Financial advisors

[no1g8r]

My perspective:

1) a commissioned advisor is most likely to churn your account to generate bigger commissions
2) a fee-based advisor (flat fee or % of portfolio) may be prone to ignoring your account, on the premise that he has your business, and will just generate basic reports for you, but otherwise will focus his efforts on gaining new business
3) a fiduciary is legally required to make recommendations based on my best interest, both in terms of recommending new investments, and in guiding me of when to get out of existing investments

3 > 2 > 1

 

[78]

My perspective:

1) a commissioned advisor is most likely to churn your account to generate bigger commissions
2) a fee-based advisor (flat fee or % of portfolio) may be prone to ignoring your account, on the premise that he has your business, and will just generate basic reports for you, but otherwise will focus his efforts on gaining new business
3) a fiduciary is legally required to make recommendations based on my best interest, both in terms of recommending new investments, and in guiding me of when to get out of existing investments

3 > 2 > 1

1) That could happen, but there are rules and sanctions in place to prevent that happening. Let's please not paint a broad brush stroke.

2) Fee-based advisors get paid based on a flat fee. What isn't flat is the account value. Can we agree that said FLAT FEE x LARGER ACCOUNT VALUE not only benefits the client but also puts more money in the advisor's pocket? How much of an incentive is that to ignore the account? The advisor makes more when the client makes more.

3) Real fiduciaries, the ones with actual legal obligations, are limited in scope to situations in which they are legally appointed, like overseeing a credit shelter trust. That's not a processional that every Joe Blow off the street can go to for advice. A fiduciary in the spirit of the Latin name "fiducia" is any financial processional who has the power and obligation to act in someone's best interest in terms. Note that's not a legal obligation, but a professional -- and therefore regulatory -- obligation. Suitability and cost are subsets of the definition.

 

[ChiefGator]

1) That could happen, but there are rules and sanctions in place to prevent that happening. Let's please not paint a broad brush stroke.

2) Fee-based advisors get paid based on a flat fee. What isn't flat is the account value. Can we agree that said FLAT FEE x LARGER ACCOUNT VALUE not only benefits the client but also puts more money in the advisor's pocket? How much of an incentive is that to ignore the account? The advisor makes more when the client makes more.

3) Real fiduciaries, the ones with actual legal obligations, are limited in scope to situations in which they are legally appointed, like overseeing a credit shelter trust. That's not a processional that every Joe Blow off the street can go to for advice. A fiduciary in the spirit of the Latin name "fiducia" is any financial processional who has the power and obligation to act in someone's best interest in terms. Note that's not a legal obligation, but a professional -- and therefore regulatory -- obligation. Suitability and cost are subsets of the definition.

And the best get paid just like all of us, so much per hour. Now your idea of number two do they take the loss if there is one? And it is a flat percentage, not really flat.

I don't believe any advisor can legally do what I can do for myself. In that I am very unusual.

 

[78]

And the best get paid just like all of us, so much per hour. Now your idea of number two do they take the loss if there is one? And it is a flat percentage, not really flat.

I don't believe any advisor can legally do what I can do for myself. In that I am very unusual.

Reasonable to question flat percentage versus hourly. That will depend on the advisor and the scope of his work. But when it comes to hourly fee, now you're also taking into account meetings, telephone calls, emails and what not. Those add up.

I don't outsource to third-party managers and I also provide input on matters of taxation, insurance and estate planning. I'm a CFP. If I were to charge by billable hours, I have no doubt that I would collect more. I have a right to charge for my 30 years of experience and my expertise. The client can decide which way works best for them.

 

[ChiefGator]

Reasonable to question flat percentage versus hourly. That will depend on the advisor and the scope of his work. But when it comes to hourly fee, now you're also taking into account meetings, telephone calls, emails and what not. Those add up.

I don't outsource to third-party managers and I also provide input on matters of taxation, insurance and estate planning. I'm a CFP. If I were to charge by billable hours, I have no doubt that I would collect more. I have a right to charge for my 30 years of experience and my expertise. The client can decide which way works best for them.

No problem, many advisors are worth more than they actually charge. I am sorry if my comment was taken to be personal.

 

[no1g8r]

78, I think you may be more rare in the overall financial advisor arena than you might think.

 

[78]

No problem, many advisors are worth more than they actually charge. I am sorry if my comment was taken to be personal.

Chief, I didn't take your comment personal at all. Thanks.

 

[FireFoley]

So I was listening to the radio today and had on a financial show where there are calls. Now I neither subscribe to or disagree with the host's opinions, I just enjoy market talk. Well a guy called in, newly retired and said he visited THREE CFP's to discuss his plans. Said he had 2 pensions and did NOT need his personal money to live but may use it periodically to take a vacation etc. Then went on to say that ALL THREE CFP's recommended an ANNUITY for his personal money. I screamed in the car GTFO. There would be almost no circumstance where a person who does NOT need this money to live on where and annuity would be the plan of choice. The only one to benefit here would be the CFP who would sell the annuity and collect a big fat commission of between 4 and 8 percent. SHAMEFUL especially if these CFP's were fiduciaries!!!!!

 

[ChiefGator]

So I was listening to the radio today and had on a financial show where there are calls. Now I neither subscribe to or disagree with the host's opinions, I just enjoy market talk. Well a guy called in, newly retired and said he visited THREE CFP's to discuss his plans. Said he had 2 pensions and did NOT need his personal money to live but may use it periodically to take a vacation etc. Then went on to say that ALL THREE CFP's recommended an ANNUITY for his personal money. I screamed in the car GTFO. There would be almost no circumstance where a person who does NOT need this money to live on where and annuity would be the plan of choice. The only one to benefit here would be the CFP who would sell the annuity and collect a big fat commission of between 4 and 8 percent. SHAMEFUL especially if these CFP's were fiduciaries!!!!!

An annuity is only for those who both need the money and can't stand the risk of other types of investments.

I have some friends that took money out of their annuity at the bottom of the market so it was not there to recover.

If you claim as some do that we do better when you do better, it should work the other way when you lose, they cover some. As far as I know nobody does this for free.

You hear always up never down, that is paid for by you.

Great discussion very informative.

 

[78]

So I was listening to the radio today and had on a financial show where there are calls. Now I neither subscribe to or disagree with the host's opinions, I just enjoy market talk. Well a guy called in, newly retired and said he visited THREE CFP's to discuss his plans. Said he had 2 pensions and did NOT need his personal money to live but may use it periodically to take a vacation etc. Then went on to say that ALL THREE CFP's recommended an ANNUITY for his personal money. I screamed in the car GTFO. There would be almost no circumstance where a person who does NOT need this money to live on where and annuity would be the plan of choice. The only one to benefit here would be the CFP who would sell the annuity and collect a big fat commission of between 4 and 8 percent. SHAMEFUL especially if these CFP's were fiduciaries!!!!!

Lol, you want to rush to skewer these guys. I get it. All financial guys suck. The recommendation(s) may have been unsuitable or unfiduciary, then again maybe they were good recommendations. Neither you nor I can know based on the limited facts presented here.

You need to know the man's liquidity, his investment time horizon, his tax bracket and his tolerance for risk as well as other factors. Until you know that any second guessing is just that. Worthless.

 

[FireFoley]

Lol, you want to rush to skewer these guys. I get it. All financial guys suck. The recommendation(s) may have been unsuitable or unfiduciary, then again maybe they were good recommendations. Neither you nor I can know based on the limited facts presented here.

You need to know the man's liquidity, his investment time horizon, his tax bracket and his tolerance for risk as well as other factors. Until you know that any second guessing is just that. Worthless.

I am not saying they all suck 78. I am not skewering them all. And I mean no offense to anyone personally. I am a financial guy, tho not a CFP. And maybe I left out more details, but trust me, from the details the caller laid out, there is absolutely no way he is a good candidate for any type of annuity. When someone says I don;t need that money to live on, that in and of itself (almost) means there are a zillion other options without that silly, ridiculous commission. Yes maybe I am too adamant about it, but I am well aware of plenty of investment alternatives, even for those who are risk averse, that would be equal to or better than an annuity at a fraction of the cost. And for those who think annuities are guaranteed, that is hogwash. You may pay a hefty commission for that guaranteed payout either for life or a term, but that does not mean there will be a cash value to that annuity upon your demise. That is where many people get confused. There are numerous structured investments, barrier investments and lots of things that are available. and I do know that some CFP's are not even aware of them. So yes just like all professions, there are some good, but there are also some bad!!!!

 

[78]

I am not saying they all suck 78. I am not skewering them all. And I mean no offense to anyone personally. I am a financial guy, tho not a CFP. And maybe I left out more details, but trust me, from the details the caller laid out, there is absolutely no way he is a good candidate for any type of annuity. When someone says I don;t need that money to live on, that in and of itself (almost) means there are a zillion other options without that silly, ridiculous commission. Yes maybe I am too adamant about it, but I am well aware of plenty of investment alternatives, even for those who are risk averse, that would be equal to or better than an annuity at a fraction of the cost. And for those who think annuities are guaranteed, that is hogwash. You may pay a hefty commission for that guaranteed payout either for life or a term, but that does not mean there will be a cash value to that annuity upon your demise. That is where many people get confused. There are numerous structured investments, barrier investments and lots of things that are available. and I do know that some CFP's are not even aware of them. So yes just like all professions, there are some good, but there are also some bad!!!!

Do you really think structured or barrier products are less confusing?

 

[FireFoley]

Do you really think structured or barrier products are less confusing?

Yes I personally do but maybe it is b/c I understand financial instruments better than I do insurance products. Many people get annuities from Investment advisor reps, reps being another word for salesman, thus not a fiduciary and most have no idea the intracacies of the product. But that is the customer's fault. And many salesmen proffer that annuities are a financial product, when in fact it is an insurance contract. But until Washington changes those rules, it won;t matter. Anyway at least structured investments have defined interest terms, tho variable, a secondary market if you wish to get out, tho might be at a loss. Lastly, I just don;t like the lack of choices annuities offer, but that is b/c it is an insurance product and not a financial product. They also need to change the laws about what payout means. Meaning people hear that and think "oh, 9%, etc. and think they are going to earn 9% a year, ROI", when in fact they are getting 9% a year taken from their product, returned to them, most of which is already their own money, ROC. but again that is a Washington issue and the lobby is way too big for that to change. But to each their own in what they choose to do with their money and I appreciate the views of others.

 

[78]

Yes I personally do but maybe it is b/c I understand financial instruments better than I do insurance products. Many people get annuities from Investment advisor reps, reps being another word for salesman, thus not a fiduciary and most have no idea the intracacies of the product. But that is the customer's fault. And many salesmen proffer that annuities are a financial product, when in fact it is an insurance contract. But until Washington changes those rules, it won;t matter. Anyway at least structured investments have defined interest terms, tho variable, a secondary market if you wish to get out, tho might be at a loss. Lastly, I just don;t like the lack of choices annuities offer, but that is b/c it is an insurance product and not a financial product. They also need to change the laws about what payout means. Meaning people hear that and think "oh, 9%, etc. and think they are going to earn 9% a year, ROI", when in fact they are getting 9% a year taken from their product, returned to them, most of which is already their own money, ROC. but again that is a Washington issue and the lobby is way too big for that to change. But to each their own in what they choose to do with their money and I appreciate the views of others.

A few things that come to mind reading your post, FF.

1) Investment advisors are fee-based financial professionals, not insurance salesman. They offer fee-based advice.

2) When you describe a 9% annuity payout being a return of capital, you're talking about an immediate annuity, not a deferred annuity. It's a tool to create a synthetic pension. It has no place in this discussion unless you want to open it up to the drastic reduction of defined benefit plans in the US. It's a risk-transfer tool, a very large one at that.

3) You intimate that structured products are offered by fiduciaries. That's not accurate at all. The BD world is filled with structured products -- buffered annuities, defined outcome ETFs, Goldman Sachs Medium-Term notes -- that are offered with a commission. Yes, you can buy them from a broker.

 

[ChiefGator]

Do you really think structured or barrier products are less confusing?

I don't but a portfolio of great dividend paying stocks can serve the same function as the annuity with several benefits. Not for everyone.

 

[78]

I don't but a portfolio of great dividend paying stocks can serve the same function as the annuity with several benefits. Not for everyone.

Not quite in terms of safety, Chief, but your point is well taken. You get a steady stream of 2-4.5% income, sometimes higher, with market upside potential to combat inflation. And it's simple. Of course, you do have downside principal risk.

 

[ChiefGator]

Not quite in terms of safety, Chief, but your point is well taken. You get a steady stream of 2-4.5% income, sometimes higher, with market upside potential to combat inflation. And it's simple. Of course, you do have downside principal risk.

Good point but a proper investment never sells so unless the dividend is cut or the company goes out of business the risk is low.

You sound like someone who many could benefit from having as their advisor, unlike many who sell the company line.

 

[Bushmaster]

So I was listening to the radio today and had on a financial show where there are calls. Now I neither subscribe to or disagree with the host's opinions, I just enjoy market talk. Well a guy called in, newly retired and said he visited THREE CFP's to discuss his plans. Said he had 2 pensions and did NOT need his personal money to live but may use it periodically to take a vacation etc. Then went on to say that ALL THREE CFP's recommended an ANNUITY for his personal money. I screamed in the car GTFO. There would be almost no circumstance where a person who does NOT need this money to live on where and annuity would be the plan of choice. The only one to benefit here would be the CFP who would sell the annuity and collect a big fat commission of between 4 and 8 percent. SHAMEFUL especially if these CFP's were fiduciaries!!!!!

Preach. I am making it my personal mission to completely destroy the financial "advisor" down the road for selling my inlaws on this BS. Snake oil salesman.

What makes it even worse is the jackass won't take my calls now that the jig is up. 8 years in and the surrender fee is about as much as their earnings on this money. Makes planning for the nursing home quite difficult.

 

[78]

Good point but a proper investment never sells so unless the dividend is cut or the company goes out of business the risk is low.

You sound like someone who many could benefit from having as their advisor, unlike many who sell the company line.

Bingo. Many investors don't get it. Your shares can fluctuate up or down. Unless the company declares a dividend change, your cash flow remains the same. Better to buy the income stream cheap than expensive.

 

[Politigator]

I tend to align with Chief. I am sure there are good advisors out there, but from my perspective they are the exception, because their method of compensation is not aligned with what is best for the client. That isn't entirely their fault, because most people don't want to pony up $150+ per hour. It is easier to bury the fee in transactions (commissions/fees/loads) or suck it out of their assets where they probably won't even notice (AUM fees).

I tried to find an advisor for a friend but after a while I gave up trying.

There is a lot of information out there, but much of it is junk. Most of the narrative is around investment selection. That is the easy part. Either a low fee index based target date, life strategy fund, or a few diversified low fee index funds.

For the most part,over time active strategies lose to passive due to fees.

Where an advisor can add value is helping maximize tax advantages vehicles (iras, Roths, 401ks).

Of one is willing to take the time to learn the basics, they can easily cover the cost of a financial advisor. If you want to keep it simple, go with a vanguard target date fund, and maximize as much as possible all tax advantaged opportunities (401ks, iras, Roths, HSAs). Try to save at least 20% of gross income. More is always better.

Do that, throw in a term life insurance policy and you don't need an advisor.