Do financial advisors act in their clients' best interests?

[manaboutown]

This is an extraordinary 2012 study that confirms my belief that some if not many financial advisors are primarily commission driven and act in their own self interests to generate fees, ahead of the best interests of their clients. The paper is quite detailed and lengthy, containing disturbing findings IMO.

"Do financial advisers undo or reinforce the behavioral biases and misconceptions of their clients? We use an audit methodology where trained auditors meet with financial advisers and present different types of portfolios. These portfolios reflect either biases that are in line with the financial interests of the advisers (e.g., returns-chasing portfolio) or run counter to their interests (e.g., a portfolio with company stock or very low-fee index funds). We document that advisers fail to de-bias their clients and often reinforce biases that are in their interests. Advisers encourage returns-chasing behavior and push for actively managed funds that have higher fees, even if the client starts with a well-diversified, low-fee portfolio."

The actual paper is in a PDF.

The Market for Financial Advice: An Audit Study | NBER (https://www.nber.org/papers/w17929)

[village dreamer]

ha , ha , ha.......

[Boomer]

I don't know what percentage of advisors have disclosures. I realize there are varying types of disclosures, some more serious than others. I would not want an advisor to have any,

I don't know if advisors are obligated to tell their clients if they have had a disclosure.

But "Broker Check" on finra.org is where you can find out if an advisor has a disclosure and if there has been a settlement, it will show that, too. You can also read a summary there of what happened,

If hiring an advisor, use Broker Check to see his pedigree.

Boomer

[retiredguy123]

I don't know what percentage of advisors have disclosures. I realize there are varying types of disclosures, some more serious than others. I would not want an advisor to have any,

I don't know if advisors are obligated to tell their clients if they have had a disclosure.

But "Broker Check" on finra.org is where you can find out if an advisor has a disclosure and if there has been a settlement, it will show that, too. You can also read a summary there of what happened,

If hiring an advisor, use Broker Check to see his pedigree.

Boomer
I think that an advisor who is selling annuities should be required to tell you that it is an "annuity" and not a retirement investment. Some annuity salespeople totally avoid using the word annuity. Also, they should be required to provide you with a copy of the entire annuity contract to read before you give them any money. It is absurd that advisors are allowed to sell annuities without identifying the product, or even allowing clients to read the contract.

[manaboutown]

This confirms my decision to go only with a fee-only fiduciary if and when the time comes. He/she can have no skin in the game based upon my investible assets.

[MightyDog]

ANY professional that works on a commission basis will have their ability to eat and pay their rent/mortgage as a primary factor driving their efforts. It's just a simple reality - much as we might not like it. It's important to be aware of it.

Myself being in real estate buying mode currently, I have been amply reminded of that reality. Anyone buying a car, home addition, insurance, ETC, ETC. needs to also keep it in mind.

This confirms my decision to go only with a fee-only fiduciary if and when the time comes. He/she can have no skin in the game based upon my investible assets.
This makes sense. But, also something to realize, is that depending how it's set-up, the advisor could also be getting a commission cut from the type of fund, etc. that they are recommending, in addition to their fee. A double-dipping, of sorts.

The optimal scenario, seems to me, is to have an independent, fee-based advisor who puts together a specific plan for an investor and that investor executes the trades at their own brokerage house.

[Pballer]

Beware of the investment firm of Churnem and Burnem.

[justjim]

Here we go again. There is a place for an annuity for some clients just as there is a place for life insurance. A guaranteed monthly income from an annuity could be what “the doctor needs to order” for some clients. Just because a financial advisor sells annuities doesn’t mean that he/she is doing something wrong for their clients. Not every client can handle the “ups and downs” of the stock market. Some absolutely panic when they start to lose money in their stock portfolio. That said, there are excellent financial advisors and some not so much. You can say the same for doctors, lawyers, electricians, plumbers and yes even landscapers. Even putting your money in an interest bearing bank account is better than putting it under the mattress. Wait, some don’t trust banks either.

[retiredguy123]

Here we go again. There is a place for an annuity for some clients just as there is a place for life insurance. A guaranteed monthly income from an annuity could be what “the doctor needs to order” for some clients. Just because a financial advisor sells annuities doesn’t mean that he/she is doing something wrong for their clients. Not every client can handle the “ups and downs” of the stock market. Some absolutely panic when they start to lose money in their stock portfolio. That said, there are excellent financial advisors and some not so much. You can say the same for doctors, lawyers, electricians, plumbers and yes even landscapers. Even putting your money in an interest bearing bank account is better than putting it under the mattress. Wait, some don’t trust banks either.
If you are correct, why can't the annuity salesperson tell you that you are buying an annuity, and why can't they give you a copy of the annuity contract before you give them your money? I learned a long time ago that you should never agree to a contract until you read it.

Have you seen the TV commercials where Ty Young is selling annuities? He is selling annuities, but he never says the word "annuity" in the entire commercial.

[Eg_cruz]

I think that an advisor who is selling annuities should be required to tell you that it is an "annuity" and not a retirement investment. Some annuity salespeople totally avoid using the word annuity. Also, they should be required to provide you with a copy of the entire annuity contract to read before you give them any money. It is absurd that advisors are allowed to sell annuities without identifying the product, or even allowing clients to read the contract.
Anyone can ask for a copy of a policy.
FYI not all annuities are bad in fact there are some very goods ones.
Not all investors/ agents are bad
Fixed / Fixed-Index Annuities have a place in most portfolios just like stock, EFT’s and MF’s. You just have to have the right agent with the right annuity one with no riders, no fees and no crap just straight forward annuity.

[Eg_cruz]

If you are correct, why can't the annuity salesperson tell you that you are buying an annuity, and why can't they give you a copy of the annuity contract before you give them your money? I learned a long time ago that you should never agree to a contract until you read it.

Have you seen the TV commercials where Ty Young is selling annuities? He is selling annuities, but he never says the word "annuity" in the entire commercial.
They can get a copy of a policy and there is no way you can buy annuity without you knowing, you have to sign a 20 page application. If you’re signing an application and you have no clue that that’s in Annuity I don’t know what to say there.

[Eg_cruz]

Here we go again. There is a place for an annuity for some clients just as there is a place for life insurance. A guaranteed monthly income from an annuity could be what “the doctor needs to order” for some clients. Just because a financial advisor sells annuities doesn’t mean that he/she is doing something wrong for their clients. Not every client can handle the “ups and downs” of the stock market. Some absolutely panic when they start to lose money in their stock portfolio. That said, there are excellent financial advisors and some not so much. You can say the same for doctors, lawyers, electricians, plumbers and yes even landscapers. Even putting your money in an interest bearing bank account is better than putting it under the mattress. Wait, some don’t trust banks either.
All true

[retiredguy123]

Anyone can ask for a copy of a policy.
FYI not all annuities are bad in fact there are some very goods ones.
Not all investors/ agents are bad
Fixed / Fixed-Index Annuities have a place in most portfolios just like stock, EFT’s and MF’s. You just have to have the right agent with the right annuity one with no riders, no fees and no crap just straight forward annuity.
Totally not true. I have personally asked several annuity salespeople to send me a copy of the annuity contract when trying to advise friends about them. They have never agreed to give me the contract. In fact, they absolutely refuse to provide it. Their policy is to collect the money from the client, and then to send them a 100+ page contract and an agreement to refund their money if the client wants to rescind the contract within 30 days. I have been cussed at and hung up on by annuity salespeople for merely asking to read the contract.

[retiredguy123]

They can get a copy of a policy and there is no way you can buy annuity without you knowing, you have to sign a 20 page application. If you’re signing an application and you have no clue that that’s in Annuity I don’t know what to say there.
The application is not the annuity contract. The application may be 20 pages, but the annuity contract is more than 100 pages, and you will never see it until you have paid your money. I have reviewed several friends' investment portfolios where they had no idea that they had purchased an annuity. And, you cannot get a copy of the annuity contract until you pay your money. I have tried several times, and the salespeople absolutely refuse to provide a copy of the contract. They actually get angry when you ask for it.

[Eg_cruz]

Totally not true. I have personally asked several annuity salespeople to send me a copy of the annuity contract when trying to advise friends about them. They have never agreed to give me the contract. In fact, they absolutely refuse to provide it. Their policy is to collect the money from the client, and then to send them a 100+ page contract and an agreement to refund their money if the client wants to rescind the contract within 30 days. I have been cussed at and hung up on by annuity salespeople for merely asking to read the contract.
Sorry about that for you
I have been an agent for 24 years so if I tell you, you can get a copy of the policy I telling you the truth. I have given to clients when they ask.
I am sorry you had a bad experience but just like not all car salesman’s are bad same goes for annuities

[Eg_cruz]

The application is not the annuity contract. The application may be 20 pages, but the annuity contract is more than 100 pages, and you will never see it until you have paid your money. I have reviewed several friends' investment portfolios where they had no idea that they had purchased an annuity. And, you cannot get a copy of the annuity contract until you pay your money. I have tried several times, and the salespeople absolutely refuse to provide a copy of the contract. They actually get angry when you ask for it.
Again sorry that happen to you but I am telling you can get a copy before.
I will agree there are some not so great agents just like there’s not so great judges, real estate agents, politicians, policy and so on and so on you

[Cuervo]

Its, human nature people will do what is best for whomever until there is a conflict where they and their offspring will benefit more.
Just keep that in mind.

[JanRoberts]

Try Fisher Investments. We're extremely pleased with them.

[retiredguy123]

Sorry about that for you
I have been an agent for 24 years so if I tell you, you can get a copy of the policy I telling you the truth. I have given to clients when they ask.
I am sorry you had a bad experience but just like not all car salesman’s are bad same goes for annuities
Thank you. You said that anyone can ask for a policy. I guess, technically, it is true that you can ask for anything. But, over the years, I have been asked for an opinion from friends about buying an annuity that their advisor had recommended. I told them that I would happy to do that, but I need to read the contract first. But, on at least 3 occasions, when I called the advisor, they were very rude and refused to send me the annuity contract to review. They had slick brochures and PowerPoint presentations, but, I asked for the entire annuity contract. One guy even cussed me out and hung up on me. Another advisor explained that their company policy was to collect money from the client, based on an application, and then to send the contract to them. He said that the contract allows the client to cancel the contract within 30 days of receiving it, and they will refund the money. Another advisor said that I could come to his office and he will answer any questions about the annuity, but, under no circumstances, could he allow me to review the contract. That is the truth about my experience with annuity salespeople.

I have also reviewed portfolios for friends, and asked them if they knew that they had purchased an annuity. Often, their answer is that they had no idea that they owned an annuity. Note that I am occasionally asked for advice about investing because I have completed the Certified Financial Planner education program, but I have never been a paid planner or tax preparer. When I did the CFP training, I received the advisor trade magazines, and I was surprised at how many full-page ads it contained touting the 9 and 10 percent commissions available for selling annuities for insurance companies.

[birdawg]

Sorry about that for you
I have been an agent for 24 years so if I tell you, you can get a copy of the policy I telling you the truth. I have given to clients when they ask.
I am sorry you had a bad experience but just like not all car salesman’s are bad same goes for annuities. Why not give them a copy before they ask.

[JWGifford]

This is an extraordinary 2012 study that confirms my belief that some if not many financial advisors are primarily commission driven and act in their own self interests to generate fees, ahead of the best interests of their clients. The paper is quite detailed and lengthy, containing disturbing findings IMO.

"Do financial advisers undo or reinforce the behavioral biases and misconceptions of their clients? We use an audit methodology where trained auditors meet with financial advisers and present different types of portfolios. These portfolios reflect either biases that are in line with the financial interests of the advisers (e.g., returns-chasing portfolio) or run counter to their interests (e.g., a portfolio with company stock or very low-fee index funds). We document that advisers fail to de-bias their clients and often reinforce biases that are in their interests. Advisers encourage returns-chasing behavior and push for actively managed funds that have higher fees, even if the client starts with a well-diversified, low-fee portfolio."

The actual paper is in a PDF.

The Market for Financial Advice: An Audit Study | NBER (https://www.nber.org/papers/w17929)
As has been said before, there are good and bad advisors. I’ve had one for 30 years and appreciate his expertise and advice. He makes a percentage of my total portfolio value, so if I make more, he makes more and his percentage decreases as my portfolio crosses certain value thresholds. Seems reasonable to me. Some people enjoy managing money. I do not.

[Nevinator]

If you are correct, why can't the annuity salesperson tell you that you are buying an annuity, and why can't they give you a copy of the annuity contract before you give them your money? I learned a long time ago that you should never agree to a contract until you read it.

Have you seen the TV commercials where Ty Young is selling annuities? He is selling annuities, but he never says the word "annuity" in the entire commercial.

Because an annuity is ultimately an insurance product, at some point the buyer will receive the contract and they should read it before signing and sending back to the insurance company. By the way, all annuities come with a free-look period, if I remember correctly, it runs about 21 days.

[retiredguy123]

Because an annuity is ultimately an insurance product, at some point the buyer will receive the contract and they should read it before signing and sending back to the insurance company. By the way, all annuities come with a free-look period, if I remember correctly, it runs about 21 days.
As I understand it, the free-look period starts after you have paid the money to the advisor. It should be before you pay the money.

[La lamy]

Yup!!! Learned that the VERY HARD way. Lost 1/3 of my savings by adviser putting me in ".com" stocks that went bust in 2000 and lost out on an even more stupid "insurance policy" from their bank that was a total money pit. Live and learn. I'm now educated about investing, and do it all myself.

[MikePgh]

An SEC registered advisor is obligated to act as a fiduciary and in their clients best interest. However that does leave the door open for them to share in commissions known in the industry as 12-b1 or advertising fees. These fees are charged by the mutual fund companies.

So while your advisor may say they are fee only, you need to ask if they share in any commissions. They should also be providing you with their form CRS (Client Relationship Summary) which spells out how they are compensated.

A lot of “fee only” advisors find other ways to get paid. You need to ask.

That certain national Advisory Firm that says “we’re different “… no they are not. They are a fee only advisor. Just like the thousands of other across the country.

Ask for the form CRS and read it. Then ask these questions
Do you share in any commissions or loads?
Who makes the decisions on where my money is invested? Is it your firm or do you outsource the portfolio management?
How many advisors will be familiar with my personal situation? Do I have a team or just you?
Is your firm independent or part of a larger national company?
What is your succession plan?

Mike

[retiredguy123]

An SEC registered advisor is obligated to act as a fiduciary and in their clients best interest. However that does leave the door open for them to share in commissions known in the industry as 12-b1 or advertising fees. These fees are charged by the mutual fund companies.

So while your advisor may say they are fee only, you need to ask if they share in any commissions. They should also be providing you with their form CRS (Client Relationship Summary) which spells out how they are compensated.

A lot of “fee only” advisors find other ways to get paid. You need to ask.

That certain national Advisory Firm that says “we’re different “… no they are not. They are a fee only advisor. Just like the thousands of other across the country.

Ask for the form CRS and read it. Then ask these questions
Do you share in any commissions or loads?
Who makes the decisions on where my money is invested? Is it your firm or do you outsource the portfolio management?
How many advisors will be familiar with my personal situation? Do I have a team or just you?
Is your firm independent or part of a larger national company?
What is your succession plan?

Mike
Note that some mutual funds, like Vanguard funds, do not have 12-b1 fees. Read the prospectus. The 12-b1 fees must be disclosed in the prospectus. Another important thing to look for is the expense ratio. Vanguard funds have extremely low expense ratios as compared to the industry averages, especially for index funds.

[rsmurano]

There is no place on earth that a financial advisor or an annuity is needed.
Let me see, your business model is to make the most money off your investments. What is the financial advisors business model, too make the most money off of you. How does that benefit you?
Now an advisor who charges by the hours is ok to use so you can review his/her proposal and then you make the trades. I would also not use an advisor associated with any brokerage house because they will try to get you to buy house funds. I have personal experience of this on more then 1 occasion.

Annuities are just terrible. High fees, low returns. Again, the person holding the annuity isn’t the person making the money.

[coleprice]

My Financial Advisor gets a flat percentage of my portfolio's balance. The Higher my Portfolio Balance, the Higher their fee. They don't receive any fees for Transactions, etc. They pay those fees and expenses, not me.

[Boomer]

Does anyone have an opinion on why an advisor would put someone into closed-end funds? CEFs have high expenses and use leverage and it seems like there would be other kinds of funds that would be better.

Is there an advantage to closed-end funds? Whose advantage is it?

Boomer

[dewilson58]

Yup!!! Learned that the VERY HARD way. Lost 1/3 of my savings by adviser putting me in ".com" stocks that went bust in 2000 and lost out on an even more stupid "insurance policy" from their bank that was a total money pit. Live and learn. I'm now educated about investing, and do it all myself.

Without common sense, well ...............

[retiredguy123]

Does anyone have an opinion on why an advisor would put someone into closed-end funds? CEFs have high expenses and use leverage and it seems like there would be other kinds of funds that would be better.

Is there an advantage to closed-end funds? Whose advantage is it?

Boomer
It is for the advisor to make a commission. That is who benefits from it.

[dewilson58]

There are good advisors, there are bad advisors.
There are good doctors, there are bad doctors.
There are good teachers, there are bad teachers.
There are good lawyers, there are bad lawyers.
There are good engineers, there are bad engineers.
There are good truck drivers, there are bad truck drivers.

Some act in their best interest, some don't.

No surprise, true in every profession.

[CoachKandSportsguy]

This is an extraordinary 2012 study that confirms my belief that some if not many financial advisors are primarily commission driven and act in their own self interests to generate fees, ahead of the best interests of their clients. The paper is quite detailed and lengthy, containing disturbing findings IMO.

"Do financial advisers undo or reinforce the behavioral biases and misconceptions of their clients? We use an audit methodology where trained auditors meet with financial advisers and present different types of portfolios. These portfolios reflect either biases that are in line with the financial interests of the advisers (e.g., returns-chasing portfolio) or run counter to their interests (e.g., a portfolio with company stock or very low-fee index funds). We document that advisers fail to de-bias their clients and often reinforce biases that are in their interests. Advisers encourage returns-chasing behavior and push for actively managed funds that have higher fees, even if the client starts with a well-diversified, low-fee portfolio."



The world has changed alot in the last 10+ years.
I would postulate that many financial advisors now sell etf portfolios, as actively managed portfolios are much less tax efficient. And the track record for efts as investable products against the tracking index, is available historically and documentable, versus active management funds.

[STLRAY]

Like any profession, some do a good job some are an embarrassment to their profession.

[Boomer]

Yup!!! Learned that the VERY HARD way. Lost 1/3 of my savings by adviser putting me in ".com" stocks that went bust in 2000 and lost out on an even more stupid "insurance policy" from their bank that was a total money pit. Live and learn. I'm now educated about investing, and do it all myself.



La lamy, ah, yes, the 90s. I was right there in that gloat boat with you. The only difference is that it was not an advisor doing this to me. I did it. ALL BY MYSELF!

I call it my bubble-dancing days. I sure thought I was hot stuff. One of the funds I bought was returning close to 100%.

I did not bet Mr. Boomer’s retirement money though. But I sure had a good time with my own — while it lasted.

Like you, I learned. I sure did learn. It was the cost of an education — and the ROI on that part of my education has been more significant than the return on a couple of degrees in education.

Ironically, in addition to learning not to bet on the latest, greatest, no real product stocks, I also learned that I felt better about having nobody but myself to blame. That might sound odd to some. But my nature is to take responsibility. As a kid if I got in trouble for doing something I should not have done, I would say, “Yeah. I did it. Now, what are you going to do about it?” And with that dumb investing in the 90s, the you I was talking back to was me, so I did something about it. Still am.

At this point in life though, I am beginning to look around for an advisor, but I am not there yet.

Boomer

[Boomer]

Does anyone have an opinion on why an advisor would put someone into closed-end funds? CEFs have high expenses and use leverage and it seems like there would be other kinds of funds that would be better.

Is there an advantage to closed-end funds? Whose advantage is it?

Boomer

It is for the advisor to make a commission. That is who benefits from it.

Hey, retiredguy123, longtime TOTV poster, always read by me.

AHA! I saw in post # 21 here that you took CFP training. I did something like that, only not as involved. For me, I got a real estate license. That was many years ago and I did not keep up the license or ever do much of anything with it BECAUSE I never intended to quit my day job. I just wanted to know stuff. 10 houses later, it was well worth knowing stuff. My guess is you just wanted to know stuff, too. I get that.

So, about those CEFs, they sure are smoke and mirrors — to me anyway. So? If an advisor claims to be working only on a percentage of AUM billed to the client, can said advisor claim that he or the umbrella under which he operates is not receiving anything back from those CEFs, as in kickbacks, payola, trailer fees, bonuses, whatever?

In other words, can an advisor putting a client in CEFs, look a client straight in the eye and say he gets nothing back from those CEFs — without his pants catching on fire, that is?

(Of course, I know a lot of people have fireproof pants, which is too bad.)

To simplify: Does using CEFs when claiming only AUM as cost to clients always require the advisor to wear fireproof pants?

Boomer

[manaboutown]

Since the 1960s my focus has been on rental real estate, starting with small apartment houses on Capitol Hill, in D.C., then into self storage development starting in the early 1970s. Over the years I never paid much attention to the stock market and kept most of my money in money market funds for liquidity. When IRAs first became available I think the maximum one could set aside from earned income was $2,000/yr so I started one and kept at it. I dabbled in stocks and commodity trading (in which I fortunately broke even), but with minimal amounts. I mostly invested in blue chips and never paid much attention. My big score so to speak was on a few shares of BRK I bought at about $3K a share in 1983, I think. I just tucked it away and forgot about it.

Then in 2022 and 2023 I sold some multi-owner properties which resulted in me receiving a substantial amount of cash (for me) to invest in securities. I needed to take action so started researching how to optimally proceed. I am now coming up on 83 and realizing I likely will need some financial steering assistance at some point. So, I am looking for the right advisor situation for me. My search has proven discouraging so far. It feels like I am looking for the proverbial needle in a haystack.

As an aside I see it as a dangerous time to enter the market as the S&P 500 Shiller CAPE ratio now exceeds 35, very, very scary. So, it is mostly T-bills for me, for now.

[dewilson58]

My search has proven discouraging so far. It feels like I am looking for the proverbial needle in a haystack.


How can you not be satisfied with all the experts on ToTV???

:thumbup:

[retiredguy123]

Hey, retiredguy123, longtime TOTV poster, always read by me.

AHA! I saw in post # 21 here that you took CFP training. I did something like that, only not as involved. For me, I got a real estate license. That was many years ago and I did not keep up the license or ever do much of anything with it BECAUSE I never intended to quit my day job. I just wanted to know stuff. 10 houses later, it was well worth knowing stuff. My guess is you just wanted to know stuff, too. I get that.

So, about those CEFs, they sure are smoke and mirrors — to me anyway. So? If an advisor claims to be working only on a percentage of AUM billed to the client, can said advisor claim that he or the umbrella under which he operates is not receiving anything back from those CEFs, as in kickbacks, payola, trailer fees, bonuses, whatever?

In other words, can an advisor putting a client in CEFs, look a client straight in the eye and say he gets nothing back from those CEFs — without his pants catching on fire, that is?

(Of course, I know a lot of people have fireproof pants, which is too bad.)

To simplify: Does using CEFs when claiming only AUM as cost to clients always require the advisor to wear fireproof pants?

Boomer
When I took the CFP program many years ago, it was a 2-year program that included general principles of financial planning, investments, insurance, taxes, retirement, and estate planning. Being a financial advisor was a subset of CFP, but many graduates made a living by being an advisor. It is hard to make a living just selling financial plans.

I don't see anything wrong with selling products for a commission as long as the client knows how you are being compensated, and combining commissions with an AUM percentage is okay. But, again, the client should know how you are being compensated. Personally, I don't believe in closed ended funds because the fund is designed as a high commission product and marketed by a select group of advisors. I much prefer open ended funds where any advisor can sell them. But, I guess there are some honest advisors who, in some circumstances, could recommend a closed ended fund if they really believe it is a good investment even though they are receiving a high commission.

Personally, I have always invested in index funds because I think they will perform as well or better than actively managed funds. I have never purchased an individual stock, but, many years ago I bought shares in the Magellan fund that was managed by Peter Lynch. It made super returns for awhile, but when Peter Lynch retired, it became an average fund managed by some young whippersnapper. I remember when that happened because the fund reported to the IRS about $30K in taxable gains that I had to pay tax on when the fund sold off a lot of stocks. I still own the fund and many of my index funds. I have held them so long that it would be a capital gains tax disaster to sell them now.

[Boomer]

When I took the CFP program many years ago, it was a 2-year program that included general principles of financial planning, investments, insurance, taxes, retirement, and estate planning. Being a financial advisor was a subset of CFP, but many graduates made a living by being an advisor. It is hard to make a living just selling financial plans.

I don't see anything wrong with selling products for a commission as long as the client knows how you are being compensated, and combining commissions with an AUM percentage is okay. But, again, the client should know how you are being compensated. Personally, I don't believe in closed ended funds because the fund is designed as a high commission product and marketed by a select group of advisors. I much prefer open ended funds where any advisor can sell them. But, I guess there are some honest advisors who, in some circumstances, could recommend a closed ended fund if they really believe it is a good investment even though they are receiving a high commission.

Personally, I have always invested in index funds because I think they will perform as well or better than actively managed funds. I have never purchased an individual stock, but, many years ago I bought shares in the Magellan fund that was managed by Peter Lynch. It made super returns for awhile, but when Peter Lynch retired, it became an average fund managed by some young whippersnapper. I remember when that happened because the fund reported to the IRS about $30K in taxable gains that I had to pay tax on when the fund sold off a lot of stocks. I still own the fund and many of my index funds. I have held them so long that it would be a capital gains tax disaster to sell them now.



Thank you. So a CEF can slide by with that thing called suitability?

I just luv it when they say, “Oh no, the client is not paying those big expenses. The fund is. “Geez. Where is the fund getting the money to pay those huge expenses for a CEF. (Rhetorical question there; thus, no question mark.)

I don’t have any CEFs. But I want to (sort of) understand them. I think I am barking up the right tree — where those big expenses think they are hiding.

Boomer

[manaboutown]

I have held shares of a small cap value CEP for a very long time, almost since its inception in the 1980s. Bought a few more shares in the last couple years. It pays nice dividends and appears to have outdone the Russell 2000 by a little. I only purchased shares when its market price was at a substantial discount to its net asset value (NAV) as I figure that takes care of the management fees for a while. Royce Small Cap Trust, Inc (RVT) (https://www.royceinvest.com/funds/royce-small-cap-trust/xrvtx)

Vanguard started a Russell 2000 index fund in late 2010, VTWO. Maybe I should have bought shares in it. Vanguard Mutual Fund Profile | Vanguard (https://investor.vanguard.com/investment-products/etfs/profile/vtwo)

[jimjamuser]

This is an extraordinary 2012 study that confirms my belief that some if not many financial advisors are primarily commission driven and act in their own self interests to generate fees, ahead of the best interests of their clients. The paper is quite detailed and lengthy, containing disturbing findings IMO.

"Do financial advisers undo or reinforce the behavioral biases and misconceptions of their clients? We use an audit methodology where trained auditors meet with financial advisers and present different types of portfolios. These portfolios reflect either biases that are in line with the financial interests of the advisers (e.g., returns-chasing portfolio) or run counter to their interests (e.g., a portfolio with company stock or very low-fee index funds). We document that advisers fail to de-bias their clients and often reinforce biases that are in their interests. Advisers encourage returns-chasing behavior and push for actively managed funds that have higher fees, even if the client starts with a well-diversified, low-fee portfolio."

The actual paper is in a PDF.

The Market for Financial Advice: An Audit Study | NBER (https://www.nber.org/papers/w17929)
Put your investment money in several ETFs and eliminate the middleman advisor. They charge large fees and some are just "churning" you for THEIR own benefit.

[END OTT]

This is an extraordinary 2012 study that confirms my belief that some if not many financial advisors are primarily commission driven and act in their own self interests to generate fees, ahead of the best interests of their clients. The paper is quite detailed and lengthy, containing disturbing findings IMO.

"Do financial advisers undo or reinforce the behavioral biases and misconceptions of their clients? We use an audit methodology where trained auditors meet with financial advisers and present different types of portfolios. These portfolios reflect either biases that are in line with the financial interests of the advisers (e.g., returns-chasing portfolio) or run counter to their interests (e.g., a portfolio with company stock or very low-fee index funds). We document that advisers fail to de-bias their clients and often reinforce biases that are in their interests. Advisers encourage returns-chasing behavior and push for actively managed funds that have higher fees, even if the client starts with a well-diversified, low-fee portfolio."

The actual paper is in a PDF.

The Market for Financial Advice: An Audit Study | NBER (https://www.nber.org/papers/w17929)

If the broker fee is based on the worth of your account - the fee is based on what you gained or lost

[Eg_cruz]

Something tells me the individual you’re responding to is going to produce a random email from some low level administrative assistant that confirms his assertion. But rest assured, he will still be wrong.
Thank you

[Eg_cruz]

. Why not give them a copy before they ask.
Why? When you call to get auto insurance does the agent send you a copy of the policy when you call or walk into the door?
On an open house does the agent have the deed restrictions sitting on the kitchen table for you to take with you? When you are buying a car do they give you a copy of the lease agreement or financial loan papers before you look at the car?
When you meet with a lawyer to do a trust or a will do they have sample copies sitting in lobby?

I do explain step by step with my clients, I don’t have anything to hide and upon request I’ll get them anything I can ever help them understand better absolutely.

[Eg_cruz]

There is no place on earth that a financial advisor or an annuity is needed.
Let me see, your business model is to make the most money off your investments. What is the financial advisors business model, too make the most money off of you. How does that benefit you?
Now an advisor who charges by the hours is ok to use so you can review his/her proposal and then you make the trades. I would also not use an advisor associated with any brokerage house because they will try to get you to buy house funds. I have personal experience of this on more then 1 occasion.

Annuities are just terrible. High fees, low returns. Again, the person holding the annuity isn’t the person making the money.
FYI Fixed and Fixed-Index Aunnity do not have annual fees unless you add a rider (which I don’t recommend riders). Annuities work great for those who is do not want to be in the market not all people have the risk tolerance for the market.
If you’re talking about fees, maybe you’re talking about variable annuities and which in that case I agree with you variable annuities are high in fees, they do cost too much and if you’re gonna be in the market just be in the market don’t do it an annuity , I agree.
When you want funds out of the market (20% to 30% of net worth)fixed annuities are a good alternative to money markets or CDs.
I can give you examples
I believe in simple straightforward short term annuities

Question funds you can’t afford to lose or you want completely risk free from market loss….what do you do?

[Eg_cruz]

Thank you. You said that anyone can ask for a policy. I guess, technically, it is true that you can ask for anything. But, over the years, I have been asked for an opinion from friends about buying an annuity that their advisor had recommended. I told them that I would happy to do that, but I need to read the contract first. But, on at least 3 occasions, when I called the advisor, they were very rude and refused to send me the annuity contract to review. They had slick brochures and PowerPoint presentations, but, I asked for the entire annuity contract. One guy even cussed me out and hung up on me. Another advisor explained that their company policy was to collect money from the client, based on an application, and then to send the contract to them. He said that the contract allows the client to cancel the contract within 30 days of receiving it, and they will refund the money. Another advisor said that I could come to his office and he will answer any questions about the annuity, but, under no circumstances, could he allow me to review the contract. That is the truth about my experience with annuity salespeople.

I have also reviewed portfolios for friends, and asked them if they knew that they had purchased an annuity. Often, their answer is that they had no idea that they owned an annuity. Note that I am occasionally asked for advice about investing because I have completed the Certified Financial Planner education program, but I have never been a paid planner or tax preparer. When I did the CFP training, I received the advisor trade magazines, and I was surprised at how many full-page ads it contained touting the 9 and 10 percent commissions available for selling annuities for insurance companies.
FYI companies are not paying the average agent 9% and 10% in fact in all my years I have never had any A rated company offer such high levels
I am doubting how much you know

[CoachKandSportsguy]

Each hooman is unique, so your circumstance will depend upon who you get and hir/her particulars. .

[Stu from NYC]

I find it interesting to go to so called investment dinners.

Almost always their main focus is selling annuities and will downplay the historical performance of both individual stocks, indexes like S & P or outright lie and say the average cost of a no load fund is about 4% annually.

Do learn a little something most of the time and have a very nice dinner in one of the better restaurants in the bubble.

Amazing that I will be the one to ask the presenter is educational background and work history and have to literally cross examine him/her to get this info.

[manaboutown]

I find it interesting to go to so called investment dinners.

Almost always their main focus is selling annuities and will downplay the historical performance of both individual stocks, indexes like S & P or outright lie and say the average cost of a no load fund is about 4% annually.

Do learn a little something most of the time and have a very nice dinner in one of the better restaurants in the bubble.

Amazing that I will be the one to ask the presenter is educational background and work history and have to literally cross examine him/her to get this info.

I bet the presenters are quite evasive. Some may be selling annuities but never use the word.

Do you ever get invited back?

At subsequent dinners you may find yourself as popular with the hosts as successful card counters at casinos!

[petsetc]

I'm late to the party but here are my unwavering thoughts.

My obligatory post to anyone seeking investment advice.

Take time to read Paul Merriman’s 3 FREE ebooks.
1. First-Time Investor
2. 101 Investment Decisions
3. Get Smart or Get Screwed (read this first!)

Found at paulmerriman.com

Also on his site are recommended portfolios for using Vanguard, Fidelity, T.Rowe Price or Schwab for DYI'ers. Much good info, ignore the puffery and sales pitches, remember, the info is free.

If you do want to know too much about annuities, listen to Stan The Annuity Man® | Brutally Honest Facts About Annuities podcasts.

Podcast - Have Fun With Annuities(R) | The Annuity Man (https://www.stantheannuityman.com/fun-with-annuities-podcast)

Last recommendation is FIRECalc: A different kind of retirement calculator (http://www.firecalc.com) , a Monte Carlo simulation of your future.

FWIW

[Stu from NYC]

I bet the presenters are quite evasive. Some may be selling annuities but never use the word.

Do you ever get invited back?

At subsequent dinners you may find yourself as popular with the hosts as successful card counters at casinos!

Very often we do get invited back but unless it is a restaurant we have not been too, will toss invitation.

They do use the word annuity but they do show how they are selling a new improved and wonderful product that will beat the return on no load funds with no risk at all.

[Caymus]

I find it interesting to go to so called investment dinners.

Almost always their main focus is selling annuities and will downplay the historical performance of both individual stocks, indexes like S & P or outright lie and say the average cost of a no load fund is about 4% annually.

Do learn a little something most of the time and have a very nice dinner in one of the better restaurants in the bubble.

Amazing that I will be the one to ask the presenter is educational background and work history and have to literally cross examine him/her to get this info.

That is a good mental exercise to keep your mind sharp.:)

[Stu from NYC]

That is a good mental exercise to keep your mind sharp.:)

Two advantages to us

1. Very often I learn a little something.
2. Get a very nice free dinner.

[Pairadocs]

This is an extraordinary 2012 study that confirms my belief that some if not many financial advisors are primarily commission driven and act in their own self interests to generate fees, ahead of the best interests of their clients. The paper is quite detailed and lengthy, containing disturbing findings IMO.

"Do financial advisers undo or reinforce the behavioral biases and misconceptions of their clients? We use an audit methodology where trained auditors meet with financial advisers and present different types of portfolios. These portfolios reflect either biases that are in line with the financial interests of the advisers (e.g., returns-chasing portfolio) or run counter to their interests (e.g., a portfolio with company stock or very low-fee index funds). We document that advisers fail to de-bias their clients and often reinforce biases that are in their interests. Advisers encourage returns-chasing behavior and push for actively managed funds that have higher fees, even if the client starts with a well-diversified, low-fee portfolio."

The actual paper is in a PDF.

The Market for Financial Advice: An Audit Study | NBER (https://www.nber.org/papers/w17929)

Ho ho ho, are ducks waterproof ? From the first time I made some small, very small, investments, I also started an extensive collection of books related to the financial markets, history of the stock market, etc. etc. NEVER EVER did I buy into the idea that ANYONE, no "advisor" or "fiduciary" cared AS MUCH ABOUT MY MONEY AS I DO !

[Pairadocs]

It is for the advisor to make a commission. That is who benefits from it.

It works very like like those "convenience fees" we all know so well when we buy concert, sporting events, or other entertainment tickets. WHOSE "CONVENIENCE" I always ask ??? Certainly not for MINE !

[Pairadocs]

Yup!!! Learned that the VERY HARD way. Lost 1/3 of my savings by adviser putting me in ".com" stocks that went bust in 2000 and lost out on an even more stupid "insurance policy" from their bank that was a total money pit. Live and learn. I'm now educated about investing, and do it all myself.

It's really sad more people don't educate themselves as you have. Amazing how the old "annuity" thing still works, some do seem satisfied, but I often wonder if they REALLY understand what they could have had if only they'd taken a small interest in their own MONEY ! ?

[Stu from NYC]

It's really sad more people don't educate themselves as you have. Amazing how the old "annuity" thing still works, some do seem satisfied, but I often wonder if they REALLY understand what they could have had if only they'd taken a small interest in their own MONEY ! ?

Your right. Sad that so many people have no idea how to invest and refuse to take the time to learn. A six figure IRA or 401 is not so insignificant.

[MorTech]

2 and 20, baby!