macca
Amexsux Moderator
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Friends don't let friends use Ameriprise!
Posts: 4685
Summer-Rockies, Winter-beach
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The 'financial advice' business is a scam. It's a bad situation because to make a lot of money for themselves and their firm, they have to cost their clients a lot of money and that will badly hurt the client over time. The very people that are supposed to be helping you reach your dreams are destroying them.
Consider that the safe withdrawal rate in retirement is considered to be 4% (This is what you can safely withdraw and not run out of money before you die). It's typical for clients to pay 2 - 3% of their assets in advisor and fund fees.What does that leave? Not much. Find out here:
http://firecalc.com/
Take a look at this:
"Table 1. shows the effect of investment management fees on your IRA balance. This exhibit assumes you invest $2,000 on January 1st of each year and earn a 10% rate of return before deducting management fees. The table shows your IRA balance after deducting your advisor's fee. Most folks find the results hair raising.
Table 1.
The Effect of Management Fees on your IRA Balance.
Assumes $2,000 yr. contribution,
10% annual return before management fee.
IRA Balance after 5 Years 10 Years 20 Years 30 Years 40 Years
Mgmt. Fee @ 0.02% $13,423 $35,022 $125,696 $360,454 $968,249
Mgmt. Fee @ 0.25% $13,334 $34,556 $122,204 $344,402 $907,762
Mgmt. Fee @ 0.50% $13,238 $34,077 $118,528 $327,816 $846,479
Mgmt. Fee @ 1.00% $13,047 $33,121 $111,529 $297,150 $736,584
Mgmt. Fee @ 2.00% $12,672 $31,291 $98,846 $244,692 $559,562
Mgmt. Fee @ 3.00% $12,307 $29,567 $87,730 $202,146 $427,219
That's not an error. If your advisor is collecting a 3.00% fee, your IRA balance will be some $541,000 lower after 40 years than if you used low-fee investments. Your account will be literally chopped in half, with the larger slice going to your advisor."
http://www.retireearlyhomepage.com/advise.html
Shouldn't a FINANCIAL ADVISOR be showing the client this chart? Did yours?
Now, read this:
http://money.cnn.com/2006/03/05/news/newsmakers/ buffett_fortune/index.htm
"Financial Advisors" (really product salesmen) are costing investors horrible amounts of money. Do they get higher returns to make those horrible costs worth it? Nope:
"A landmark study from Harvard Business School/University of Oregon concludes that when it comes to the selection of mutual funds, individual investors outperform financial advisors by 100%, amounting to 8.8 billion annually."
http://www.advisorroundtable.com/whats-new-in-in dustry-and-business/individual-i
nvestors-outperform-advisors-in-mutual-fund-sele ction/
And,
http://www.bankrate.com/brm/news/BoomerBucks/200 61206_investment_advice_a1.asp?prodtype=pfin
Salesmen sell clients high priced, managed funds when they should be putting clients into low-cost index funds:
"Looking at longer time periods, indices continue to exceed a majority
of active funds. Over the past three years (and five years), the S&P 500
has outperformed 65.7% (72.2%) of large-cap funds, the S&P MidCap 400 has
beaten 68.6% (77.4%) of mid-cap funds, and the S&P SmallCap 600 has
outpaced 80.2% (77.7%) of small-cap funds."
http://www.cyperus.com/cgi-bin/stories.pl?ACCT=1 04&STORY=/www/story/04-25-20
07/0004573522&EDATE=
And the picture only gets bleaker for actively managed funds over time. If salesmen do sell index funds, they charge a high wrap fee to negate the benefits. And:
http://www.zeroalphagroup.com/news/113006_releas e.cfm
Sadly, clients have no clue what they pay in fees and many think they pay no fees. The money comes right out of their investments with no full accounting. Even if the client looks at the loads (or wrap fee) and expense ratio, there are other fees, like turnover within the fund, that is not in the expense ratio and is about impossible to figure out.
http://www.zeroalphagroup.com/news/mufucost01240 4.cfm
The whole 'fiduciary' business is a sham. Consider this: As a fiduciary, you are only forced to disclose conflicts of interest with clients in the small print and then you do not have to do what is in the client's best interest. I don't think this is honest. Either do what is best for the client, or don't. But don't say you do what is best for the client (" Federal and state law requires that Registered Investment Advisors are held to a Fiduciary Standard. This law requires that an advisor act solely in the best interest of the client, even if that interest is in conflict with the advisor’s financial interest.") when you really DO have conflicts of interest with the client ("Investment Advisors must disclose any conflict, or potential conflict, to the client prior to and throughout a business engagement. ")
I mean how misleading is that! 'Mr Client, as a fiduciary I have no conflicts of interest with you whatsoever. Now sign this to show that I have disclosed all my conflicts of interest with you.'
It goes on and on. A good financial advisor would sell only advice, not products. A good financial advisor would know what they were doing. 95% of 'financial advisors' don't cut it.
The 5% that are left...well, how does an investor find one of these? The investor is ignorant. Referrals are a joke.
If people would simply buy low-cost index funds, diversify according to their risk tolerance and stay the course they would beat the pants off advised clients.
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