Who should I invest with--HSBC or Edward Jones?
February 8, 2013 6:44 PM   Subscribe

I have a sum of money that I'd like to invest. I currently bank with HSBC, and a friend of a friend works for Edward Jones. I have talked to both HSBC and the Edward Jones guy, and the spiels I got were fairly similar--they suggested 80/20 stocks/bonds, generally mutual funds and that sort of thing. Both advisors intimated 10% average returns over 5-10 years, and both are looking at about a 2.5% initial fee and then a little over 1% yearly. Basically, what I'm looking here is to park my money and watch it grow. What I want is a totally hands-off approach. I don't want individual stocks or commodities, I don't want to do this myself, I don't want to be constantly asked what I want my money put into. I just want to put my money into a fairly diverse portfolio and have it get bigger without giving me the chance to mess around with it and screw it up.

The HSBC advisor seems pretty professional, and he sounds like he's in his 40s or so. He's got plenty of experience in banking, but he has worked for a TON of companies in the last 20 years--at least 8-10 different ones. The Edward Jones advisor is young--late 20s or early 30s, used to work for Baird, and has been with Edward Jones for three years now. He seems like he knows what he's doing. He's also local, whereas HSBC is a big corporation. I like the idea of my money being local, but it's not really going to matter in this case--I will probably be keeping an eye on things every month or two, but it's not like I'm going to be calling him up every day to re-arrange things.

I know that with HSBC I'll just be another number, and definitely one of their smaller clients, whereas with the Edward Jones guy I'll probably be one of his bigger clients. I have never had issues with getting a person at HSBC vs getting a phone tree, and I'm not worried about needing to talk to someone at 3 AM or something. I personally prefer to shop locally at small businesses and whatnot, but if I'm investing my money I want whoever's going to do a better job.

Just to forestall the inevitable, I know there's risk in any investment, I know I could buy ETFs and whatnot and do this on my own, I know you're not a lawyer or an accountant.

Based on this, who would you recommend I go with?
posted by Slinga to Work & Money (15 answers total) 17 users marked this as a favorite
2.5% upfront and 1% a year are really expensive - especially the 2.5% upfront. You should not go with either, or you should walk in there and tell them their fees are too high and see if they'll reduce them.

You should use one of the big low-cost guys and buy a bunch of index funds. There is nothing these guys are getting paid to do that you can't do your self. You shouldn't check on those even once a month. Assuming you are invested in a broadly diversified index fund there is no reason to open up your statement more than once a year.

10% average returns is not a realistic expectation unless you have an explicit view that the equity market is meaningfully undervalued.
posted by JPD at 6:58 PM on February 8, 2013 [7 favorites]

I would recommend that you go with neither, because the fees they are quoting you are really high. It's a ripoff. You can get the same type of investment through Vanguard with no upfront fee and annual fees of about 0.3% per year. To be clear, Vanguard has exactly what you want, a single mutual fund with an 80/20 spilt that you never have to think about.

They also are lying to you about the 10% annual returns over 5-10 years, there is no way they can guarantee that.
posted by medusa at 7:00 PM on February 8, 2013 [14 favorites]

what medusa said.
posted by 3mendo at 7:08 PM on February 8, 2013

Honestly, I would go with neither, and put my money into something from Vanguard (e.g. Vanguard LifeStrategy Growth Fund is broadly diversified with allocation of 80% stocks 20% bonds, and 0.17% fund fees), or T. Rowe Price (e.g. T. Rowe Price Balanced Fund, allocation of 65% stocks 35% fixed-income securities, and 0.69% fees). There will be no upfront fees, either.

I agree with JPD above that the fees you mentioned sound quite high, and the average returns unrealistic.

Some additional information that would be helpful - what is your investment horizon? Are you investing for your retirement?
posted by needled at 7:08 PM on February 8, 2013

Either HSBC or Edward Jones will likely get you similar returns, so if your only choice is between the two of them, I would recommend you invest with whomever you're more comfortable with personally.

Before you invest with either, however, I would recommend that you at least read an article on the impact of fees on the growth of your investment. Fees can be a huge drag on costs. Here is one article.

I know you said you don't want to DIY but you can set up a very simple, one-fund portfolio at Vanguard, using one of their Target Retirement funds, which start out with a similar portfolio to what you're looking at and get more conservative over time. You can automate a monthly investment, and never look except briefly at tax time. If you don't want something that automatically grows more conservative over time, their LifeStrategy Growth fund is 80% stocks/20% bonds and will stay that way indefinitely.

Apologies for straying from what you're asking, but even 1% of expenses can add up over time. With inflation, it's likely that that 1% might amount to $5,000, $10,000, $20,000, or more, a year. It's a pretty significant amount of money, it's worth it to at least check out the simplest of the DIY options.
posted by matcha action at 7:10 PM on February 8, 2013

Investment horizon is 5-10 years minimum, probably retirement.
posted by Slinga at 7:11 PM on February 8, 2013

Take a look at this calculator to get an idea of the effect of expense ratios on your investment. For a $100,000 investment projected to grow at 10% annually, the difference between a 0.2% expense ratio and a 1.0% expense ratio is $18,000 over 10 years. Over 30 years? $325,000.

It would be one thing if you were talking about an actively managed, sophisticated investment strategy, but there is really no need to pay any more than necessary for a simple 80/20 portfolio. This is something you can DIY with one fund, as others have mentioned. If you are worried you will mess with it, keep your non-memorable Vanguard or Fidelity password written down in a safety deposit box. Honestly.
posted by payoto at 7:16 PM on February 8, 2013 [2 favorites]

I agree that telling you to expect 10% annualized returns is irresponsible and (imo) a little unethical. The fees they are quoting you are also high. I would recommend looking for fees of 1.5% or less annually. That fee should include everything - there shouldn't be any additional commissions or dealing charges. Also make sure you ask about the mutual funds you're investing in - ask what type of shares you're getting and what the front end charges and annual charges are. If you buy (for example), what are called "A" shares, you're going to be paying a lot for those funds between front end loads and ongoing management charges, which makes them more likely to underperform the market. Larger institutions have access to "institutional" shares (often called "I" shares or somesuch), which are essentially wholesale shares and have much lower fund charges. The industry term for overall internal charges of mutual funds is "expense ratio".

Have you checked with Vanguard or Fidelity? If I remember correctly, they have call center advisors who can help you a lot if you're just looking for simple buy and hold investments. You also might want to look in your local directory for "Registered Investment Advisor" firms (RIA), which are truly independently owned and local. They will generally charge you the one flat annual fee as well.
posted by young sister beacon at 7:16 PM on February 8, 2013

Go with Vanguard, they're an amazing company. They go to AMAZING lengths to protect their customers.

A specific example of this is to outline their ownership structure, which is the exact opposite of every other financial institution. Vanguard's investment funds (the things you own as an investor) actually own the the main management group, so all profits are returned to YOU instead of being kicked out as million dollar bonuses or dividends to the bank's owners.

The easiest possible thing is to buy their target retirement date funds and never think about them again.
posted by grudgebgon at 7:20 PM on February 8, 2013 [3 favorites]

This is as close to a no-brainer as you can possibly get: invest with Vanguard index mutual funds. I'm largely repeating what others have said upthread because I hope it helps it sink in what a monumental mistake it would be to turn over 2.5% of your investment initially, and then 1% a year to put yourself into investments that will very likely perform worse than the market average over the long term.

And this 2.5% plus the annual 1%? That's just the fees they're telling you about. Because there are all kinds of other drags on your money, too, that you won't pay nearly as much of in a Vanguard fund: all of the transaction fees when these guys make trades and put you in and out of different investments; the taxes that these investments will have to pay; and other expenses--it's not at all unusual for the types of investments you could wind up in to have expense ratios of greater than 1% a year--this is in addition to the 1% you're paying annually, and in addition to the 2.5% you forked over up front.

If you put this in Vanguard Admiral shares, your expenses will range between around .10% and .20% a year. In other words, you'll cut your fees down by 80% or 90%. Look, if you're paying what amounts to a 2.5% penalty to be invested with either one of these outfits, that means you have to outperform the market by 2.5% just to break even. So even if these guys are above average and happen to consistently outperform the market (which is exceptionally rare to do this consistently--study after study shows that over time actively managed funds do worse than the index funds that track the market; think of it like flipping a coin--it's not impossible to come up heads five times in a row, but it's very unlikely), unless they outperform it by more than 2.5%, you're losing money.

So, don't lose money. Invest in index funds. I would invest (and I do invest) with Vanguard, but Fidelity is a good alternative too if you get into their Spartan funds.

Diversify, and you can do this with three index funds: Total Stock Market, Total Bond Market, and a Total International Fund. A typical asset allocation that reduces volatility would be something like 70% stock funds, with 50% of your total in the Total Stock Market (domestic US fund) and 20% in the International Fund, and 30% in the Bond Fund.

But some other thoughts for you. If your investment horizon is truly as short as five years, put this into CDs. Investing is for the long-haul, not for stuff you want in five years. So, you may want to consider whether you really want to invest this at all if you think you may pull it out in five years. For instance, if you had asked this in 2003 you would have been screwed, since the market went down almost 40% in 2008.

Anyway, for the love of god, do not go with either choice.
posted by MoonOrb at 7:49 PM on February 8, 2013 [5 favorites]

I had Edward Jones for a few years. The fees ate all the profit and the principal kept shrinking (due to Ed Jones' lousy investments). It was not a great deal at all. I now have have a plan for university professors.
posted by fifilaru at 11:40 PM on February 8, 2013

I don't know if this answer has a place here, but I feel it's relevant. Although HSBC ranks quite well on studies related to climate change, they have a few major marks against them. "HSBC has £450.6 million in the arms trade, and serves as principal banker for Meggitt, the UK's largest arms company" (wiki). They have also been money laundering for Mexican drug cartels and terrorists. And they loan money to companies that produce cluster and depleted uranium munitions. This last stat is the most sickening of them all: cluster and DU munitions are two of the most likely to cause civilian deaths, even years after combat has finished.

I'm glad that people are suggesting you bank elsewhere!
posted by omnigut at 3:04 AM on February 9, 2013

Fidelity account, invest in index fund ETFs. Screw 2.5% fees, you should be paying like 0.05%. The main advantage of ETFs for an individual investor is that there ends up being a lot less tax paperwork. Fidelity (Vanguard competitor) has amazing service -- you can call them at 2 am on a Saturday and get a real CPA who actually knows what he's doing.
posted by miyabo at 6:55 AM on February 9, 2013

Index funds allow you to have a passive, hands off approach without the ridiculous fees. Note that those advisors will never guarantee you a certain return. That's because 1) they know that's impossible to guarantee (unless they are willing to over the difference themselves, which they are not), and 2) they are legally precluded from doing so and for good reason. Both Vanguard and Fidelity have very low cost index funds (around 0.10% total expense ratio). You might want to look at a total market index fund instead of a more limited S&P 500. You could also consider putting some part of your money into a low cost REIT fund and/or bond fund. For the scoop on the investment industry, you could read a book like The BIG Investment Lie.
posted by Dansaman at 8:36 AM on February 9, 2013

If you want to pay for someone to help handhold you through the process of setting up a Vanguard account and portfolio, do that. I am guessing that spending $2,000 on that would be a rip-off, but it would still be cheaper than the up-front fee you are considering (assuming you have at least $10K to invest).

Before you even consider that though, look at the help that Vanguard offers. Among other things, they offer teleconferencing with financial advisors for free or cheap. Also, if you happen to have $500K+ invested, you can have an advisor assigned to you for a fee less than or equal to 0.7% of your portfolio.

Honestly for what you already know you want, do Vanguard.
posted by Good Brain at 12:15 PM on February 9, 2013

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