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Full Service brokerage - bilking of my family

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  • Full Service brokerage - bilking of my family

    I wrote previously about my Dad's ultra conservative investments and his recent passing. There has been a financial planner that has been a friend of my parents. She works for a full service brokerage firm - Ameriprise. When my Dad passed she helped my Mom consolidate his CDs (LOTS of CDs) into a brokerage account at her firm. My mom knows I have done financial planning in the past and developed several financial models so I know my put spread options from P/E ratios. But alas just as we feel fine flying in a plane flown by a complete stranger, we feel uncomfortable fly in a plane flown by my brother - My mom believes that the broker friend is better. Fine, I asked that she at least run the suggested portfolio past me.

    Fast forward a few months and Mom is ready to start investing. Broker sends me 4 mutual funds with allocations from Invesco. She states that due to my Mom's investment amount she can buy the funds at NAV - bypassing the 5.5% front load. Nevermind, that Invesco does that reduction in sales load for everyone. I examine the funds and their top holdings, fees and charges. Well what do you know - the expense ratio and 12B-1 fees amount to 1.2% per year, the effective diversification is pretty much the SP500, two of the four funds significantly underperformed their tracking index and Ameriprise will charge her a 1% Assets under management fee to have the account.

    I confront the broker and question her about the choices, fees and methodology. After I reworked the portfolio using index ETFs, I eliminated the tracking error, reduced the fees to nil and created a better portfolio. To which the broker said. "I need to get paid too for all this work I have been doing with your mom." A "friend" of nearly 25 years is now looking to get paid. So I ask the broker, is there a price on friendship?? Unfortunately, I forgot to record the phone call but the snake has been exposed. Legally, Ameriprise and the broker have done nothing wrong, but my parents failed to recognize there are friends and there are business friends and it's important to understand that relationship and take guidance and assistance with that in mind. So when you deal with a broker you have to remember a broker is a SALESPERSON - their DNA is to make money - but not the most money for YOU.

  • #2
    "So when you deal with a broker you have to remember a broker is a SALESPERSON - their DNA is to make money - but not the most money for YOU"

    Well of course they are salespeople and their goal is to make money for their firm.

    There is NO red cross on their chest

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    • #3
      I get that, but to build this up like she is doing my Mom a friend for over 25 years some great favor - is telling. In 12 Months, I am going to recommend she move her account out of Ameriprise so there is no confusion on business versus friendship.

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      • #4
        One of two reasons I left VOYA. High management fees and non English speaking contractors on their customer service line. Moved everything to Fidelity under a self directed IRA.
        The average response time of a 911 call is 23 minutes, the response time of a .357 is 1400 feet per second.

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        • #5
          I've been with Fidelity for over 30 years and I was a broker out of college. I was one of their first customers on FOX (Fidelity Online Exchange - a precursor to today's online brokers). I left the industry when they made us attend a seminar where they were pumping REITs for every portfolio. The commissions and fees were huge, brokers were salivating to get on the phones and pump. I asked the presenter a question and became an outcast - you'd think I killed a baby seal right there in the seminar. A senior broker came up to me and said don't be too smart about this stuff, learn the pitch and sell it.
          Last edited by Drivin'tooFast; 03-16-2017, 11:48 AM.

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          • #6
            'Merica

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            • #7
              Originally posted by Drivin'tooFast View Post
              I've been with Fidelity for over 30 years and I was a broker out of college. I was one of their first customers on FOX (Fidelity Online Exchange - a precursor to today's online brokers). I left the industry when they made us attend a seminar where they were pumping REITs for every portfolio. The commissions and fees were huge, brokers were salivating to get on the phones and pump. I asked the presenter a question and became an outcast - you'd think I killed a baby seal right there in the seminar. A senior broker came up to me and said don't be too smart about this stuff, learn the pitch and sell it.
              I've been looking for investment advice but haven't pulled the trigger. I have an ira with fidelity but not happy with its performance, and don't want to call an 800 number for advice from someone I don't know anything about. Anyone you are willing to recommend? Feel free to PM me if you prefer.
              "Obama doesn?t know how to be president. He doesn?t know how the world works. He?s incompetent. He?s an amateur!?
              - Bill Clinton

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              • #8
                401K fund performance is usually sub par because of the fees imposed on 401K plans. I only invest in 401K plans up to the company match and invest in their SP500 index fund. The only bad investment is NOT investing. Unless you are going to actively trade AND KNOW WHAT YOU ARE DOING, your best bet is the SP500 100% allocation and just keep investing every month. Don't listen to the hot stock of the month or a tip from your brothers friend - just a super low fee/expense index ETF. I use IVV or SPY. I buy and sell the SP500 for $4 a trade.

                Brokers rely on commissions and fees. Just invest in the SP500 index with the least amount of fees.

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                • #9
                  Did your mother switch to your plan?
                  “Don't look at me in that tone of voice.”
                  Ms. Parker

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                  • #10
                    Originally posted by Drivin'tooFast View Post
                    401K fund performance is usually sub par because of the fees imposed on 401K plans. I only invest in 401K plans up to the company match and invest in their SP500 index fund. The only bad investment is NOT investing. Unless you are going to actively trade AND KNOW WHAT YOU ARE DOING, your best bet is the SP500 100% allocation and just keep investing every month. Don't listen to the hot stock of the month or a tip from your brothers friend - just a super low fee/expense index ETF. I use IVV or SPY. I buy and sell the SP500 for $4 a trade.

                    Brokers rely on commissions and fees. Just invest in the SP500 index with the least amount of fees.
                    I agree strongly with DTF about avoiding full service brokers and mostly sticking with low cost indexing. It's very good advice for the great majority of people. The only point I might differ on some is that I like a little more diversification that just the SP500.

                    It's easy to set up a more diversified portfolio. Scott Burns' couch potato portfolio is a classic example. Three or four funds or ETFs can give you good diversification with minimal cost and effort and it's possible to significantly increase your diversification with only a little more effort. Pick your fund choices, make your investment and re-balance once a year. The link below gives several examples and more information.

                    https://www.bogleheads.org/wiki/Lazy_portfolios

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                    • #11
                      I know my 100% SP500 is a little radical. But having 500 stocks in a portfolio that pays 1.8% annual dividends plus long term capital gains is just tough to beat. Plus the herd mentality of active managers causes them to underperform the market while they chase alpha and their base index. You will miss the volatility of small cap and periodic zooming asset classes, but the ability to nod your head when somebody recommends a stock and still do nothing is priceless.

                      For most people, it just seems too daunting and confusing - they end up making poor choices or even worse no choice. My set it and forget it strategy suits them well. Just keep adding to the pot and letting it grow. If Joe planner says they can beat the SP500 over the long haul - BUNK!! Year over year 70% of active managers under perform - they may have a good year but it's followed by 3 sub par years.

                      In complexity there is profit, and the brokers and financial planners certainly try to create complexity in order to make it seem harder than it really is.

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                      • #12
                        I got my MBA in finance with a lot of these guys. Brokers are, for the most part, crooks. They're a lot more interested in generating fees and dumping the stock their company is underwriting off on you than they are your financial wellbeing.

                        Index funds are your friend. The fees are almost non-existent, and it's rare you can find a managed fund that will beat it after fees.

                        The Vanguard S&P index fund is a low-fee no brainer. If you don't want that much risk, offset the it with a corporate bond index fund.

                        A conservative ratio is 1 minus your age, so if you're 60 years old, place 40% of your investment in the S&P 500 index fund, and 60% in a corporate bond index fund.

                        Brokers would like you to believe its brain surgery. It's not.


                        Sent from my iPhone using Tapatalk

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                        • #13
                          Bonds also bring risk with them. Many bonds act like stock in that they will move up and down with the stock market. Its important to look at "duration" which is measured in years. The higher the duration, the more the fixed income security's price would fall if there is a rise in interest rates. A shorter duration of about 4 yrs or less will minimize interest rate risk..

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                          • #14
                            Originally posted by Rimrock View Post
                            Did your mother switch to your plan?
                            Not yet, but the broker is getting an earful about fees. She will eventually come around once she see the fee statement from the broker.

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                            • #15
                              Originally posted by nolarocker View Post
                              Bonds also bring risk with them. Many bonds act like stock in that they will move up and down with the stock market. Its important to look at "duration" which is measured in years. The higher the duration, the more the fixed income security's price would fall if there is a rise in interest rates. A shorter duration of about 4 yrs or less will minimize interest rate risk..
                              My issue with bonds and particularly bond funds is two fold. Over time, stocks will always beat bonds. Bond funds can sell bonds and realize cap gains for periods you were not even in the fund. So essentially you get socked with a tax bill for past cap gains. Buying individual bonds avoids this but is very risky and complex.

                              For the average Joe 401K investor sp500 index 100% allocation.

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