 2014 3:58 pm

I didn't see anything that hinted they were lying nor that they were incompetent. I believe they were very clever to state that they would get back to you. That way, they parried your thrust for the moment and diluted your effort. They will work on your colleagues if needed.

I think as they got in their car to go back to their office, they discussed your questions and already were working on a game-plan to go around you and sell to the rest of the board. They did that because that's what they are paid to do.
Wiki This signature message sponsored by sscritic: Learn to fish.

Harpoon1
Posts: 47
Joined: Sat Mar 01, 2014 3:00 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by Harpoon1 » Wed Mar 26, 2014 4:04 pm

Deleted.
Last edited by Harpoon1 on Thu Mar 27, 2014 7:23 am, edited 2 times in total.

gouldnm
Posts: 546
Joined: Sun Nov 29, 2009 8:54 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by gouldnm » Wed Mar 26, 2014 4:19 pm

Bertilak:
Thank you for the book recommendation. I just bought a copy for my kindle. I don't know how much it will help me in this situation, but I always appreciate a good investing book, and this sounds like it should be a good summary of the advantages of index investing. Also, I don't know much about ETFs, so I should learn something new.

I am very curious to see what these guys are going to come back to me with. They promised in front of a room full of people they would get back to me with the "proper" ERs. It's hard for me to believe that they won't get back to me with anything, but we'll see.

BTW, the Morgan Stanley guys were not the worst that we heard. We heard another guy who claimed that he doesn't believe in investing in bonds right now because bonds aren't doing well, whereas stocks went gangbusters last year (like he can predict when the market is going to tank). What's scary is that he seems to want to recommend a very aggressive portfolio, which IMHO is completely inappropriate for a non-profit organization. Not surprinsingly, he didn't even provide us with a list of funds (at least the Morgan Stanley people did that).

Remarkably, several people seemed to like his plan. I'm going to have a lot of educating to do.

MathWizard
Posts: 2957
Joined: Tue Jul 26, 2011 1:35 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by MathWizard » Wed Mar 26, 2014 4:33 pm

What in the world is a disclosure statement for, if not to disclose?

I would not take anything they say verbally, and insist on any deviation from the disclosure statement
to be presented in writing. Why would they even bring a disclosure statement that does not have the
correct facts?

I suspect that the 2% ER that was disclosed is in fact correct. They may find some way to "lower" that
while "raising" some other fee to make up for it.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by dbr » Wed Mar 26, 2014 4:44 pm

I don't really see lying although it may be they didn't expect and weren't prepared for detailed questions about costs. I am sure they are very competent at making money for their employer, which is the job they are hired to do. I think it is entirely possible they and the industry they work for does not consider it incompetence to sign organizations like yours into high cost plans compared to what is possible. Most such plans have the defense of being in line with most other plans.

What might be an outcome is consideration to resigning from the synagogue board if other board members fail in their duty and buy into excessively costly investments. I don't know if as a board you literally have a fiduciary duty, and it you do high cost investing is probably not a breach of that duty except from a certain enlightened but uncommon point of view.

Steady59
Posts: 90
Joined: Thu May 23, 2013 3:05 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by Steady59 » Wed Mar 26, 2014 5:02 pm

The MS portfolios that I am familiar with are made up of a combination Vanguard ETFs and other fixed income and hedge strategies. I think there are 7-8 different portfolios that have varying AAs depending upon the risk tolerance of the investor. They are evaluated and rebalanced by their investment committee a couple times a year based upon their view of the market. I haven't figured out the overall ER but I assume its pretty reasonable given that much of the underlying assets are with Vanguard. I also know that if you challenge MS on their fees, they will come down depending upon the amount you are giving them. Now, those fees in the aggregate don't compete to a Boglehead approach, but they are not awful especially compared to other FAs I've heard about.

johnubc
Posts: 714
Joined: Wed Jan 06, 2010 6:54 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by johnubc » Wed Mar 26, 2014 5:07 pm

InvestorNewb wrote:
gouldnm wrote:I also asked if they knew the difference between a net ER and a gross ER (both were listed), and they said they would have to get back to me about that as well.
Seems condescending to put someone on the spot like that. They were invited to give the presentation after all.
Why would that be condescending - I invite people in all the time for presentations - and ask questions about the information delivered - surely the presenters should know the material they are presenting.

Grt2bOutdoors
Posts: 19054
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Were These Investment Advisors Lying or Incompetent?

Post by Grt2bOutdoors » Wed Mar 26, 2014 6:08 pm

SMA - Separately Managed Accounts.
http://www2.morganstanley.com/wealth/in ... arkets.pdf

Here's there latest recommendations up above: why not just pick one of those portfolios and save yourself the fees? :P When you see how complicated they've made it, you'll wish you just picked an all-in-one Vanguard fund of funds and called it a day. Good Luck trying to convince multiple people why you shouldn't try to pick the "needle in the haystack" - because that is essentially what those investment advisers are claiming they are able to do - beat the market, with less risk. :oops: Good grief Charlie Brown!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Calm Man
Posts: 2917
Joined: Wed Sep 19, 2012 9:35 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by Calm Man » Wed Mar 26, 2014 6:26 pm

There could be a few people with a pocket to be lined from the winner if not Vanguard, Maybe not. I stopped donating to my alma mater when they announced they were more than 50% in alternative investments. Why for any reason they couldn't just go with Vanguard's balanced or Life Strategy Moderate growth (both 60/40) is a mystery to me. Then you can hold their hand and tell them this is how pension funds invest but the problem is they will save about 2% per year.

livesoft
Posts: 62244
Joined: Thu Mar 01, 2007 8:00 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by livesoft » Wed Mar 26, 2014 6:35 pm

A colleague of mine used to work for Morgan Stanley as an account executive. Before that he was a professional athlete. It is pretty clear that he was hired by them because of all the folks he knew that he could sell stuff to: basically his list of personal contacts. Even today, he doesn't really know much about finances and investments although he is a smart person (college educated!), friendly and personable. He is working in customer service where he does a great job.

So I post this anecdote to demonstrate that one shouldn't expect much from the MS folks who visited you. Did they talk sports with you? Maybe NCAA basketball?
Wiki This signature message sponsored by sscritic: Learn to fish.

Leesbro63
Posts: 5435
Joined: Mon Nov 08, 2010 4:36 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by Leesbro63 » Wed Mar 26, 2014 7:51 pm

There is another issue here. I have been on more than a few boards like this. In particular, one board had about $1M endowment. Another has a pension fund also worth about $1M. Many of us on both boards feel qualified and able to do this ourselves. But we realized that we need a professional manager as a buffer. If we had invested in 2007, would the members of larger group have blamed us when the portfolio lost 30%? And would the other do it yourselfers have wanted to bail out? I agree that the board still has a duty to get the best VALUE in a money manager, but there is still a cost for that. Not everyone has the Boglehead mentality and for sure not everyone understand investing. In one case, we went with a regional monster-mega-bank (thanks for the term, Clark Howard) because we felt the community would accept them as a reasonable choice when times got rough. In another, we invested with a professionally managed parent organization pool that is cheap, but not as cheap as Vanguard.

The job of both boards given in the examples was not to invest at the lowest cost, it was to invest with an adviser who the constituents would recognize as being legit. And to provide continuity. So that in a few years, for instance, the hot, handsome new stock broker wouldn't sweet talk some board members into his investment scheme. Or to prevent a future "fraidy cat" from panic selling. Or to prevent a "gambler" from putting the funds all in Apple stock. In other words, having a recognized fiduciary with continuity at a real cost is more important than doing it ourselves at a lower cost. Because of the risk of getting personally blamed for real and perceived problems (being invested in a down market is not necessarily a mistake, but the uninformed sure think that way) and of the risk that the individuals doing it themselves can and will change.

Cherilus
Posts: 18
Joined: Sat Jan 04, 2014 7:54 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by Cherilus » Wed Mar 26, 2014 8:05 pm

They may be able to lower the expense ratio by giving you the same funds, only a different share class. i.e. American Funds Washington Mutual C Shares Ticker WSHCX has an annual expense ratio of 1.42% vs. the same fund as A shares with the load waived (AWSHX) with an expense ratio of 0.62%.

So they could certainly come back to you with the same funds, only different share classes to show you a lower net expense ratio. So they can effectively lower the operating costs of the funds for you.

My bigger concern is that they shared with you an investment proposal without properly knowing how to manage the money for your synagogue. Did they do a lot of due diligence/fact finding/question asking prior to this meeting or did they come with some boilerplate recommendation?

I certainly don't think your question was in poor taste or inappropriate. I would hope your board asked that question and many more to find out much more about who and how their money would be managed.

PB
Posts: 191
Joined: Sat Oct 30, 2010 1:59 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by PB » Wed Mar 26, 2014 8:19 pm

My apologies if someone already addressed this, but per SMA's:

http://www.investopedia.com/articles/mu ... ccount.asp

z3r0c00l
Posts: 1129
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC
Contact:

Re: Were These Investment Advisors Lying or Incompetent?

Post by z3r0c00l » Wed Mar 26, 2014 8:41 pm

InvestorNewb wrote:
gouldnm wrote:I also asked if they knew the difference between a net ER and a gross ER (both were listed), and they said they would have to get back to me about that as well.
Seems condescending to put someone on the spot like that. They were invited to give the presentation after all.
Yes who in the world would make sure an expert charging outrageous rates actually knows what they are doing before investing millions with them? The nerve...

User avatar
joe8d
Posts: 4286
Joined: Tue Feb 20, 2007 8:27 pm
Location: Buffalo,NY

Re: Were These Investment Advisors Lying or Incompetent?

Post by joe8d » Wed Mar 26, 2014 8:47 pm

Calm Man wrote:There could be a few people with a pocket to be lined from the winner if not Vanguard, Maybe not. I stopped donating to my alma mater when they announced they were more than 50% in alternative investments. Why for any reason they couldn't just go with Vanguard's balanced or Life Strategy Moderate growth (both 60/40) is a mystery to me. Then you can hold their hand and tell them this is how pension funds invest but the problem is they will save about 2% per year.
:thumbsup
All the Best, | Joe

lawman3966
Posts: 1115
Joined: Sun Aug 10, 2008 12:09 pm
Location: Tacoma WA

Re: Were These Investment Advisors Lying or Incompetent?

Post by lawman3966 » Wed Mar 26, 2014 11:10 pm

gouldnm wrote:I sit on the Board of my synagogue.
Here is my question: They claim that the actual ERs will be lower than what was listed in the disclosure statement, yet I always thought that the ER represents the operating costs of a mutual fund, and has nothing to do with who is actually selling that fund. I understand that Morgan Stanley can reduce the sales load, but can they actually reduce the operating costs? Or did these advisors just not know what they were talking about? Or even worse, could they have been lying?
There could be shades of grey here instead of them being dishonest or incompetent.

I suspect it's a case of wanting to provide the least offensive answer (that is, one that conceals the number and magnitude of the fees they charge) without having to lie outright. Accordingly, "I'll get back to you" is always the safest answer in that it gets them off the hook. In the specific case of your ER question, I would go with the printed word, of course.

But, more broadly, I'd carefully check up on any words of reassurance about fees, as I've found salesmen from the large wealth management firms to be skilled at providing highly misleading reassurance about fees. A colleague who used a large firm once assured me that he paid a total of 1% of assets in fees. He then showed me a list of funds he owned through this firm, many of which had 1% ERs. I assumed that there was no way the management firm could reduce the ERs (since most of the funds were issued by companies other than the management firm), and asked for proof that the ERs were included in this vaunted total of 1%. Sure enough, the list of fees consolidated into the 1% fee clearly omitted the ERs of the individual funds. This meant of course that the customer was paying 1% to the firm, and (at least) another 1% for the mutual fund ER. And, this 2% fee total was available only if the customer had $ 1 million or more invested with the firm. They had, however, consolidated a long list of utterly frivolous fees into the 1% management firm fee, thereby making the 1% management fee look like a bargain.

I doubt the salesman ever outright lied about the fees. That would impose too much risk. The customers are sufficiently ignorant of the many different fees that the salesmen don't need to lie. They just need to avoid mentioning the "ups and extras" that make the advisors rich at their clients' expense. When "troublemakers" show up and ask nasty questions about fees, the salesmen (as others on the board have stated) likely try to work around the problem and deal with decision makers who can be intimidated into paying whatever is needed to keep an "expert" firmly in charge of the portfolio.

In more direct answer to one question above, the ER is not just the operating cost of the fund. I believe that the ER includes much of the profit that the mutual fund company makes operating the fund. It may also include kickbacks to the salesmen who directed the customer to that particular fund.

User avatar
sans souliers
Posts: 177
Joined: Sun Apr 08, 2012 1:38 pm
Location: By the Quinnipiac

Re: Were These Investment Advisors Lying or Incompetent?

Post by sans souliers » Thu Mar 27, 2014 4:28 am

If I could take a little twist on Solomon, a very large donation can be cleaved in two, with both halves taking divergent paths going forward.

After one year, two years ....ten years, with half the pot invested with the firm of "I'll Get Back to You" and the other half in similar classes of index funds at Vanguard, comparisons will reveal to the Board which path is the better one.

In the long run, the lesson learned by this exercise would provide the Board with wisdom well paid for and, passed down, wisdom carries over generations. This is all assuming the Board is comprised of long-term planners.
Sometimes pessimism leaves me pretty well prepared for when things don't go my way, and pleasantly surprised when they do.

User avatar
runner9
Posts: 2024
Joined: Tue Aug 02, 2011 8:49 pm
Location: Ohio

Re: Were These Investment Advisors Lying or Incompetent?

Post by runner9 » Thu Mar 27, 2014 5:41 am

I'd wait for the response, but I think a very basic concept we teach in schools is a written contract matters a lot, verbal far less to not at all. An SEC filed written contract is far better than an e-mail as well. If they don't have a logical answer than run fast, if you can drag the rest of the board with you.

bondsr4me
Posts: 900
Joined: Fri Oct 18, 2013 7:08 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by bondsr4me » Thu Mar 27, 2014 6:04 am

I kinda agree with the one poster about splitting the money; 1/2 to the advisors and and 1/2 using BH theory. As time goes by, compare the portfolios' performances. Then you have facts, not just opinions. I am a numbers guy and some of us say that "numbers don't lie...people do".
Give the advisors a chance; maybe they will surprise us all!
I believe in giving people a chance.
Good Luck; you have a heavy responsiblity on your shoulders.
Don

normaldude
Posts: 719
Joined: Tue Jan 27, 2009 4:41 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by normaldude » Thu Mar 27, 2014 6:25 am

Those fees are brutal. 1.25 + 2.0 = 3.25%

So let's look at expected ending balance for a $1 million balanced portfolio, averaging 7% before fees, for 50 years.

- No Fees: $29.5 million (In Excel: =1.07^50)

- 3.25% Fees: $6.3 million (In Excel: =1.0375^50)

So over the next 50 years, you can expect Morgan Stanley to walk away with with nearly 80% of the money.

Sounds like a great deal for Morgan Stanley.
Last edited by normaldude on Thu Mar 27, 2014 6:33 am, edited 1 time in total.

normaldude
Posts: 719
Joined: Tue Jan 27, 2009 4:41 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by normaldude » Thu Mar 27, 2014 6:33 am

bondsr4me wrote:I kinda agree with the one poster about splitting the money; 1/2 to the advisors and and 1/2 using BH theory. As time goes by, compare the portfolios' performances. Then you have facts, not just opinions. I am a numbers guy and some of us say that "numbers don't lie...people do".
Give the advisors a chance; maybe they will surprise us all!
I believe in giving people a chance.
Good Luck; you have a heavy responsiblity on your shoulders.
Don
If a Nigerian prince sends you an email, promising riches, are you going to send him half your money, because you "believe in giving people a chance"?

Bogleheads should know that the data shows that the 3.25% fee Morgan Stanleys and Nigerian 419 email scams are a bad deal.

Whenever I watch episodes of "American Greed", and the scam victims are interviewed, and they're asked why they trusted the scammer, they often reply that they were raised to "trust their neighbor" and "see the good in people".

I think that scammers prey on nice people like that. I think it's better to assume that everyone is trying to screw you over, unless there's an overwhelming amount of evidence to prove otherwise.

I'd go with Vanguard, instead of trusting commissioned salespeople driving Ferraris.

User avatar
bottlecap
Posts: 5760
Joined: Tue Mar 06, 2007 11:21 pm
Location: Tennessee

Re: Were These Investment Advisors Lying or Incompetent?

Post by bottlecap » Thu Mar 27, 2014 6:41 am

InvestorNewb wrote:
gouldnm wrote:
InvestorNewb wrote:
gouldnm wrote:I also asked if they knew the difference between a net ER and a gross ER (both were listed), and they said they would have to get back to me about that as well.
Seems condescending to put someone on the spot like that. They were invited to give the presentation after all.
I wasn't deliberately trying to put them on the spot. It was an honest question. I wasn't sure myself what the difference was and wanted clarification.
Oh okay... when I read your post it seemed as if you knew the answer, and were trying to put them on the "hot seat" so to speak.
If you are about to invest a large sum with someone, feel free to put them on the hotseat. They are supposed to know these things. If you don't kick the tires, how do you know what you're getting. Doesn't sound like they're getting much.

JT

RNJ
Posts: 762
Joined: Mon Apr 08, 2013 9:06 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by RNJ » Thu Mar 27, 2014 6:51 am

normaldude wrote:Those fees are brutal. 1.25 + 2.0 = 3.25%

So let's look at expected ending balance for a $1 million balanced portfolio, averaging 7% before fees, for 50 years.

- No Fees: $29.5 million (In Excel: =1.07^50)

- 3.25% Fees: $6.3 million (In Excel: =1.0375^50)

So over the next 50 years, you can expect Morgan Stanley to walk away with with nearly 80% of the money.

Sounds like a great deal for Morgan Stanley.
How did you perform this calculation? Thanks.

ks289
Posts: 626
Joined: Sun Mar 11, 2012 12:42 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by ks289 » Thu Mar 27, 2014 7:04 am

I agree that the fees from Morgan Stanley are excessive here.
I would just add that a "hands on" approach may also be important here to help protect board members who likely carry fiduciary responsibility/risk.

Vanguard's Institutional Advisory Services may allow you to have both protection/hand-on assistance with lower costs. I have no idea what Vanguard's fees are here, but their Asset Management Services (for personal investors) runs 0.7% (+ERs of funds). This would likely be a better comparison. For our small business 401k, it turns out going with Vanguard was not the cheapest option, but rather a piecemeal approach (low cost advisor, low cost TPA, low cost open platform with vanguard funds). This may or may not be applicable for Nonprofit/institutional.

normaldude
Posts: 719
Joined: Tue Jan 27, 2009 4:41 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by normaldude » Thu Mar 27, 2014 7:09 am

RNJ wrote:
normaldude wrote:Those fees are brutal. 1.25 + 2.0 = 3.25%

So let's look at expected ending balance for a $1 million balanced portfolio, averaging 7% before fees, for 50 years.

- No Fees: $29.5 million (In Excel: =1.07^50)

- 3.25% Fees: $6.3 million (In Excel: =1.0375^50)

So over the next 50 years, you can expect Morgan Stanley to walk away with with nearly 80% of the money.

Sounds like a great deal for Morgan Stanley.
How did you perform this calculation? Thanks.
In Excel, type: =1.07^50

This represents 7% return, compounded over 50 years.

In Excel, type: =1.0375^50

This represents 3.75% return (7% minus 3.25% fees), compounded over 50 years.

This is similar to the example used by John Bogle in a recent PBS Frontline episode (except that his example used a 2% fee, not a 3.25% fee)..
Fees, expenses, portfolio turnover inside of the fund, sales loads, advisory fees, operating expenses — take them all out, and the net return divided up by investors is what’s left. So costs are a crucial part of the equation.

And a lot of people say, “So what?” Well, think about this. We’re lucky enough to get a 7 percent return on the market. That means it should not surprise anybody that investors as a group divide up 7 percent. Suppose it costs two percent — maybe a little bit high but in the ballpark — to gain that return. Then investors who grossed 7 percent will net 5 percent.

Now, when the market’s going up, as it did in the ’80s and ’90s, at 17 percent a year, 2 percent doesn’t seem like much. But it’s an awful lot. And if you compound a 7 percent and the 5 percent return over, say, 50 years, let’s call that an investment lifetime — well, in fact the investment lifetime is longer than that — something like 70 percent of the market return goes to the purveyors of the services, Wall Street if you will, and 30 percent goes to the fund owners. …

http://www.pbs.org/wgbh/pages/frontline ... etirement/

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by dbr » Thu Mar 27, 2014 7:25 am

lawman3966 wrote:
But, more broadly, I'd carefully check up on any words of reassurance about fees, as I've found salesmen from the large wealth management firms to be skilled at providing highly misleading reassurance about fees. A colleague who used a large firm once assured me that he paid a total of 1% of assets in fees. He then showed me a list of funds he owned through this firm, many of which had 1% ERs. I assumed that there was no way the management firm could reduce the ERs (since most of the funds were issued by companies other than the management firm), and asked for proof that the ERs were included in this vaunted total of 1%. Sure enough, the list of fees consolidated into the 1% fee clearly omitted the ERs of the individual funds. This meant of course that the customer was paying 1% to the firm, and (at least) another 1% for the mutual fund ER. And, this 2% fee total was available only if the customer had $ 1 million or more invested with the firm. They had, however, consolidated a long list of utterly frivolous fees into the 1% management firm fee, thereby making the 1% management fee look like a bargain.
Of course, mutual fund expenses are not fees, at least not technically, so it isn't a lie to not include expenses in the answer. Whose fault it is when the investor isn't educated enough to know how all this works is a topic for discussion. First Hint: caveat emptor Second hint: Where are the regulators? Third hint: What kind of people engage in this business?

Longtimelurker
Posts: 471
Joined: Fri Dec 13, 2013 8:23 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by Longtimelurker » Thu Mar 27, 2014 7:37 am

Seems to me that the Morgan Stanley folks can do arithmetic, while your co-workers are being distracted by marketing. Good luck.
Stay the course. If you can't resist greed, and fear is proven to be 2x as strong, you are doomed as an investor.

supernova
Posts: 283
Joined: Fri Feb 21, 2014 8:45 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by supernova » Thu Mar 27, 2014 7:54 am

Show them charts about how much high expense ratios eat away at gains.

RNJ
Posts: 762
Joined: Mon Apr 08, 2013 9:06 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by RNJ » Thu Mar 27, 2014 7:56 am

normaldude wrote:
RNJ wrote:
normaldude wrote:Those fees are brutal. 1.25 + 2.0 = 3.25%

So let's look at expected ending balance for a $1 million balanced portfolio, averaging 7% before fees, for 50 years.

- No Fees: $29.5 million (In Excel: =1.07^50)

- 3.25% Fees: $6.3 million (In Excel: =1.0375^50)

So over the next 50 years, you can expect Morgan Stanley to walk away with with nearly 80% of the money.

Sounds like a great deal for Morgan Stanley.
How did you perform this calculation? Thanks.
In Excel, type: =1.07^50

This represents 7% return, compounded over 50 years.

In Excel, type: =1.0375^50

This represents 3.75% return (7% minus 3.25% fees), compounded over 50 years.

This is similar to the example used by John Bogle in a recent PBS Frontline episode (except that his example used a 2% fee, not a 3.25% fee)..
Fees, expenses, portfolio turnover inside of the fund, sales loads, advisory fees, operating expenses — take them all out, and the net return divided up by investors is what’s left. So costs are a crucial part of the equation.

And a lot of people say, “So what?” Well, think about this. We’re lucky enough to get a 7 percent return on the market. That means it should not surprise anybody that investors as a group divide up 7 percent. Suppose it costs two percent — maybe a little bit high but in the ballpark — to gain that return. Then investors who grossed 7 percent will net 5 percent.

Now, when the market’s going up, as it did in the ’80s and ’90s, at 17 percent a year, 2 percent doesn’t seem like much. But it’s an awful lot. And if you compound a 7 percent and the 5 percent return over, say, 50 years, let’s call that an investment lifetime — well, in fact the investment lifetime is longer than that — something like 70 percent of the market return goes to the purveyors of the services, Wall Street if you will, and 30 percent goes to the fund owners. …

http://www.pbs.org/wgbh/pages/frontline ... etirement/

Thank you - very helpful. I'm in nearly the same position as the OP.

pkcrafter
Posts: 13001
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Were These Investment Advisors Lying or Incompetent?

Post by pkcrafter » Thu Mar 27, 2014 8:14 am

The board must have some members who will carry a fiduciary duty, so why would they even talk to a full service brokerage that does not have to carry this standard? The boys knew exactly what they were doing--finding out just how naive you are. I think MS tried to get by with their highest cost plan and if no one questioned it, great for MS. If it was questioned, they then come back with a special deal just for you with somewhat lower costs. Can you provide a couple of examples of ticker symbols?

I have a friend with MS and they managed to lose 10k of his total assets in 2013. Now that is very hard to do. I would not trust MS with a single dollar. I would not even talk to any full service broker. Take a look at the headings on this Google page.

https://www.google.com/search?q=Morgan+ ... channel=sb

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Dave55
Posts: 351
Joined: Tue Sep 03, 2013 2:51 pm
Location: Colorado

Re: Were These Investment Advisors Lying or Incompetent?

Post by Dave55 » Thu Mar 27, 2014 8:30 am

2 possible alternative solutions for you:

1. Have Vanguard Asset Management make a presentation. Their fees are much lower than MS. (Most likely a Skype or phone presentation depending your geographic location) See:
http://www.vanguardinformation.com/pdfs ... 102009.pdf

2. There are some very good low cost advisors that charge 10-20 basis points. (.10-.20). Have them make a presentation. (May have to be by Skype) unless they are in your area.

Contact me if you need more information by using private message here on the board.
Last edited by Dave55 on Thu Mar 27, 2014 8:32 am, edited 1 time in total.

User avatar
rob
Posts: 2970
Joined: Mon Feb 19, 2007 6:49 pm
Location: Here

Re: Were These Investment Advisors Lying or Incompetent?

Post by rob » Thu Mar 27, 2014 8:31 am

gouldnm wrote:
rob wrote:So... are you saying the expenses were listed as x in writing and they said they would be lower verbally....... One of those has to be believed and it isn't the verbal :(
They stated verbally that the actual expense ratios should be lower than what was in writing, and that they would go back to their offices and check and get back to me via e-mail (in writing).

I am just wondering what kind of tricks they could possibly pull. I just don't see any way that the ERs could be lower than what is in the disclosure statement.
I guess I don't weight an email as much as published language in disclosure statements......... I agree with an earlier comment.... it's a delay and your likely to get a non answer if anything via email but even if you get something very specific how could you take that over the product disclosure - which I suspect is at least lodged with the SEC.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

gouldnm
Posts: 546
Joined: Sun Nov 29, 2009 8:54 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by gouldnm » Thu Mar 27, 2014 9:07 am

pkcrafter wrote:The board must have some members who will carry a fiduciary duty, so why would they even talk to a full service brokerage that does not have to carry this standard? The boys knew exactly what they were doing--finding out just how naive you are. I think MS tried to get by with their highest cost plan and if no one questioned it, great for MS. If it was questioned, they then come back with a special deal just for you with somewhat lower costs. Can you provide a couple of examples of ticker symbols?

I have a friend with MS and they managed to lose 10k of his total assets in 2013. Now that is very hard to do. I would not trust MS with a single dollar. I would not even talk to any full service broker. Take a look at the headings on this Google page.

https://www.google.com/search?q=Morgan+ ... channel=sb

Paul
You ask for ticker numbers.

Here is one of the portfolios they proposed to us. Have at it!

18% DIA (SPDR Dow Jones Industrial Avg)
12% BIV (Vanguard Intermediate-Term Bond)
14% Columbia Thermostat C (CTFDX)
14% First Eagle Global C (FESGX)
14% BlackRock Global Allocation Inv C (MCLOX)
14% Ivy Asset Strategy C (WASCX)
14% MainStay Marketfield A (MFADX)

Thank you!

gouldnm
Posts: 546
Joined: Sun Nov 29, 2009 8:54 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by gouldnm » Thu Mar 27, 2014 9:15 am

Dave55 wrote:2 possible alternative solutions for you:

1. Have Vanguard Asset Management make a presentation. Their fees are much lower than MS. (Most likely a Skype or phone presentation depending your geographic location) See:
http://www.vanguardinformation.com/pdfs ... 102009.pdf

2. There are some very good low cost advisors that charge 10-20 basis points. (.10-.20). Have them make a presentation. (May have to be by Skype) unless they are in your area.

Contact me if you need more information by using private message here on the board.

Dave55:
Those are great suggestions, but unfortunately, I don't think they'd work for me.

One thing I should have been clear about is that the donation was about $70K. In retrospect, I probably shouldn't have described it as a "very large donation", but we are a very small congregation (about 55 families), and that is a huge amount to us. Unfortunately, in the investing world, it doesn't amount to much. I would love to have Vanguard manage our portfolio, but we would need at least $500K to have them do that.

I looked into low cost advisors in my area, and there were none. Since I don't like the idea of hiring an advisor to begin with, I didn't pursue the option of a low cost (long distance) advisor via skype, etc. But after reading some of the responses on this thread I'm beginning to think that maybe we do need someone to manage our account, if only to protect Board members who have fiduciary responsibility or to make sure that this issue doesn't keep coming up again in the future.

However, I'm not sure if it's worth hiring an advisor for only $70K, and I certainly wouldn't want to pay the 3.25% that Morgan Stanley wants to charge.

I am just glad we're not going with Edward Jones. The Board did contact them, but no one from EJ ever got back to us. Thank G-d!

normaldude
Posts: 719
Joined: Tue Jan 27, 2009 4:41 am

Re: Were These Investment Advisors Lying or Incompetent?

Post by normaldude » Thu Mar 27, 2014 9:35 am

gouldnm wrote:One thing I should have been clear about is that the donation was about $70K. In retrospect, I probably shouldn't have described it as a "very large donation", but we are a very small congregation (about 55 families), and that is a huge amount to us. Unfortunately, in the investing world, it doesn't amount to much. I would love to have Vanguard manage our portfolio, but we would need at least $500K to have them do that.
I don't understand why you need someone to "manage" the portfolio.

Just open a regular Vanguard account, put the $70k into a Vanguard LifeStrategy Fund, set the dividends to reinvest, and forget about it.

- Vanguard LifeStrategy Growth Fund (VASGX): 80% stocks / 20% bonds

- Vanguard LifeStrategy Moderate Growth Fund (VSMGX): 60% stocks / 40% bonds

- Vanguard LifeStrategy Conservative Growth Fund (VSCGX): 40% stocks / 60% bonds

- Vanguard LifeStrategy Income Fund (VASIX): 20% stocks / 80% bonds

Pick one. Set it, forget it, and get on with your life.

Mountain Man
Posts: 134
Joined: Sun Mar 09, 2014 8:34 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by Mountain Man » Thu Mar 27, 2014 9:40 am

normaldude wrote:
gouldnm wrote:One thing I should have been clear about is that the donation was about $70K. In retrospect, I probably shouldn't have described it as a "very large donation", but we are a very small congregation (about 55 families), and that is a huge amount to us. Unfortunately, in the investing world, it doesn't amount to much. I would love to have Vanguard manage our portfolio, but we would need at least $500K to have them do that.
I don't understand why you need someone to "manage" the portfolio.

Just open a regular Vanguard account, put the $70k into a Vanguard LifeStrategy Fund, set the dividends to reinvest, and forget about it.

- Vanguard LifeStrategy Growth Fund (VASGX): 80% stocks / 20% bonds

- Vanguard LifeStrategy Moderate Growth Fund (VSMGX): 60% stocks / 40% bonds

- Vanguard LifeStrategy Conservative Growth Fund (VSCGX): 40% stocks / 60% bonds

- Vanguard LifeStrategy Income Fund (VASIX): 20% stocks / 80% bonds

Pick one. Set it, forget it, and get on with your life.

I second this. Keep it simple. Just decide on when the funds are needed and how conservative or aggressive you are gonna be and then pick one of those 4 funds. Whether its 70K or 700K, this is the route to go.

Dave55
Posts: 351
Joined: Tue Sep 03, 2013 2:51 pm
Location: Colorado

Re: Were These Investment Advisors Lying or Incompetent?

Post by Dave55 » Thu Mar 27, 2014 9:45 am

gouldnm wrote:
Dave55 wrote:2 possible alternative solutions for you:

1. Have Vanguard Asset Management make a presentation. Their fees are much lower than MS. (Most likely a Skype or phone presentation depending your geographic location) See:
http://www.vanguardinformation.com/pdfs ... 102009.pdf

2. There are some very good low cost advisors that charge 10-20 basis points. (.10-.20). Have them make a presentation. (May have to be by Skype) unless they are in your area.

Contact me if you need more information by using private message here on the board.

Dave55:
Those are great suggestions, but unfortunately, I don't think they'd work for me.

One thing I should have been clear about is that the donation was about $70K. In retrospect, I probably shouldn't have described it as a "very large donation", but we are a very small congregation (about 55 families), and that is a huge amount to us. Unfortunately, in the investing world, it doesn't amount to much. I would love to have Vanguard manage our portfolio, but we would need at least $500K to have them do that.

I looked into low cost advisors in my area, and there were none. Since I don't like the idea of hiring an advisor to begin with, I didn't pursue the option of a low cost (long distance) advisor via skype, etc. But after reading some of the responses on this thread I'm beginning to think that maybe we do need someone to manage our account, if only to protect Board members who have fiduciary responsibility or to make sure that this issue doesn't keep coming up again in the future.

However, I'm not sure if it's worth hiring an advisor for only $70K, and I certainly wouldn't want to pay the 3.25% that Morgan Stanley wants to charge.

I am just glad we're not going with Edward Jones. The Board did contact them, but no one from EJ ever got back to us. Thank G-d!
Then Vanguard LifeStrategy Moderate Growth Fund (VSMGX): 60% stocks / 40% bonds is your best option.

User avatar
bertilak
Posts: 6050
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Were These Investment Advisors Lying or Incompetent?

Post by bertilak » Thu Mar 27, 2014 9:53 am

Mountain Man wrote:
normaldude wrote:
gouldnm wrote:One thing I should have been clear about is that the donation was about $70K. In retrospect, I probably shouldn't have described it as a "very large donation", but we are a very small congregation (about 55 families), and that is a huge amount to us. Unfortunately, in the investing world, it doesn't amount to much. I would love to have Vanguard manage our portfolio, but we would need at least $500K to have them do that.
I don't understand why you need someone to "manage" the portfolio.

Just open a regular Vanguard account, put the $70k into a Vanguard LifeStrategy Fund, set the dividends to reinvest, and forget about it.

- Vanguard LifeStrategy Growth Fund (VASGX): 80% stocks / 20% bonds

- Vanguard LifeStrategy Moderate Growth Fund (VSMGX): 60% stocks / 40% bonds

- Vanguard LifeStrategy Conservative Growth Fund (VSCGX): 40% stocks / 60% bonds

- Vanguard LifeStrategy Income Fund (VASIX): 20% stocks / 80% bonds

Pick one. Set it, forget it, and get on with your life.

I second this. Keep it simple. Just decide on when the funds are needed and how conservative or aggressive you are gonna be and then pick one of those 4 funds. Whether its 70K or 700K, this is the route to go.
And third. Earlier i said it shouldn't be complicated and this is the kind of thing I had in mind. Even with 70K VG will be happy to talk to you about it. My daughter called with only 5K and got a decent recommendation.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker, the Cowboy Poet

gouldnm
Posts: 546
Joined: Sun Nov 29, 2009 8:54 pm

Re: Were These Investment Advisors Lying or Incompetent?

Post by gouldnm » Thu Mar 27, 2014 10:07 am

All:
This is EXACTLY what I have been trying to do with exactly those funds. Unfortunately, many people on the Board think that we need a manager since I'm not an "expert". Never mind that I have an advanced degree in statistics...

Post Reply