If you want to educate yourself on how the financial service industry works, how to optimize your personal investment choices, and how to avoid getting ripped off, there are several good books on this:
“The Little Book of Common Sense Investing”, by John C. Bogle: http://amzn.com/B008W02TIG
“A Random Walk Down Wall Street”, by Burton G. Malkiel: http://amzn.com/0393340740
“The Elements of Investing”, by Burton G. Malkiel: http://amzn.com/B0030F2SBG
Today was our meeting to discuss the fees in person. When we got there she had a pad of paper with fees listed on the top piece of paper. She said she could show us the paper and we could write the information down but she couldn’t give it to us in any written form, so she couldn’t make a copy of it either. The list with examples was very short. I think it’s suspicious that she can leave no evidence that she gave us fee information, it was like we were discussing illegal activities.
We had already seen the prospectus for each of the funds she recommended, so we know the fees the fund company charges. When we started discussing what she wrote down, I asked her if she was showing us the fees on top of what the fund company charges, she said that the fees on her paper were all the fees. My husband heard her say this also. She had written down that there is a 2.5 percent opening fee. The fund company charges a 4.25 to 5.75 percent opening fee so I don’t see how that can be true.
For stock trades there is a 2.5% trade fee each way so if I sell stocks, and buy other stocks with the proceeds, there would be an over-all 5% fee. There is also a SEC fee of $4.95 for each stock sale or purchase. Supposedly this is a fee that just gets passed along to us. No annual fee on the stocks.
We aren’t interested in paying an up-front fee but even if we were we think other fees should be very low or zero. Mutual fund fees are different but there is still the 2.5 percent up-front fee, there is also a .95 percent annual fee but no transaction fees. Of course those fees are probably in addition to the fund company fees, I don’t see how it can be otherwise.
Run away, run away. Get thee to Vanguard.
Why would you pay a percentage fee? Is buying $100,000 of stock $2498 more work than buying $100 of stock? I doubt it.
Run away. If it ain’t in writing, it ain’t real.
A fund company with or with the advisor fees of 4.25-5.75% is really steep. Look at it this way, you give the company $100, then they invest $95, so instantly you have a 5% loss. If you do a trade and buy something else, you have a 5% loss. Very few fund managers out perform the market, and less out perform by 5%.
Go to Vanguard or Fidelity and check out their no load funds. Check out their “age appropriate” funds if you want to take all the thinking out of it. You can get a no load fund on the S&P 500 for far under 1%, and the S&P over time has outperformed most fund managers (and you don’t have to make back that 5% or more you lost on the opening fee. Or just buy Berkshire Hathaway B shares since they have historically performed in line or better than the overall market.
Either way, this so-called advisor should be selling used cars, except that is insulting to the decent used car sales folks out there.
Exactly!
Nominal fees * many transactions is no longer nominal. It’s significant. If they weren’t meaningful why are they so desired by financial sales people which many financial advisers are nothing but. Look, when you have to do deal with companies that steer clients to high front load funds that have high expense ratios you have to be very cynical about conflicts of interest.
The second link ought to be highly troubling. It allows the financial “adviser” to claim that their fees are X when in essence it is X+Y where Y is the kickback from the preferred fund. Why in the world would an agreement like this exist? To fleece naive customers is why.
Financial advisers could still eat and provide an ethical service. I notice in a later post you pooh-poohed the concept of fiduciary by bringing up Mr. Madoff! We have laws against murder yet murder still exists. That doesn’t mean the law is at fault. The presence of the law enables higher penalties to be enacted on those who violate fiduciary duty. You are correct the mere presence of such isn’t a guarantee you won’t be swindled but it is an additional measure.
Anyways, if someone isn’t being precise and upfront with how your money is going to be spent to the 1/100 of a percent either they aren’t detailed, knowledgeable or honest enough to do business with.
My money is currently in Vanguard and a few other places and I can see that there is no-load and low expense ratios. I have enough sense to not buy high and sell low. Enough sense to keep my asset allocation the way I like it.
Those fees seem significantly higher than is typical for the industry and way higher than is necessary to receive competent financial advice. IMHO, I think you can do better.
I’ve never heard of an “opening charge” but since it’s not the same as the load on the mutual funds, I would assume that it’s an account fee levied by the broker on top of the load that the mutual fund will charge (and then pay to the broker). If that’s really what she said, you need to run as fast and far away from her as you can because they are layering incredibly high fees on the portfolio.
Brokers frequently charge what they call an “SEC Fee,” but there is no such fee that the SEC requires brokerage customers to pay. Under Section 31 of the Securities Exchange Act of 1934, the SEC levies a fee on self-regulatory organizations (“SROs”) related to the amount of trading. "SEC Fee" - Section 31 Transaction Fees
SROs then have rules that require their members (the broker-dealers) to pay a related amount to the SROs. So broker-dealers then impose something they call and “SEC fee” on their customers to pay the SRO. The trick is that the broker-dealers often impose an “SEC fee” that far exceeds the amount they have to pay to the SRO. They just keep the rest of the money as profit. The current fee the SEC imposes on SROs is $21.80 per $1 million. SEC.gov | Fee Rate Advisory #4 for Fiscal Year 2016
Therefore, while your broker can charge any “SEC fee” it wants, the SEC will only get $4.95 if you trade approximately $227,000 in stock at a time. If you trade in lots that big, you can certainly find lower cost advisers to tell you how to invest it.
It’s hard to assess, based solely on your explanation, what would happen if you were to go with the 0.95% annual fee option. It is possible that this would constitute an advisory fee and that the brokerage firm would not then take commissions on any mutual funds that they recommended to you. I would expect if I were paying a 0.95% annual portfolio fee that I would be invested solely in no-load mutual funds that would not carry an up-front or deferred sales load. These funds would still carry ongoing management fees and perhaps 12b-1 fees, so they wouldn’t necessarily be considered low-cost. 0.95% per year is in the range of normal advisory fees for investment accounts of less than, let’s say, $1 million, but you can find competent lower-cost advisers even if you have less than $1 million to invest.
This, all by itself, is reason to RUN in the opposite direction.
If the document can exist in writing per the compliance rules under which she’s operating, you can have a copy of it. Either she’s violating the rules in preparing the document (in which case what other rules is she violating?), or she’s violating the rules by refusing you a copy (in which case what other rules is she violating?).
Personally, I think it likely you WERE discussing illegal activities–you just didn’t know what exactly she’s planning to do, but she’s planning something unsavory. (What’s next? A trade got executed, and she could show you the paper confirming it but she couldn’t give it to you in any written form?)
Even if her fees were reasonable, her lack of candor in disclosure and her wanting to leave no proof of anything she told you are bad bad news.
An amusing aside:
When a coworker of mine was approached to contribute $10 to a recent Powerball lottery inclusion in a plant-wide joint venture purchase of multiple tickets to benefit all participants if any number hit… He replied: “I don’t need to give someone $10 to tell me that I am a loser.”
Similarly, I’ll not give a “financial advisor” 1%, 2%, 3%, 4%, etc., of the hard earned basis of my account, in a “down market” to compound my loss. I don’t need to pay someone 3% of my net worth to tell me I am a loser… I can accomplish that all by myself.
Hopefully the following helps novice and experienced alike get proper information with regards to expenses. http://www.dol.gov/ebsa/newsroom/fsconflictsofinterest.html