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Old 11-27-2010, 10:00 AM
98 posts, read 109,356 times
Reputation: 158


We recently started working with a financial adviser. This person was up front about how he made his money when we asked (products he sells such as life insurance and funds).

I have no problem paying in the form of commission as long as that commission is earned through good advice. At this time I'm starting to wonder how "good" was the advice we got. I'm hoping the smart investors here can tell us if this was "the norm" or if we needed to buckle up and get the hell out of dodge with this guy.

A little about us - we're a couple in our late 30s (me) early 40s (DH) - just paid off home mortgage (so zero debt, zero mortgage), a small child (DS is 3 years old), and combined $550K in retirement. Our combined income is around $175K to $225K (one of us is an entrepreneur hence the flux).

First he sold us term life insurance - me for 30Y $1M and DH for 20Y $1M. At first he pushed for 30Y and $1.5M for DH based on the general 10X income rule. DH refused. The adviser KNEW we were about to pay off our mortgage and would have zero debt.

Next he told us to liquidate our Vanguard and Fidelity assets, start a 529 for DS, and move them into the American funds he recommends and sells.

I had 2 Vanguard retirement funds as Roth and Roll over IRA, and 1 non retirement fund (VFINX, VBINX, VEIPX, VWINX) and a few Fidelity funds in my SEP-IRA (FNMIX, FFFEX, FSMEX, FCNTX, FFTHX, FICDX).

These were moved into 4 American Funds that had a 5% sales load for the A-class shares (CWGIX, AGTHX, NEWFX, SMCWX). I took money from my non retirement Vanguard account to start $45K in my son's 529, which was also made up of these same 4 funds.

Actually ALL of our accounts - retirement or non-retirement - were distributed in these 4 American Funds. This would disturb me a bit, but I'll give him benefit of the doubt, because our goals for retirement investment would be semi-long term (15 years) - the same time-frame as my son's 529 target (15 years). So technically these investment strategies can be the same.

But I have serious issues with the planner calling himself a planner and not giving us a plan beyond "yes, your goals are achievable", and acting more like a broker of products and services he earns commissions on. We have a very aggressive retirement goal of $3.5M at age 55. Shouldn't we expect a milestone plan on how we would achieve this goal and what HE would do to help us attain it? Or is this an unrealistic expectation of any financial planner?

Did we just pay the "stupid tax" with this guy? I'd like to cut my losses at a few thousand dollars paid in commission versus $10,000 paid in commission for advice we didn't get. Especially if we could buy similar types of funds that are no-loaded through our existing Vanguard and Fidelity accounts.

Last edited by jstriding; 11-27-2010 at 11:28 AM..
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Old 11-27-2010, 10:48 AM
92,065 posts, read 89,395,077 times
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well no one here is really allowed to offer investment advice legally but to be honest everything he is moving you to has high commissions and there are lower cost options.
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Old 11-27-2010, 10:56 AM
98 posts, read 109,356 times
Reputation: 158
I understand that I'm not here to ask for "investment advice" - more like gut checks from experienced investors even including financial advisers who know how this business works, to tell us whether this person has truly acted in our best interest, or simply sold us products he sells. Then his company's billing of them being "independent" and "giving objective, unbiased advice" is misleading.
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Old 11-27-2010, 11:11 AM
28,461 posts, read 78,369,272 times
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Default Wow. Just wow...

I work in the broad field of financial services. I know there are many folks that make their money selling funds that have high loads. I am somewhat stunned that it was so easy for the OP and her spouse to be talked out of a very nice mix of low load funds into funds that are much more costly.

From a professional obligation level there does not appear to have been any "malfeasance", but on human to human level I just do not understand how funds that are not efficient are better off for a saver than ones that are...

The question of life insurance is VERY COMPLICATED for an entrenpeuer, and many folks believe that the analysis of BUSINESS SURVIRORSHIP is specialized enough that there are whole law firms that practice exclusively in that area. Without knowing what sort of lifestyle / long term plans you might have I have no idea if you are under insured or not. My personal take is that should be something to be considered in the context of bit near term and "long haul" goals / dreams. I have personally known some families that have been fortunate to use life insurance and a comprehensive plan to ensure a family business continues for generations and other families who, because of insufficient planning, were wiped out long before their ulitmate plans could be achieved ...

Next move?

Really hard to say, but my gut says new money should not flow to the high load funds. I personally feel really bad that folks get advise that is not in their best interest and then do not get a "second opinion" before acting...
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Old 11-27-2010, 11:19 AM
98 posts, read 109,356 times
Reputation: 158
Chet, that's exactly the thing - we're not dumb, but we're certainly not well educated on investment strategies. We know enough to know that we need to save and invest - and we know our risk tolerance as "conservative and moderate risk". Beyond that, our expertise is not in these areas, which was why we wanted to work with a financial adviser.

That said, one of our mistakes was to go with this person based on him being part of the "endorsed local provider" (I don't want to reveal the name of the endorser but you can probably guess who I'm talking about), rather than doing our own research for advisers.

You're also right that we should have waited and gotten a second opinion before acting aka signing paperwork. This adviser spent 3 hours the first meeting learning about us, then 3 hours the second meeting 1 week later armed with paperwork. Since we'd never worked with an adviser before, we didn't know if this was the normal speed of how these things work. There was never a "why don't you think about this for a couple of weeks and then we'll revisit".

I've put a rescind letter to Fidelity to stop the $143K they liquidated into cash holdings from moving into American Funds. 5% sales load of that $143K is something I simply CANNOT stomach. I feel like this person did NOT earn that sales load and does not deserve this Christmas bonus, and hell if I'm not going to do whatever it takes to stop this from happening.

From now on I'm looking for a wealth manager who manages our net worth and gets a % salary of what he manages - NOT what he sells in products.
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Old 11-27-2010, 11:39 AM
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there are really 2 parts to financial planning. part 1 is the accumulation stage ,those are the guys who tell you what to buy and how to allocate. to be honest those guys are a dime a dozen and good ones require lots of home work to find.

part ii is the really difficult part. those are the guys the likes of ed slott who are masters at tax planning and keeping most of your retirement money away from uncle sam. these guys are very very rare. they wont tell you how to get rich or what to buy to get a good return. they only know how to structure you by using various financial products to get your partner uncle sam off your back. they first go to work after your accumulation phase is complete.

ideally you will need two guys at some point.

what i did in my life is learn all i could about the various products and then learn from the likes of ray lucia.. i then subscribed to a newsletter back in 1987 to help me with nice diversified model portfolios and between it all it turned out quite successful for us and in the near future we will be ready for a part ii guy as we approach early retirement.

we actually even accepted a money magazine challenge a few years ago where they wanted their team of pros to evaluate and comment on my plan.

it was interesting and about the only issue they could critique was our lack of long term care insurance . it was an interesting little challenge for us but the fact was their team of pros really couldnt improve much on our own plans and we did those on our own.

just becareful as with alot of those part i guys. you are and always will be a customer and not a client if your not careful.
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Old 11-27-2010, 11:46 AM
28,461 posts, read 78,369,272 times
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Default Percentage based compensation is no better really...

I have a long list of family and friends who got fleeced by firms / people that "took their cut" even in bad years. Over and over and over...

I have done ok with guys ( and women) who have more of a "lawyer / psychologist" compensation model -- if I need to talk for two hours every six months and they get paid $400 for that whether I am up or down I am ok with that, just like I am ok paying an attorney for actual billed hours or a psychologist to help me deal with demons in my personal life...

Really the "money demons" are something that good advisors can help you to understand / learn more on your own. The hints ones will say " here are the books / websites / newsletters / journals i read to learn about this, you can too" and if I serial have questions I bounce 'em off the pro for their hourly fee. These type advisors do not make as dough as the folks raking in commissions off suckers or the percentage type firms, but they do OK whe they have enough clients like me AND they don't ever have feel bad about being 'tricky'...
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Old 11-27-2010, 01:49 PM
98 posts, read 109,356 times
Reputation: 158
Chet, I'm with you - I calculated that even if I paid this guy $500/hour for a "plan" - I'd have paid less than the commissions that he makes on the funds.

I've read that these funds we hold with AF are solid funds, and American Funds typically have loaded funds "because they believe in the value of getting financial advice". I believe in the value of getting good financial advice too - but the value is in UNBIASED, OBJECTIVE advice.

I'm thinking about ways to minimize the damages and moving forward.

Now we have to decide whether we remove these funds or keep them in. We can keep these in without contributing new monies or autoinvesting (as the guy had originally set up - I deleted all those auto-invests from the account).

Keeping them and starting somewhere else with no load funds in means I lose $100K worth of investments that I could add to, and earn compounding interest.

Taking them out means I would immediately lose $5000+ as commission this guy earns, but then I get to have my $100K to build upon and grow elsewhere.

Did I miss other costs that I should be wary of?
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Old 11-28-2010, 07:41 PM
1,963 posts, read 5,102,484 times
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Maybe go to a fee-only certified financial planner to get a 2nd opinion? That's what my dad did when he came into a windfall from an inheritance & a job change. Ultimately, he did go with the commissioned-based advisor since he was more knowledgable about real-estate investing/tax issues. But talking with the fee-only planner confirmed the validity of the asset class mix & expectations for long-term results.

You should've gotten some kind of description of why each of the funds were chosen, what their records are, how much portfolio overlap there is, how closely they track each other in bull & bear markets, and how they compare with relevant indices & competitor's funds. Most importantly, the advisor needs to show you the historical risk for each of the funds & what the projected loss could be for the portfolio as a whole.

Also, you have to question why any advisor would tell you to liquidate all your existing accounts immediately. My dad had a fairly large IRA in an underperforming T. Rowe Price fund, but his planner moved the money out slowly over a period of yrs to dollar-cost average.

In fairness, American funds/Capital Group are highly respected money managers out here in LA and many companies use them for their pension plans. One of the highlights of American funds is their emphasis on team managment so that performance isn't held captive to one star picker (who may leave after a couple yrs).
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Old 11-28-2010, 08:09 PM
98 posts, read 109,356 times
Reputation: 158
This is true - and again - I'm not so much upset with American Funds as I am with the method of the broker. He did tell us to liquidate IMMEDIATELY, rather than moving in stages, which would have fared better for him because we're going to fire him this coming week. He's lost credibility with me completely.

We got the paperwork where we saw there were 2 entire pages front and back of QUESTIONS he should have asked us before he got us to sign - but he verbally "skimmed" these - then he put out all the "sign here" pages for us to sign. If he had asked us those questions as he should have (there were checkmarks for him to go through as he was supposed to verbally discuss with us), then we would have become aware of the fees, the risks, and rationale for switching - all were part of that check list he skipped.

When you're talking about $260K in assets and liquidating that quickly without giving us the details of why and why not we should switch, it tells me the guy was more interested in selling for his commission than what is truly good for us.

I for one, do not want to become this guy's passive income stream, as he continues to earn 12b1 fees annually from our money. Had he been more deserving, I'd think otherwise, but this guy did not deserve it.

By the way I spent the last 24 hours educating myself and I'd actually come up with a more detailed financial investment plan than this guy ever communicated to us!
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