Any experience with American Funds?
July 25, 2006 1:49 PM   Subscribe

Any experience with American Funds? Could use some opinions about financial planners, too.

I recently met with a principal investor for Foothill Securities, Inc. in an effort to get organized and buy a house in the bay area this year. We have two active 401ks , one stagnant (non-rolled-over) 401k and one stagnant 403b from previous employment (sum of these is <$25k). We also have some money in individual stock investments.

The financial planner is interested in taking us on as clients, and wants to move us to American Funds (managed funds where the clients pay a commission and make more overall, versus no-load funds where you don't and make less). She told us to do some research, so we did. I've read as much as I can google about this and found good (Motley Fool community seems to love them) and bad (SEC investigation along with all the other brokerages), but I would love some outside opinions from experienced MeFites.

While we're at it, any opinions about Foothill Securities if anyone here has used them for financial planning and investment? I've been a Motley Fool community and rule breakers reader for two years now and I am completely sick of managing my money this way. I don't have enough of it to justify the opportunity cost and would rather let a professional do it.
posted by Señor Pantalones to Work & Money (16 answers total)
oops, some links...
American Funds
Foothill Securities
posted by Señor Pantalones at 1:52 PM on July 25, 2006

I have some skepticism that managed funds outperform non-managed funds. This article from the Motley Fool seems to favor Index Funds vs. managed funds.
posted by justkevin at 2:18 PM on July 25, 2006

I would run as fast as I could from any financial planner that told me that load funds charge commissions but have better returns and that no-load funds have lower returns. That is just baloney -- the man is a crook out to steal your money.

I would select a financial advisor that works for a fixed fee or an hourly fee. A financial advisor who collects commissions has an extreme conflict of interests
posted by JackFlash at 2:24 PM on July 25, 2006

...managed funds where the clients pay a commission and make more overall, versus no-load funds where you don't and make less...

This is a crock of bull. Yes, some managed funds are more successful than some no-load funds. Many are not. Anybody that tries to pursuade you that a managed fund will perform better than a no-load or index fund is trying to sell you something. They're acting in their own best interest, not in your best interest.

There's nothing wrong in paying a professional to give you financial advice, but keep in mind where their loyalties lie. You may be better off getting your advice from a fee-only financial planner.
posted by gwenzel at 2:32 PM on July 25, 2006

American Funds is Capital Group's Mutual Fund brand. As an Investment Management firm they are about the most highly respected huge shop around.

I would say that Capital Group and Wellington are the most respected multi strategy long-only firms with massive assets under management.

That said I agree with everyone else's points RE: load funds.

Managed versus passive funds is a more philosophical argument. If you want to set and forget your investments go passive. If you are engaged you should make up your own mind.
posted by JPD at 2:33 PM on July 25, 2006

American Funds do okay within a 401(k) plan where the commissions are lower due to group size or because they are paid by your employer. I would not invest in American funds in a personal account because of the commissions. You can find no-load funds that do just as well or better with no commissions. The reason your financial planner is pushing them is because he/she is being paid to push them, not because they are the best for you. No matter how nice this person sounds, they are not placing your best interests first.
posted by JackFlash at 2:40 PM on July 25, 2006

I've been invested in American Funds New Perspective fund for quite a while and have been happy overall with the returns. I also have family invested in some of their other funds who are happy. Obviously, these are not our only investments.
posted by dpx.mfx at 2:54 PM on July 25, 2006

What are the advisor's credentials? CFP, CPA, CFA, etc?

Keep in mind that all a person has to do to sell securities is pass a couple of license exams. Foothill is just the broker-dealer. Make sure the actual advisor(s) you are going to be working with seem competent and that you actually like them.

Unfortunately, it's kind of hard to access great, professional financial planning advice unless you have a good bit of money.

As far as American Funds goes - they do have some decent funds. What type of share class was he trying to sell? A, B, or C? My guess is A. An A share will charge a huge load up front. A B share will carry a CDSC if you dump it too early (6 years or so).

Problem is, most funds don't consistently beat the market. That's why so many people are anti-managed funds. Why pay the high fees when their are funds out their with much lower fees getting similar results?

The advisor has to get paid somehow, be it by fees or commissions. However, I doubt this guy is an actual "financial planner". He is more than likely just a "mutual fund salesman" that passed his series 7.
posted by andrewdunn at 2:57 PM on July 25, 2006

It's not necessarily true that you can't get good financial planning advice unless you have a lot of money...look here or here to find a local fee-only planner who meets your needs. Most of them will offer a free consultation to determine your needs and discuss cost. I am also a fan of the the funds managed by Capital Group but it does sound like this planner is just pushing product that benefits him instead of you. At least one and better two of the qualifications that andrewdunn mentions (CFA, CFP, CPA) are a good place to start in looking for planning help.
posted by cyclopz at 3:12 PM on July 25, 2006

CFA here. What almost everybody said is, sadly, right. Be careful with this planner.*

Managed funds almost never beat similar no-load funds after taking true expenses into account. But commission-based planners get paid more to sell managed funds. Can you say "conflict of interest?"

Using a planner that charges on a fixed-fee or hourly basis minimizes these conflicts -- try to talk to one with good qualifications and references.

A responsible planner will probably also recommend keeping your foreseeable short-term expenses (e.g., house down-payment money in the next few months) into a low-risk, high-liquidity set of investments -- think money markets or short-term government-type funds/accounts -- so you'll know it'll be there when you need it. For most people, the higher-return, higher risk investments are for money you wouldn't miss for a few years if it vanished (e.g., retirement funds.)**

*A title more than a job description, "planner," sadly, carries little information as to qualifications, experience and professionalism.

**Of course, I don't know your exact circumstances so this isn't to be construed as any sort of recommendation, apart from that you should consult with a fee-based, qualified advisor.
posted by Opposite George at 5:22 PM on July 25, 2006

I've had American Fund manage a 401(k) for close to 15 years. At your level of investment I have to concur with Jack Flash, they are way overpriced for what you need done. Please check out the Vanguard funds. Pick something that satisfies your risk tolerance (remember losing hurts more than making the same amount) in the index group and leave it alone for 20 years or so.
posted by ptm at 6:29 PM on July 25, 2006

There are also tons of managed funds that do not charge up front loads, and still pay a 'commission' to the seller. Lots of banks will sell these types of funds.
Remember you get what you pay for EXCEPT in the world of mutual funds. Ideally you want to look at no loads that are consistantly in the top quartile, meaning they are in the top 25% of similar funds. MorningStar is a good source of information, but also look into the Web site of your current 401K provider. Most have research tools that you can use for free.
posted by Gungho at 7:14 PM on July 25, 2006

The American Funds are a very sound investment if you plan on investing for the long term. They consistently outperform even index funds over a long period of time for a couple of reasons:

1) They are managed by a group of portfolio managers who are rewarded over a four year period of time. Because several people are managing a particular fund, the highs and lows tend to balance out and because their reward structure is over a long period of time it is in their best interest to make good long term decisions. They even have funds that are managed by industry analysts who are some of the most knowledgeable people in their fields.

2) They have a miniscule advertising budget---instead, they spend the most money in the industry on research. That means they have people on trips all over the world kicking tires and questioning management.

3) They don't really speculate. Because of all the research they're doing and because of their anti-star system of portfolio management, they're less likely to follow trends and more likely to follow track records. Their funds were not very hard hit in the late 90's when the dot com crash happened, because they weren't really investing in technology stocks. (Of course, they didn't make the huge money that other funds were making either, but they came out ahead in the end.)

4) One of the reasons you can only buy into American Funds through an advisor is because they don't want day traders or speculators in their funds. They want smart investors who are receiving sound advice and are interested in investing long term.

How do I know all this? I worked for the Capital Group for six years (both on the Institutional investing side and on the American Funds side). I did not enjoy working there for the most part, but as a result of having my retirement money in their funds (which was rolled over to a private account after I left) I have a huge retirement fund going and I just turned 30.

Despite a vague sense of bitterness from being an employee there, I fully support their investing policies and believe in them as investment managers for long term investments. And if you knew about some of the things that some of my friends and I went through in a particular department there (on the institutional side), you'd be amazed I'd ever give a good review.
posted by Kimberly at 11:25 PM on July 25, 2006

Thanks a million for the comments so far.

The planner is a CFA. Only 3 hits on google for being a treasurer for a county, but no info otherwise. She was very nice and seemed genuine, but nice and genuine mean nothing when it comes to handing over money :)

So, if I'm to summarize this correctly...

- American Funds is great and recommendable...only if I can find a way to avoid getting hit with the fees. If not, I can still probably roll the money over into a good no-load fund in my existing 401k.

- I should seek a financial planner who charges hourly or flat fees instead of commission

- I should seek a financial planner with accessible and trustworthy references.

Which brings me to the subquestion (perhaps another post): Can anyone recommend a great financial planner in the bay area? I used Merrill Lynch for F.P. services for 5 years, then dropped them because they were doing nothing for me but printing out papers and getting in scandals for using my money to make their larger corporate clients richer.
posted by Señor Pantalones at 8:12 PM on July 26, 2006

American Funds would be great if they weren't commission products.

You would be much better off going to a fee-only financial planner that charges by the hour to tell you what's best. There's less conflict-of-interest.
posted by JLP at 9:13 PM on August 2, 2006

Senor Pantalones,

Check with the NAPFA (National Association of Personal Financial Advisors, which is a group of fee-only financial planners.
posted by JLP at 9:16 PM on August 2, 2006

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