What service should be expected for a 1% annual fee?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
stlrick
Posts: 653
Joined: Mon Apr 14, 2008 4:37 pm

What service should be expected for a 1% annual fee?

Post by stlrick »

My mother, in her early 90's with good health and good mental facilities, has her portfolio of about 1M with a firm that charges an annual fee of 1%. She has had the same advisor for a very long time. I have taken over management after my father recently passed away. The portfolio is not terrible, but more complicated than necessary or useful. Several individual equities, several overlapping etf's, but nothing with absurd ERs. There is no churning. They are not making commissions on products (for example, some of the etf's are with Vanguard).

There is no chance that we will be moving the money. She is going to stay with this advisor. My question is - What kind of service and attention should I expect in this kind of relationship? I have no experience with paying for financial advice in any form. From what I see, nothing is done until I ask. We can go 6 months with no contact if I do not initiate it. When my father was managing the investments, the philosophy was to spend interest and dividends but Never Touch Principal. I cannot get her to change that orientation. With the very low interest rates that we have had until recently, that put them in junk bonds and individual equities chosen purely for their dividend yield. Even so, they were not earning the 5% they could be getting now with very little risk. It has seemed obvious to me that she should have been moving toward reduced market risk with safer high yields over the past several months. My concern is that I've gotten this done after I called the advisor, not after the advisor called me.

I suppose the 1M portfolio is rather small for this management group. But it is $10,000 per year of financial advice. What kind of ongoing review or other interaction is conventional with this kind of fee arrangement, other than what I see, which is that they are accommodating and helpful when I call them?
TomWambsgans
Posts: 77
Joined: Sat Jan 23, 2021 4:09 pm

Re: What service should be expected for a 1% annual fee?

Post by TomWambsgans »

I'm going through something similar with my mom, who's almost 80. She likes her advisor, which may contribute to some complacency/laziness on his part. I've been combating this by requiring quarterly calls that I attend. And I ask a lot of questions.
fabdog
Posts: 2543
Joined: Wed Jan 16, 2013 12:59 pm
Location: Williamsburg VA

Re: What service should be expected for a 1% annual fee?

Post by fabdog »

When your father passed away and you took over, did they have a call with you to explain what had been done and what they would do going forward?

It may be that your Dad had them doing exactly what he wanted, and they have been operating as they did in the past on auto pilot. What specific things would you like/expect them to do? Make your list and call the advisor, and they'll say sure and/or out of scope for us.

Mike
User avatar
Jimbo Moneybags
Posts: 685
Joined: Fri Sep 24, 2021 3:26 pm
Location: Boardwalk

Re: What service should be expected for a 1% annual fee?

Post by Jimbo Moneybags »

When you say you have "taken over management", what does that mean? Do you have the authority to change brokerages? If not or if your mother refuses to consider dropping the AUM arrangement and she has good mental facilities, then it sounds like the status quo is the right approach for now. If you have discussed alternatives with your mother but she is happy with the current arrangement, then I'd recommend you leave it alone. Otherwise, you'll be the one who is blamed for any poor performance or other disappointments with her investment. If she can meet her retirement needs only spending interest and dividends from her investments, her portfolio should easily last her the remainder of her life. While the AUM arrangement and portfolio is not ideal and not what most Bogleheads would choose for themselves, it is her money and she has the right to select that approach.

As far as what service to expect for that AUM fee? None. Your mother is fortunate that the portfolio is "not terrible", there is nothing with "absurd" ERs and there hasn't been any churning.
Jack FFR1846
Posts: 18461
Joined: Tue Dec 31, 2013 6:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: What service should be expected for a 1% annual fee?

Post by Jack FFR1846 »

Both Fidelity and Schwab are accommodating and helpful when I call. They split the $500 a year I'm paying in total on my $4M portfolio. It's rare that I have any questions. I will probably have some next year as I plan to Roth convert.

What would I expect for $10k on a quarter of my portfolio? Continuous tax loss harvesting with notice of every trade made. Rebalancing as needed as defined by me, which would be when any category goes out more than 5%. Tax centric advice regarding possible Roth conversions or where any income is taken from keeping Medicare premiums in mind. I guess I'd round this all of to say I'd expect my advisor to wash my car every Saturday.
Bogle: Smart Beta is stupid
deikel
Posts: 1615
Joined: Sat Jan 25, 2014 6:13 pm

Re: What service should be expected for a 1% annual fee?

Post by deikel »

Why do you not ask your mother what 10k a year mean to her and if she would prefer to have that money to give away to her children / grandchildren/ good causes and so on ?

If she agrees its money better spent elsewhere you can get the agreements in place to manage her portfolio (be transparent with other siblings), otherwise, leave it alone and know that these 10k save YOU the trouble later on.

Someone who gets 10 k from me, I am expecting the equivalent of 300 workhours a year (65k base salary, 2000h work a year)....just saying. From what you describe, they just did nothing for her at all and maybe do a once a year look over. It's a rip off and bogleheads know it...
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.
123
Posts: 10387
Joined: Fri Oct 12, 2012 3:55 pm

Re: What service should be expected for a 1% annual fee?

Post by 123 »

They likely really don't care what its invested in as long as they get their fee. The path of least resistance is to make specific suggestions on changes for the advisor to review and implement.

$10,000 a year for essentially nothing is a hard pill to swallow, I agree. You'll get extraordinary resistance from your mom to changing the custodian or advisor if they were chosen by her husband.

To your question I think you really don't want or need any guidance from the advisor.
The closest helping hand is at the end of your own arm.
mhalley
Posts: 10424
Joined: Tue Nov 20, 2007 5:02 am

Re: What service should be expected for a 1% annual fee?

Post by mhalley »

Different firms have different services they offer for the 1% fee. POF has an article that discusses what is usually offered and what might be offered. There should be a document that spells out exactly what you get for your moms firms 1% fee, ask the advisor for a cipopy.
https://www.physicianonfire.com/financi ... nfessions/
. Some firms still charge AUM fees for investment management alone. What does this get you for the fee? Generally speaking, here are some of the services you can expect:

Investment selection
Asset allocation and portfolio construction
Ongoing monitoring and rebalancing
Asset location (for tax purposes)
Behavior and accountability coaching in fluctuating markets

…many advisors find themselves needing to provide financial planning services in order to justify their 1% fees. So when you hire a financial advisor who offers investment management and financial planning, what additional services do you get? Firms differ, but here are some ideas of what you might receive:

Tax planning
Retirement planning
Education planning
Cash flow management
Debt reduction planning
Insurance planning
Estate planning
Student loan planning
Last edited by mhalley on Mon Jun 05, 2023 3:28 pm, edited 1 time in total.
User avatar
Stinky
Posts: 14088
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: What service should be expected for a 1% annual fee?

Post by Stinky »

mhalley wrote: Mon Jun 05, 2023 3:17 pm
. Some firms still charge AUM fees for investment management alone. What does this get you for the fee? Generally speaking, here are some of the services you can expect:

Investment selection
Asset allocation and portfolio construction
Ongoing monitoring and rebalancing
Asset location (for tax purposes)
Behavior and accountability coaching in fluctuating markets

…many advisors find themselves needing to provide financial planning services in order to justify their 1% fees. So when you hire a financial advisor who offers investment management and financial planning, what additional services do you get? Firms differ, but here are some ideas of what you might receive:

Tax planning
Retirement planning
Education planning
Cash flow management
Debt reduction planning
Insurance planning
Estate planning
Student loan planning
OP, what would YOU like to get from the advisor from this pretty comprehensive list?

Just ask for it.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
the_wiki
Posts: 2848
Joined: Thu Jul 28, 2022 11:14 am

Re: What service should be expected for a 1% annual fee?

Post by the_wiki »

It's an interesting question.

I mean ideally, you don't want someone to constantly tinker with a good portfolio. Part of why some have an advisor is so they can be hands off. But also, a buy-and-hold portfolio requires almost no work, so what are they being paid for?

I think I'd at least want a scheduled quarterly or semi-annual call with some status updates and possible timely advice. For example, rates are great right now do you want to lock in a CD or MYGA? Or maybe you should be spending down some principal given your age?

Tax optimization feels like it should be part of the package as well.
mhalley
Posts: 10424
Joined: Tue Nov 20, 2007 5:02 am

Re: What service should be expected for a 1% annual fee?

Post by mhalley »

The main thing I dislike about aum fees is that you get a bunch of the services when you first sign up, but going forward everything is on autopilot and the advisor gets paid more and more for less and less work. I bet at this point the only thing he does is some minor rebalancing.
Juice3
Posts: 531
Joined: Sun Nov 05, 2017 6:40 am
Location: Auburn, CA

Re: What service should be expected for a 1% annual fee?

Post by Juice3 »

stlrick wrote: Mon Jun 05, 2023 12:48 pm What service should be expected for a 1% annual fee?
portfolio of about 1M with a firm that charges an annual fee of 1%.
One annual scotch drinking session. The good stuff.
Answer the phone or return your calls.
Honor your reasonable requests.
Keep you from doing really stupid things.
Annual firm party with nice gift.
Frequent requests to move your money to them or identify friends with money.
User avatar
dogagility
Posts: 3201
Joined: Fri Feb 24, 2017 5:41 am

Re: What service should be expected for a 1% annual fee?

Post by dogagility »

Juice3 wrote: Mon Jun 05, 2023 3:37 pm
stlrick wrote: Mon Jun 05, 2023 12:48 pm What service should be expected for a 1% annual fee?
portfolio of about 1M with a firm that charges an annual fee of 1%.
One annual scotch drinking session. The good stuff.
Answer the phone or return your calls.
Honor your reasonable requests.
Keep you from doing really stupid things.
Annual firm party with nice gift.
Frequent requests to move your money to them or identify friends with money.
Monthly gift cards to the best restaurants in town.
Birthday and holiday cards containing a nice note reminding you to stay the course and a $100 Visa card.
Lifetime membership to all the local Black Tie societies to rave about your finance guy.
Comped tickets to the Black Tie society fundraising events.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: What service should be expected for a 1% annual fee?

Post by livesoft »

I have a friend that had something similar going on: Advisor, decent investments, no trades, high AUM fee. I suggested that they ask for a lower fee since they didn't want to switch advisors. The tactic I suggested was: "What have you done for me lately? You make no trades! You don't tax-loss harvest! You didn't advise me to do any Roth conversions even though I pay no income taxes! What is it exactly that i am paying for?"

They got their AUM fee lowered significantly.
Wiki This signature message sponsored by sscritic: Learn to fish.
Topic Author
stlrick
Posts: 653
Joined: Mon Apr 14, 2008 4:37 pm

Re: What service should be expected for a 1% annual fee?

Post by stlrick »

Thanks for the replies. My original post was partially due to frustration. As some have noted, there is not much for the advisor to do on an ongoing basis. A bond matures and he recommends a new one. There is nothing I could ask that would justify the fee that is being charged. The entire business model seems to lack integrity. If my mother will only spend interest and dividends, she is at most generating 50k and giving 20% of it back to the advisor. It is enormously irritating. I have the authority to move the money and would do so if she were incapacitated, but she is far from that situation. She does not want to make investment decisions, but she otherwise knows exactly what she wants.
Juice3
Posts: 531
Joined: Sun Nov 05, 2017 6:40 am
Location: Auburn, CA

Re: What service should be expected for a 1% annual fee?

Post by Juice3 »

stlrick wrote: Mon Jun 05, 2023 4:18 pm Thanks for the replies. My original post was partially due to frustration. As some have noted, there is not much for the advisor to do on an ongoing basis. A bond matures and he recommends a new one. There is nothing I could ask that would justify the fee that is being charged. The entire business model seems to lack integrity. If my mother will only spend interest and dividends, she is at most generating 50k and giving 20% of it back to the advisor. It is enormously irritating. I have the authority to move the money and would do so if she were incapacitated, but she is far from that situation. She does not want to make investment decisions, but she otherwise knows exactly what she wants.
Sales is sales.

I would suggest you put aside the frustration. This business practice is not unusual and arguably can help some people due one important item on my list.
"Keep you from doing really stupid things"

Some day you will probably be able to make the changes you seem to be thinking about.
JBTX
Posts: 11205
Joined: Wed Jul 26, 2017 12:46 pm

Re: What service should be expected for a 1% annual fee?

Post by JBTX »

To give a comparison a corporate trustee for a comparable sized investment would probably charge around 1%, and for that you get trust management, investment management, trust tax returns, tax management (assets in trust are often higher tax rates) and also working with beneficiary on approving ongoing spending.
tibbitts
Posts: 23588
Joined: Tue Feb 27, 2007 5:50 pm

Re: What service should be expected for a 1% annual fee?

Post by tibbitts »

Juice3 wrote: Mon Jun 05, 2023 6:36 pm
stlrick wrote: Mon Jun 05, 2023 4:18 pm Thanks for the replies. My original post was partially due to frustration. As some have noted, there is not much for the advisor to do on an ongoing basis. A bond matures and he recommends a new one. There is nothing I could ask that would justify the fee that is being charged. The entire business model seems to lack integrity. If my mother will only spend interest and dividends, she is at most generating 50k and giving 20% of it back to the advisor. It is enormously irritating. I have the authority to move the money and would do so if she were incapacitated, but she is far from that situation. She does not want to make investment decisions, but she otherwise knows exactly what she wants.
Sales is sales.

I would suggest you put aside the frustration. This business practice is not unusual and arguably can help some people due one important item on my list.
"Keep you from doing really stupid things"

Some day you will probably be able to make the changes you seem to be thinking about.
Bogleheads get disproportionally outraged by adviser fees. In this case the OP is fortunate in that the adviser seems to be recommending appropriate, reasonable-cost products. Lots of us watching our relatives pay 2+% would have been thankful for 1.5% all-in (AUM plus expense ratios) on an appropriate selection of investments.

This is a person in their '90s. It's not like these fees will apply for fifty years going forward. Relative to other problems a 90-year-old either already has or soon will, 1% AUM is completely inconsequential.
User avatar
dogagility
Posts: 3201
Joined: Fri Feb 24, 2017 5:41 am

Re: What service should be expected for a 1% annual fee?

Post by dogagility »

stlrick wrote: Mon Jun 05, 2023 4:18 pm Thanks for the replies. My original post was partially due to frustration. As some have noted, there is not much for the advisor to do on an ongoing basis. A bond matures and he recommends a new one. There is nothing I could ask that would justify the fee that is being charged. The entire business model seems to lack integrity. If my mother will only spend interest and dividends, she is at most generating 50k and giving 20% of it back to the advisor. It is enormously irritating. I have the authority to move the money and would do so if she were incapacitated, but she is far from that situation. She does not want to make investment decisions, but she otherwise knows exactly what she wants.
This is a reasonable view of the situation. It is frustrating to see others make decisions that you don't agree with.

However, the company isn't forcing your Mom to use their service. She is making an active choice to use them.

As long as she understands the costs involved and accounts for this information in her decision, it's her money and her decision to make.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
z3r0c00l
Posts: 3790
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: What service should be expected for a 1% annual fee?

Post by z3r0c00l »

$10,000 would pay for a complex will and trust and tax prep. in the first year alone. I can't imagine anyone earning that amount of money in year 2 and beyond unless they managed millions invested in VC, mineral rights, rental properties, or something really complex. In essence they are just taking the money and not offering much in return, that money is being taken away from children, grand-kids, worthy charities, etc. It is really exploitative in my opinion but I appreciate why someone at her age doesn't want to change horses mid stream.

For those who think this is no big deal consider: would you be angry if a conman met your elderly parent on the sidewalk and talked them out of $10,000? And then did it yearly from that point forward?

By the way, Vanguard would offer the same for $3,500 per year ($4000 for active trading strategy).
70% Global Stocks / 30% Bonds
User avatar
Jimbo Moneybags
Posts: 685
Joined: Fri Sep 24, 2021 3:26 pm
Location: Boardwalk

Re: What service should be expected for a 1% annual fee?

Post by Jimbo Moneybags »

z3r0c00l wrote: Tue Jun 06, 2023 6:07 am For those who think this is no big deal consider: would you be angry if a conman met your elderly parent on the sidewalk and talked them out of $10,000? And then did it yearly from that point forward?
Not at all analogous. While I wouldn't pay an AUM fee (and recommend others avoid such as well), asserting that advisors who charge an AUM fee are conmen is a little much.

Some investors are quite content to have their portfolio in an AUM arrangement. Their money, their decision.
z3r0c00l
Posts: 3790
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: What service should be expected for a 1% annual fee?

Post by z3r0c00l »

Jimbo Moneybags wrote: Tue Jun 06, 2023 9:35 am
z3r0c00l wrote: Tue Jun 06, 2023 6:07 am For those who think this is no big deal consider: would you be angry if a conman met your elderly parent on the sidewalk and talked them out of $10,000? And then did it yearly from that point forward?
Not at all analogous. While I wouldn't pay an AUM fee (and recommend others avoid such as well), asserting that advisors who charge an AUM fee are conmen is a little much.

Some investors are quite content to have their portfolio in an AUM arrangement. Their money, their decision.
Why not analogous? They don't do anything, the entire business is built around convincing people to pay thousands a year for nothing. Sure it isn't a crime, not yet anyway, but it is a con if you convince someone to pay for not actually doing anything or worse, pay for sub-par investing advice that is against their best interests.

It really isn't any different than repair companies that charge people for work they don't need, or time shares, or any other deeply unethical business practice. Note it isn't just the AUM concept, it is not doing anything and charging 1%. If they did something useful, or charged say .3%, it would be more reasonable. Only in finance can this kind of scam be viewed as a legitimate service.
70% Global Stocks / 30% Bonds
Topic Author
stlrick
Posts: 653
Joined: Mon Apr 14, 2008 4:37 pm

Re: What service should be expected for a 1% annual fee?

Post by stlrick »

Whatever analogy applies or does not apply, the bottom line for me is that I doubt they will spend 10 hours per year servicing this account, including both interacting with me and paperwork at their end. That works out to $1000 or more per hour, and some of that time would be work by backroom staff. It is not an ethical business model.
User avatar
Stinky
Posts: 14088
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: What service should be expected for a 1% annual fee?

Post by Stinky »

stlrick wrote: Tue Jun 06, 2023 10:55 am Whatever analogy applies or does not apply, the bottom line for me is that I doubt they will spend 10 hours per year servicing this account, including both interacting with me and paperwork at their end. That works out to $1000 or more per hour, and some of that time would be work by backroom staff. It is not an ethical business model.
It may not feel ethical - but it sure is profitable (for the advisor) :twisted:

Have you asked the advisor for a reduction in fees? Given that you say that mom isn’t leaving the advisor, that’s about your only recourse.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
User avatar
Jimbo Moneybags
Posts: 685
Joined: Fri Sep 24, 2021 3:26 pm
Location: Boardwalk

Re: What service should be expected for a 1% annual fee?

Post by Jimbo Moneybags »

z3r0c00l wrote: Tue Jun 06, 2023 10:37 am
Jimbo Moneybags wrote: Tue Jun 06, 2023 9:35 am
z3r0c00l wrote: Tue Jun 06, 2023 6:07 am For those who think this is no big deal consider: would you be angry if a conman met your elderly parent on the sidewalk and talked them out of $10,000? And then did it yearly from that point forward?
Not at all analogous. While I wouldn't pay an AUM fee (and recommend others avoid such as well), asserting that advisors who charge an AUM fee are conmen is a little much.

Some investors are quite content to have their portfolio in an AUM arrangement. Their money, their decision.
Why not analogous? They don't do anything, the entire business is built around convincing people to pay thousands a year for nothing. Sure it isn't a crime, not yet anyway, but it is a con if you convince someone to pay for not actually doing anything or worse, pay for sub-par investing advice that is against their best interests.

It really isn't any different than repair companies that charge people for work they don't need, or time shares, or any other deeply unethical business practice. Note it isn't just the AUM concept, it is not doing anything and charging 1%. If they did something useful, or charged say .3%, it would be more reasonable. Only in finance can this kind of scam be viewed as a legitimate service.
A con man is a person who defrauds another. While many Bogleheads would never sign on for an AUM based advisor, some who are not comfortable managing their portfolio do just that. Like OP's parents. OP may not like the choices his late-father and his mother made years ago concerning the management of their investments, but there isn't anything to suggest that either of his parents were cheated or swindled. If OP thought otherwise, he/she would be filing complaints with regulators and moving his mother's portfolio, with or without her blessing.

For those who believe a buy and hold investment strategy of one, two or three low-cost index funds is the way to go, there is really nothing useful for an AUM advisor to do on an ongoing basis. So while you opine that 0.3% would be more reasonable and point the OP to Vanguard PAS, how would those Vanguard advisors not be considered "con men" for those who prefer a buy and hold approach using low-cost index funds? For such investors, what do you expect Vanguard PAS advisors to do to earn their fee and thus not fall into the category of "con men"? Is Vanguard running a scam too?

If indeed these were "con men" and this AUM model is a "scam", don't you think regulators would have shut it down by now??

Again, while OP may not agree with the choices his parents have made, unless or until his mother is no longer competent to manage her own affairs, they are her choices to make. Very few of us would appreciate or tolerate our parents or our children overruling our choices of where and how to invest, I don't know why some presume that they have that "right" to meddle when it concerns mentally competent senior citizens.
CloseEnough
Posts: 1266
Joined: Sun Feb 14, 2021 7:34 am

Re: What service should be expected for a 1% annual fee?

Post by CloseEnough »

With the same advisor for a very long time, and the situation you describe, I would try to negotiate the 1% to a lower amount, perhaps half. If the advisor is unreasonable in the negotiation, at least that may tell your mom something about the arrangement. That said, I do not think she will conclude the advisor is a "con man".
User avatar
Jimbo Moneybags
Posts: 685
Joined: Fri Sep 24, 2021 3:26 pm
Location: Boardwalk

Re: What service should be expected for a 1% annual fee?

Post by Jimbo Moneybags »

stlrick wrote: Tue Jun 06, 2023 10:55 am Whatever analogy applies or does not apply, the bottom line for me is that I doubt they will spend 10 hours per year servicing this account, including both interacting with me and paperwork at their end. That works out to $1000 or more per hour, and some of that time would be work by backroom staff. It is not an ethical business model.
I think the error of your analysis is thinking that there is an "hourly rate" value that applies to an AUM arrangement when in fact there is not. Regardless of what brokerage is offering the AUM fee structure, it is almost NEVER a good deal for the average investor.

That same complaint, however can be heard about other business models. For example, nearly every software subscription service. Instead of paying a single price for the software package which represents the cost of development and support, as well as profit, now many pay a monthly fee and receive nothing each month other than "permission" to use the software. Look at insurance. If someone pays $10k per year for home, auto and umbrella insurance but never has a claim, one could argue that since nobody has spent XX hours per year providing services to that customer, it is not an "ethical" business model. How about mutual funds themselves and their ongoing expense ratio? What, exactly, do I get each year for my ER if I am a buy and hold investor and have not transacted any shares for years? A quarterly statement, a copy of an annual report/prospectus and a single tax form? Is that worth $800/yr if I have $2m in VTSAX? Surely it can't cost them $800/k per year to do that? And in fact, it doesn't. A good portion of that ER goes to Vanguard for marketing...so my funds are being used, in part, to pay for commercials which provide me no benefit whatsoever. Is that "ethical"?

So as others have noted, perhaps contact the advisor and see whether they will reduce the AUM fee. If they agree, super. If not, just remember that your mother apparently finds value in such an arrangement even if you, I and most other Bogleheads don't, a judgement she gets to make since it is her money. Also, considering that your initial post indicates she will easily outlive her money, even with the 1% AUM fee, why are you so concerned? Is it the principle of the matter, do you feel as though she is wasting her money, or is it perhaps your desire that she preserve more of her portfolio to pass to her heir(s) when she leaves this world?
z3r0c00l
Posts: 3790
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: What service should be expected for a 1% annual fee?

Post by z3r0c00l »

Jimbo Moneybags wrote: Tue Jun 06, 2023 12:23 pm but there isn't anything to suggest that either of his parents were cheated or swindled.
Paying for nothing is cheated/swindled in my book, but I count certain barely legal activities in that spectrum. Others might say if it isn't illegal, it isn't cheating/swindling. For example, I think certain for profit universities are scams too since their diplomas are useless and yet the promise the Moon. But generally they are not breaking any laws, although some have been successfully sued in class action lawsuits. I think some of these big firms (Chase comes to mind) would be vulnerable to something like that because they sell junk annuities without clearly disclosing the limitations of those options and their extreme conflict of interest.
Jimbo Moneybags wrote: Tue Jun 06, 2023 12:23 pm For those who believe a buy and hold investment strategy of one, two or three low-cost index funds is the way to go, there is really nothing useful for an AUM advisor to do on an ongoing basis.
One could argue that the AUM advisor protects people by keeping them on a buy and hold, low cost index strategy and protect them from their own behavioral blind-spots. We know that is a major problem in investing. That's what the Vanguard basic advisor offers for 1/3rd the price. So 1/3rd the cost for better advice is to me less bad, albeit something I still wouldn't recommend. A $3,000 used car with 150K miles on it vs a $10,000 used car with 190K is a huge difference. One could arguably be an okay deal, but not the best choice if you can avoid it. The other is a scam and if someone sold my parents a terrible car they didn't need for $10,000 every year for a decade or more, I would be really upset about that. "But it was her right to buy the terrible car at a terrible price." Okay sure, and it is our right to be upset about it and try to help some of the most important people in our lives.
Jimbo Moneybags wrote: Tue Jun 06, 2023 12:23 pm If indeed these were "con men" and this AUM model is a "scam", don't you think regulators would have shut it down by now??
Are we living in the same country? Need I list all the scams that regulators didn't shut down even after years of complaints? Madoff had to turn himself in for example. No it isn't a scam as in illegal, just highly unethical like payday loans, timeshares, selling homes on rented land, civil forfeiture, etc. Taking money from the elderly for services they don't need, or arguably no services at all save an hour or two a year, is a swindle in my book.
70% Global Stocks / 30% Bonds
User avatar
Jimbo Moneybags
Posts: 685
Joined: Fri Sep 24, 2021 3:26 pm
Location: Boardwalk

Re: What service should be expected for a 1% annual fee?

Post by Jimbo Moneybags »

z3r0c00l wrote: Tue Jun 06, 2023 1:39 pm
Jimbo Moneybags wrote: Tue Jun 06, 2023 12:23 pm but there isn't anything to suggest that either of his parents were cheated or swindled.
Paying for nothing is cheated/swindled in my book....
Jimbo Moneybags wrote: Tue Jun 06, 2023 12:23 pm For those who believe a buy and hold investment strategy of one, two or three low-cost index funds is the way to go, there is really nothing useful for an AUM advisor to do on an ongoing basis.
One could argue that the AUM advisor protects people by keeping them on a buy and hold, low cost index strategy and protects them from their own behavioral blind-spots. We know that is a major problem in investing. That's what the Vanguard basic advisor offers for 1/3rd the price. So 1/3rd the cost for better advice is to me less bad, albeit something I still wouldn't recommend. A $3,000 used car with 150K miles on it vs a $10,000 used car with 190K is a huge difference. One could arguably be an okay deal, but not the best choice if you can avoid it. The other is a scam and if someone sold my parents a terrible car they didn't need for $10,000 every year for a decade or more, I would be really upset about that,
Okay. So you consider the advisor in the OP's situation to be a "con man" running a "scam" and opine that his parents have been "paying for nothing" but you later mention the benefit of an AUM advisor keeping the investor from making behavioral mistakes, a major problem in investing. What if that AUM advisor is available to talk by phone evenings and weekends (Vanguard PAS is not) as well as meet in person (again, no such service by Vanguard PAS)? If you add that availability to the prevention of investor behavioral error, does it stop being a "scam"?

It seems from your examples that what matters is not what is done or not done but rather the cost. 1%=scam, .3%=not a scam. $10k used car=scam, $3k used car=not a scam. Odd way to look at it but okay, we each are entitled to our opinions!
:sharebeer
z3r0c00l
Posts: 3790
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: What service should be expected for a 1% annual fee?

Post by z3r0c00l »

Jimbo Moneybags wrote: Tue Jun 06, 2023 1:51 pm
z3r0c00l wrote: Tue Jun 06, 2023 1:39 pm
Jimbo Moneybags wrote: Tue Jun 06, 2023 12:23 pm but there isn't anything to suggest that either of his parents were cheated or swindled.
Paying for nothing is cheated/swindled in my book....
Jimbo Moneybags wrote: Tue Jun 06, 2023 12:23 pm For those who believe a buy and hold investment strategy of one, two or three low-cost index funds is the way to go, there is really nothing useful for an AUM advisor to do on an ongoing basis.
One could argue that the AUM advisor protects people by keeping them on a buy and hold, low cost index strategy and protects them from their own behavioral blind-spots. We know that is a major problem in investing. That's what the Vanguard basic advisor offers for 1/3rd the price. So 1/3rd the cost for better advice is to me less bad, albeit something I still wouldn't recommend. A $3,000 used car with 150K miles on it vs a $10,000 used car with 190K is a huge difference. One could arguably be an okay deal, but not the best choice if you can avoid it. The other is a scam and if someone sold my parents a terrible car they didn't need for $10,000 every year for a decade or more, I would be really upset about that,
Okay. So you consider the advisor in the OP's situation to be a "con man" running a "scam" and opine that his parents have been "paying for nothing" but you later mention the benefit of an AUM advisor keeping the investor from making behavioral mistakes, a major problem in investing. What if that AUM advisor is available to talk by phone evenings and weekends (Vanguard PAS is not) as well as meet in person (again, no such service by Vanguard PAS)? If you add that availability to the prevention of investor behavioral error, does it stop being a "scam"?

It seems from your examples that what matters is not what is done or not done but rather the cost. 1%=scam, .3%=not a scam. $10k used car=scam, $3k used car=not a scam. Odd way to look at it but okay, we each are entitled to our opinions!
:sharebeer
No because from the OP, they had made poor choices that didn't fit well to the needs of a person in their 80s+

"that put them in junk bonds and individual equities chosen purely for their dividend yield." So much worse service for 3x the price can absolutely move something from a bad deal to a scam. A $3 banana is a bad deal at an airport, a $10 banana that is rotten inside is a scam, especially so if it is being sold to people who had no idea what a banana should cost in the first place.
70% Global Stocks / 30% Bonds
User avatar
Jimbo Moneybags
Posts: 685
Joined: Fri Sep 24, 2021 3:26 pm
Location: Boardwalk

Re: What service should be expected for a 1% annual fee?

Post by Jimbo Moneybags »

z3r0c00l wrote: Tue Jun 06, 2023 1:57 pm No because from the OP, they had made poor choices that didn't fit well to the needs of a person in their 80s+

"that put them in junk bonds and individual equities chosen purely for their dividend yield." So much worse service for 3x the price can absolutely move something from a bad deal to a scam. A $3 banana is a bad deal at an airport, a $10 banana that is rotten inside is a scam, especially so if it is being sold to people who had no idea what a banana should cost in the first place.
The investments chosen appear to reflect the specific stated desires of the OP's mother (and perhaps late-father). There is nothing suggesting the advisor "sold" them on any of the investments involved. Instead, it sounds as though he put them in investment products to meet their express objectives of spending only interest and dividends. Here is the relevant part of what OP actually said that you omitted:
stlrick wrote: Mon Jun 05, 2023 12:48 pm When my father was managing the investments, the philosophy was to spend interest and dividends but Never Touch Principal. I cannot get her to change that orientation. With the very low interest rates that we have had until recently, that put them in junk bonds and individual equities chosen purely for their dividend yield.
(OP also noted that "the portfolio is not terrible, but more complicated than necessary or useful. Several individual equities, several overlapping etf's, but nothing with absurd ERs. There is no churning. They are not making commissions on products (for example, some of the etf's are with Vanguard)).
z3r0c00l
Posts: 3790
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: What service should be expected for a 1% annual fee?

Post by z3r0c00l »

Jimbo Moneybags wrote: Tue Jun 06, 2023 2:06 pm
z3r0c00l wrote: Tue Jun 06, 2023 1:57 pm No because from the OP, they had made poor choices that didn't fit well to the needs of a person in their 80s+

"that put them in junk bonds and individual equities chosen purely for their dividend yield." So much worse service for 3x the price can absolutely move something from a bad deal to a scam. A $3 banana is a bad deal at an airport, a $10 banana that is rotten inside is a scam, especially so if it is being sold to people who had no idea what a banana should cost in the first place.
The investments chosen appear to reflect the specific stated desires of the OP's mother (and perhaps late-father). There is nothing suggesting the advisor "sold" them on any of the investments involved. Instead, it sounds as though he put them in investment products to meet their express objectives of spending only interest and dividends. Here is the relevant part of what OP actually said that you omitted:
stlrick wrote: Mon Jun 05, 2023 12:48 pm When my father was managing the investments, the philosophy was to spend interest and dividends but Never Touch Principal. I cannot get her to change that orientation. With the very low interest rates that we have had until recently, that put them in junk bonds and individual equities chosen purely for their dividend yield.
(OP also noted that "the portfolio is not terrible, but more complicated than necessary or useful. Several individual equities, several overlapping etf's, but nothing with absurd ERs. There is no churning. They are not making commissions on products (for example, some of the etf's are with Vanguard)).
The OP is being generous, individual stocks and junk bonds could have been disastrous to an older person's portfolio. The interest rates are not that relevant to me, chasing yield with the savings of a 90 year old? Really? It sounds like a portfolio that would have been subject to ~50% drawdowns in recessions. That's a rotten banana for $10. So again worse service for 3x the price.
70% Global Stocks / 30% Bonds
Post Reply