Financial Advisers - What's in it for them?
May 15, 2013 1:27 PM Subscribe
I hired a month-by-month financial adviser last year after my divorce to help me get things in order. The guy I worked with left the company last year on May 13. He called me yesterday, 366 days after he left from his new gig wanting me to be his client again. (non-compete plus 1)
That's when things got weird.
When my divorce was done I got up with a local financial planning company to get some help deciding about rolling over 401k, an old pension, investment strategies etc. The cost was $100/month & I can leave anytime. The guy I worked with, let's call him Mike.
I felt like I got good advice and feel much better about how my assets are distributed.
So, Mike leaves said company last year in May and I get a new guy at the same institution. Let's call him Joe. I worked off and on with Joe throughout the rest of 2012 and felt that I got my money's worth. I'm still a customer at $100/month, but was planning on dumping them soon.
So Mike calls the other day and offers to be my guy again. I explained that I feel like I'm all set and really don't need a guy anymore, and that I'd soon by dumping Joe. Even knowing that, Mike said we could get together and he would switch my accounts so that he was my rep. Or something to that effect....
I saw the Frontline Episode on 401ks & retiremtent, and was soundly irked by what I learned.
Do these guys get residual income just because they brought me a product & I signed up for it?
Can I dump BOTH Joe and Mike ad receive those residuals myself?
What kind of money are we talking here? For reference, I put a bit over 100k into their suggested investments.
How does this work and why would Joe want "his name" as my rep?
When my divorce was done I got up with a local financial planning company to get some help deciding about rolling over 401k, an old pension, investment strategies etc. The cost was $100/month & I can leave anytime. The guy I worked with, let's call him Mike.
I felt like I got good advice and feel much better about how my assets are distributed.
So, Mike leaves said company last year in May and I get a new guy at the same institution. Let's call him Joe. I worked off and on with Joe throughout the rest of 2012 and felt that I got my money's worth. I'm still a customer at $100/month, but was planning on dumping them soon.
So Mike calls the other day and offers to be my guy again. I explained that I feel like I'm all set and really don't need a guy anymore, and that I'd soon by dumping Joe. Even knowing that, Mike said we could get together and he would switch my accounts so that he was my rep. Or something to that effect....
I saw the Frontline Episode on 401ks & retiremtent, and was soundly irked by what I learned.
Do these guys get residual income just because they brought me a product & I signed up for it?
Can I dump BOTH Joe and Mike ad receive those residuals myself?
What kind of money are we talking here? For reference, I put a bit over 100k into their suggested investments.
How does this work and why would Joe want "his name" as my rep?
How does this work and why would Joe want "his name" as my rep?
Was this a model where they actually touched your accounts, or you brought them printouts and they told you what to do and you went off and did it yourself?
posted by jacalata at 1:32 PM on May 15, 2013
Was this a model where they actually touched your accounts, or you brought them printouts and they told you what to do and you went off and did it yourself?
posted by jacalata at 1:32 PM on May 15, 2013
Even knowing that, Mike said we could get together and he would switch my accounts so that he was my rep. Or something to that effect....
Mike is at a different company, right? They want your business. Nothing weird about that. He may get a commission for bringing your account or he may be under pressure to sign up X new accounts.
Do these guys get residual income just because they brought me a product & I signed up for it?
Really depends on the fee structure of the account and the "product." They could get an ongoing management fee paid out of the assets.
Can I dump BOTH Joe and Mike ad receive those residuals myself?
Of course, it's your money. The less fees you pay, the better. If you learn just a little bit about investing you can open an account at Vanguard or Fidelity and pay very low fees for passively managed mutual funds. For $250 Vanguard will set up a plan for you, if you still want a bit of professional guidance.
What kind of money are we talking here? For reference, I put a bit over 100k into their suggested investments.
$100/month on $100k invested is 1.2 percent, that's pretty high IMO considering that's just the advisory fee (it sounds like), and the investments themselves likely have their own internal fees.
posted by payoto at 1:37 PM on May 15, 2013 [4 favorites]
Mike is at a different company, right? They want your business. Nothing weird about that. He may get a commission for bringing your account or he may be under pressure to sign up X new accounts.
Do these guys get residual income just because they brought me a product & I signed up for it?
Really depends on the fee structure of the account and the "product." They could get an ongoing management fee paid out of the assets.
Can I dump BOTH Joe and Mike ad receive those residuals myself?
Of course, it's your money. The less fees you pay, the better. If you learn just a little bit about investing you can open an account at Vanguard or Fidelity and pay very low fees for passively managed mutual funds. For $250 Vanguard will set up a plan for you, if you still want a bit of professional guidance.
What kind of money are we talking here? For reference, I put a bit over 100k into their suggested investments.
$100/month on $100k invested is 1.2 percent, that's pretty high IMO considering that's just the advisory fee (it sounds like), and the investments themselves likely have their own internal fees.
posted by payoto at 1:37 PM on May 15, 2013 [4 favorites]
I expect he wants to show your assets on his book of business (i.e., he wants his employer to see he has clients with a total of $27.5 million in "assets under management"). That, and he likely gets a commission for products he puts you in (i.e., life insurance, etc.). You can find your own insurance policies, for instance, cutting them out.
My personal view--and this is not financial or legal advice, and I am not your advisor, etc.--is that unless you're rich, you don't need any kind of "rep." You need a plan, sure, but you can do all the trading yourself. No one needs to make discretionary trades on your behalf, since for most small investors, once you have a diversified portfolio that matches your risk appetite, you really should be buying and holding. $100K is just not at the level where someone needs to or should be actively managing anything. Again, just my two cents, but my experience with financial advisors has always been quite mixed to poor. If these guys were financial geniuses, they would not be hustling after $100/month. Instead, they often buy software packages from companies like Fidelity and Vanguard (similar to what you can get on those firms' sites for free) to tell you that an "aggressive portfolio" has X% equities, while a "conservative portfolio" has Y% fixed income.
You can just take your money to a low-cost brokerage (preferably one with good online tools) and educate yourself, and save $1200/year.
posted by Admiral Haddock at 1:47 PM on May 15, 2013 [1 favorite]
My personal view--and this is not financial or legal advice, and I am not your advisor, etc.--is that unless you're rich, you don't need any kind of "rep." You need a plan, sure, but you can do all the trading yourself. No one needs to make discretionary trades on your behalf, since for most small investors, once you have a diversified portfolio that matches your risk appetite, you really should be buying and holding. $100K is just not at the level where someone needs to or should be actively managing anything. Again, just my two cents, but my experience with financial advisors has always been quite mixed to poor. If these guys were financial geniuses, they would not be hustling after $100/month. Instead, they often buy software packages from companies like Fidelity and Vanguard (similar to what you can get on those firms' sites for free) to tell you that an "aggressive portfolio" has X% equities, while a "conservative portfolio" has Y% fixed income.
You can just take your money to a low-cost brokerage (preferably one with good online tools) and educate yourself, and save $1200/year.
posted by Admiral Haddock at 1:47 PM on May 15, 2013 [1 favorite]
Best answer: Do these guys get residual income just because they brought me a product & I signed up
for it?
Yes, of course. The investments industry is pretty much built on the idea of recurring fees as a percentage of assets under management. This is probably better than the old (but not extinct) commissioned-based system that encouraged advisors to have their clients trade a bunch.
What you probably needed but didn't really get, was to pay someone a couple hundred bucks one time to tell you what you ought to do and then keep your money in low cost investment vehicles that charge relatively small recurring fees (probably via a Vanguard or Fidelity or Schwab account). Paying $100/month to a goofball small potato advisor is a waste.
Can I dump BOTH Joe and Mike ad receive those residuals myself?
What? No. You can dump Joe and Mike and, you know, not be paying that $100/month fee. But you'll still be paying the fees charged by your investment vehicles and perhaps other fees associated with maintaining an account (though hopefully not if you pick a firm like Vanguard or Schwab).
posted by mullacc at 1:58 PM on May 15, 2013 [3 favorites]
for it?
Yes, of course. The investments industry is pretty much built on the idea of recurring fees as a percentage of assets under management. This is probably better than the old (but not extinct) commissioned-based system that encouraged advisors to have their clients trade a bunch.
What you probably needed but didn't really get, was to pay someone a couple hundred bucks one time to tell you what you ought to do and then keep your money in low cost investment vehicles that charge relatively small recurring fees (probably via a Vanguard or Fidelity or Schwab account). Paying $100/month to a goofball small potato advisor is a waste.
Can I dump BOTH Joe and Mike ad receive those residuals myself?
What? No. You can dump Joe and Mike and, you know, not be paying that $100/month fee. But you'll still be paying the fees charged by your investment vehicles and perhaps other fees associated with maintaining an account (though hopefully not if you pick a firm like Vanguard or Schwab).
posted by mullacc at 1:58 PM on May 15, 2013 [3 favorites]
Of course they could be making commissions on your investments. Fixed fee doesn't mean they necessarily get nothing else. If they steer you towards commissionable investments, they get the commission. You could consider investing in low fee index funds (which are non-managed mutual funds) from Vanguard or Fidelity to avoid that.
posted by Dansaman at 2:23 PM on May 15, 2013 [1 favorite]
posted by Dansaman at 2:23 PM on May 15, 2013 [1 favorite]
I'm all about Exchange Traded Funds. I pick 'em, I move the money into them, and I don't pay anyone above and beyond the small management fee associated with the fund.
$100 per month sounds like robbery to me, especially if the guys are selling you securities and getting commissions for that on top of it.
Do you have a brokerage account? Is it separate from these clowns? If so, that's fine. End your relationship with all "financial advisors." Here's what Suze Orman says about them. I'd recommend picking up her books because you should feel comfortable managing your own money.
posted by Ruthless Bunny at 2:29 PM on May 15, 2013
$100 per month sounds like robbery to me, especially if the guys are selling you securities and getting commissions for that on top of it.
Do you have a brokerage account? Is it separate from these clowns? If so, that's fine. End your relationship with all "financial advisors." Here's what Suze Orman says about them. I'd recommend picking up her books because you should feel comfortable managing your own money.
posted by Ruthless Bunny at 2:29 PM on May 15, 2013
Response by poster:
and
Thanks for the insight, hive! Hivesight?
posted by bricksNmortar at 2:33 PM on May 15, 2013
It might help if you tell us what the advisory companies in question are -- different ones have different compensation models for their employees...The company is Hantz Financial. I have an ex-niece in-law that works as one of their "financial advisors" which is one of the reasons I went with them.
and
... once you have a diversified portfolio that matches your risk appetite, you really should be buying and holding.THAT is what I needed help with. They helped. I was too-invested with stocks and they helped me with the percentage of my retirement savings that are not in a self-directed brokerage account where I am buying and holding. Mostly holding now. They tried to get me to move those funds to an organization that they recommended, but I declined.
Thanks for the insight, hive! Hivesight?
posted by bricksNmortar at 2:33 PM on May 15, 2013
for $100k they are charging you 1.2% which up front is not an awful price. We charge 1% of assets. HOWEVER, you are aware of hidden fee's (Oxymoron) and we were hoping people would become more aware of them through that episode of dateline. Investments can be expensive if your advisor works off of commission. They can receive a big piece of the pie if they place you in these expensive, average performing investments and funds.
Here's what you do. DROP THEM BOTH. If their business models are the same you don't want anything to do with them. Seek out a fee-only financial advisor. These advisors do not work for third parties and do not receive commission. They work for you only. Again, a good service price is 1% or lower, but you also have to look at investment costs. We put clients in extremely low cost funds that perform just good if not better than the ones they put you in. Since the cost of the funds don't matter to us, we spend a lot of time researching low-cost, high performing funds depending on your risk-tolerance. On average the funds we choose cost around 0.4%. If your investment costs are around 1%-3% you're getting ripped off.
We have clients all over the nation. Our average client has $1 million of assets but we go as low as $350k. If this isn't your range, go to www.napfa.com and search for a fee-only financial advisor near you. If it is I invite you to contact us. See our website below.
Hope this helps!
- James Gibson
Lead Marketing Associate at HIGHLAND Financial Advisors, LLC in Riverdale NJ.
posted by FinanceGuy at 12:02 PM on July 22, 2013
Here's what you do. DROP THEM BOTH. If their business models are the same you don't want anything to do with them. Seek out a fee-only financial advisor. These advisors do not work for third parties and do not receive commission. They work for you only. Again, a good service price is 1% or lower, but you also have to look at investment costs. We put clients in extremely low cost funds that perform just good if not better than the ones they put you in. Since the cost of the funds don't matter to us, we spend a lot of time researching low-cost, high performing funds depending on your risk-tolerance. On average the funds we choose cost around 0.4%. If your investment costs are around 1%-3% you're getting ripped off.
We have clients all over the nation. Our average client has $1 million of assets but we go as low as $350k. If this isn't your range, go to www.napfa.com and search for a fee-only financial advisor near you. If it is I invite you to contact us. See our website below.
Hope this helps!
- James Gibson
Lead Marketing Associate at HIGHLAND Financial Advisors, LLC in Riverdale NJ.
posted by FinanceGuy at 12:02 PM on July 22, 2013
This thread is closed to new comments.
posted by Perplexity at 1:29 PM on May 15, 2013