Financial Advisor Disclosing Costs

My husband and I are talking to a financial advisor and we feel like she is being evasive about investment costs. For almost a week now I’ve been trying to get her to send us an itemized list of costs for the investments she has recommended. She is willing to drop them off and talk to me about the costs and values of the investments, which makes me think she’s going to talk me into thinking the costs aren’t that high because of how much value we will spposedly be gaining. She has directed me to the company website which only refers to “normal transaction fees” with no mention of what they are. Finally, after multiple emails she sends me this:

"There’s nothing more important to me than understanding what’s important to you. We believe in the protection of our clients and highest level of service. XXXXXX XXXXX is a full brokerage service with some of the most competitive costs in the industry.

XXXXXX XXXXX prides themselves on disclosing all costs. Per compliance, fees and costs are not allowed to be emailed. The hypos are allowed for stocks & mutual funds along with mutual fund prospectus. Calling and discussing on the phone is allowed. Discussing in person is allowed."

Is it true that she cannot send fees and costs through email? If she really is not allowed to email a list of fees and costs why didn’t she just tell me that in the first place? XXXXXX XXXXX is known for trying to hide fees and for not disclosing them. We are not even considering investing money through this company, at this point we’re just curious what she will say about the fee issue.

Since fees and costs can be posted on a financial company’s website and downloaded, I don’t think what she is telling you is true. But it might be, as she said it was due to compliance. So ask her directly what regulation requires that for compliance. If she give you anything other than a straightforward answer right away, well, then it’s probably BS.

Exactly, that’s my thinking too. I would actually think they would not be able to discuss costs on the phone or in person without some sort of written disclosure. The rules, in general, favor making information available to clients in written form.

I was hoping to find out the costs before our scheduled meeting Thursday so that we could just cancel the meeting.

IME, the primary job of most financial advisors is to “advise” you to buy products sold by their employers, which often come with high fees and large expense ratios.

There’s an under-appreciated class of financial advisors known as fee-based or fee-only advisors, who generally work for themselves (or small practices) and charge a set, upfront fee for advice. They therefore are supposed to have the client’s best interest in mind. However, even these guys often fall into the practice of selling sub-par products that pay them commissions. (NAPFA-registered advisors are not supposed to do this. Sometimes they do anyway.)

It never hurts to get a second opinion.

I assume this person is working for a securities brokerage firm. If so her card should note that her firm is a Financial Industry Regulatory Authority (“FINRA”) member. If not, nothing else I say is relevant.

There is nothing in the federal securities laws or FINRA rules prohibiting her firm from sending generic fee information to you by email. This information is not confidential to you and under SEC guidance, the firm can send any information electronically to you if you agree to receive it that way (with a few other minor limiting conditions).

You should not invest in any investment product that you don’t fully understand or if you don’t fully understand the fees.

I am concerned that she is refusing to send you information by email to avoid SEC and FINRA rules that require the firm to keep records of all the emails she sends and to periodically review those emails to make sure that the communications don’t violate the federal securities laws. I fear that whatever she plans to tell you would be misleading, false, or fraudulent and that if she put it in writing, she would be at risk of being caught.

Agree with frido and T and C. If this person is not producing clear information you have a reason to feel uncomfortable.
If this is a full service brokerage firm then the broker makes money selling you things on commission. This presents a potential conflict of interest. Fee only can reduce the conflict.

That’s our feeling too, and thanks for your answers. I did ask for fees specific to the investments she is recommending to us which might take it out of generic fees, if that makes a difference. At this point I don’t trust her at all and I wish I never called her in the first place. I understand that everyone has to make a living and get paid for their work but she needs to be more upfront about it. At our last meeting she was saying what the fees are for certain services, then once we got home and started adding them up they seemed ridiculous. All I want is for her to put in writing the fees she told us during the meeting. I told her that multiple times and she is being totally evasive.

In the course of managing the investment (your post mentioned mutual funds specifically) the manager will buy and sell securities (stocks, bonds, etc.). These transactions cost the manager money to execute, these are the transaction fees. They manager doesn’t know right now what they’re may buy and sell in the future days, weeks, or months from now. So they disclose what they DO know - that there will be transaction fees associated with managing your investments, and they’ll be “nominal”.

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Her company may in fact have that policy, therefore it is true. The regulators (FINRA, SEC, etc.) don’t specifically prohibit it, no, but she may well be telling the truth that she, as a condition set by her employer, isn’t allowed to email them. She’s invited you to discuss them by phone or in person so it would be hard to argue she’s outright refusing to disclose them. She IS offering to disclose them, just not via the medium you prefer. Doesn’t mean she isn’t telling the truth.

I bet she already gets that vibe from you and doesn’t want to waste her time.

I invested for twenty years with an ‘advisor’ who worked for a major brokerage. When he disclosed his real fees , I bailed.

I consider it the greatest mistake of my life. Thankfully, my corporate 401k offered funds with low fees.

I came to Vanguard late in the game but am glad that I did and now follow the simple 3-fund strategy.

Invest an hour of your time and read “If you can” - a free download from here.

[quote=“Squallous, post:8, topic:749782”]

In the course of managing the investment (your post mentioned mutual funds specifically) the manager will buy and sell securities (stocks, bonds, etc.). These transactions cost the manager money to execute, these are the transaction fees. They manager doesn’t know right now what they’re may buy and sell in the future days, weeks, or months from now. So they disclose what they DO know - that there will be transaction fees associated with managing your investments, and they’ll be “nominal”.

During our meeting she said specific percentages for each type of investment, most of them 2% or 2.5%, and that’s the only type of information I want right now. I’m not expecting her to predict what will happen in the future. Our current financial planner is able to give us a form to sign that lists the fees that will be charged for certain services, nowhere does it say “normal transaction fees”. During the meeting I think she said there is a maintenance fee of 2.5%/ year plus 2 or 2.5% transaction fees for mutual funds, plus 2 or 2% up front fees for all accounts. Those numbers seem so high that I am almost certain that we misunderstood.

If she had just said a week ago that her company doesn’t allow her to give costs through email I would be more understanding. I am not able to talk to her about it before the meeting so I was hoping to have time to do some calculations before the meeting. Last week if she had been more upfront I would have considered her if her fees were even close to our current person’s fees but I believe they are, at best, more than double. If I could have determined that last week we could have saved a lot of time.

Our next step is going to be Vanguard. Thanks for the link, I’ll read it after work.

I am a very, very big fan of Vanguard.

And among fee only, I know of two types. The first takes a fee based on the value of your investments, usually 1% or so. The second charges an hourly fee.

I recently used an hourly fee based advisor, the charge was a little over $400 for two hours face to face and about an hour of preliminary phone calls and emails. The FINRA website was useful in finding a reputable advisor IMHO.

[quote=“Zulema, post:10, topic:749782”]

I suspect you misunderstood. A client paying 2.5% annually is in an advisory account, there won’t be additional transaction fees or maintenance fees. A client investing in mutual funds (or similar), depending on how much is invested at once 2.0%-2.5% up front and another 2.0% annually (although that’s pretty high) is not atypical. It would be one or the other, but not both.

If you have a (few) million then yes, 1% is what you’ll pay. Less than that will pay more.

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Caveat - FINRA is like the local bar association or the American Medical Association. They do have a vested interest in making sure their members are on the up and up, but being a member doesn’t necessarily mean that they’re “reputable”. Doesn’t mean they’re not either. I think most doctors, lawyers, and financial advisors are honest people. I also believe there are a few quacks, ambulance chasers, and crooks among them. IMHO.

[quote=“Zulema, post:10, topic:749782”]

Some companies do not allow emailing of such, it’s true. Mine doesn’t, but does allow such to be printed and faxed. Both email and fax are recorded for all time in client communications records.

My firm offers both straight commission and fee-based and leaves it to the client which is available. I’m required to disclose both fees and allow the client to choose. I’m also required to present multiple options for any retirement-based proposal that include on the first page all fees - or potential fees - for that proposal so the client can decide upfront whether the fees are worth the gain. I’m also required to disclose any incentives and ongoing fees - if any - before any are incurred.

If your person isn’t doing that you need to talk to someone else.

THAT’s certainly not the case. My maximum fee is just a hair over 1%. With breakpoints it quickly goes below 1%.

The OP mentions stocks and mutual funds. I’m not sure whether the representative is being evasive about the fees on some of these investments or all of them.

It is true that a mutual fund’s execution costs are generally unknowable in advance and aren’t actually disclosed in the prospectus. First, you can infer a little bit about execution costs based on the historical turnover of the portfolio. When comparing funds that invest in similar portfolios, funds with lower turnover tend to have lower execution costs. Second, the mutual fund’s execution costs are a drag on performance, but they are generally not the biggest expenses a mutual fund investor faces. Investors face a litany of other expenses and fees, as discussed on this page: https://www.sec.gov/answers/mffees.htm

Some of those fees and expenses can be calculated to an absolute certainty based on the amount that is invested. Others are recurring and an investor can gauge how these fees and expenses will affect performance over time. It seems that Zulema might be having a hard time getting this basic disclosure from her adviser.

Zulema, when I referred to generic fees, I meant the fees that would be disclosed in a mutual fund’s prospectus or the fee schedule the broker-dealer would charge to purchase the stocks she recommended. The brokerage representative should be able to provide you with these. If you asked exactly how much it would cost to invest your portfolio of $x into all the investments the representative recommended, the representative would have to calculate the amount of the sales loads and other fees on the amount you planned to invest, or the commissions on the things that you planned to buy or sell. That’s particularized and would include confidential information about your current portfolio and your planned investments. The representative should secure this information rather than sending it over unencrypted email. Not every firm can send encrypted email. I’m not sure if that’s the type of information you were requesting but if so, I could understand why the representative wouldn’t want to send it over email. She could still send it by U.S. mail, courier, or fax though. Or she could just write it down and bring it to you. I don’t think this is her concern if she says she can only tell you about the fees.

Typed while Jonathan Chance was saying much the same thing.

I think the meeting on Thursday will be very informative but she is always in high salesperson mode so we don’t get much time to think in her presence. That alone is a reason to not choose her, just not a good personality match.

I emailed her before our previous meeting and told her what our current planner’s fees are and said that if hers are much higher we probably won’t be interested so I gave her a chance to decline any future meetings if she thinks it won’t be worthwhile.

Several other posters have provided good click through links. Here’s a very simple one. Let’s see if it works.