[retiredguy123]

Originally Posted by 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.

[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]

Originally Posted by 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 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]

Originally Posted by 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.

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]

Originally Posted by 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

Originally Posted by retiredguy123

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]

Originally Posted by manaboutown

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???

[retiredguy123]

Originally Posted by Boomer

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]

Originally Posted by retiredguy123

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)

Vanguard started a Russell 2000 index fund in late 2010, VTWO. Maybe I should have bought shares in it. Vanguard Mutual Fund Profile | Vanguard

[jimjamuser]

Originally Posted by 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

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]

Originally Posted by 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

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

[Eg_cruz]

Originally Posted by Shipping up to Boston

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]

Originally Posted by birdawg

. 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.