[spinner1001]

Originally Posted by Boomer

I have a contact person at Fidelity and although I like her, I will not let go of managing our Boomer Fund. But she’s there if I need her and our heirs know who she is and could need her help — or maybe someday even I will let her help us. I just can’t quite do that yet.

Your Fidelity contact person may be a ‘relationship manager’. You might ask for a Fidelity ‘financial planner’ or, if your contact is indeed a financial planner, you can ask for another one but it might be via phone only. If your Fidelity contact is not competent to be your personal financial advisor, then try to get to someone there who is.

A lot of discussions in this thread depend on the amount of investments one has because that drives the assets-under-management business model for the advisor. The more a customer has, the more attention they can get from an AUM advisor because advisors act on incentives, too.

The spectrum of advisor attention one gets ranges from a lot (such as a Trust Company with, say, at least $1 million AUM) to middle of the road (such as Fidelity and Vanguard with, say, at least $250,000 AUM) to little attention (such as Edward Jones with, say, $100,000). One percent of $1 million earns an advisor’s company $10,000 annually getting a customer more attention than 1% of $100,000 or $1,000 per year in AUM fees. I believe the companies who tend to be on the smaller end of the spectrum with a lot of $25,000 and $100,000 AUM customers tend to supplement their lower annual AUM fees with the income that you want to know in your original post.

[spinner1001]

Originally Posted by Boomer

I don’t pay loads or AUM fees either…

I am curious. Assuming you still don’t want to pay AUM fees or loads, why ask about financial advisors (who don’t work for free)?

Even if you choose to make your own investment decisions, others may choose not or not have the knowledge. That leaves a bunch of financial services firms for these kinds of people. Financial service firms are regulated. But don’t depend on the government to provide all protections from investment managers. Like healthcare, investing is best done by spending time educating yourself. Those who don’t sometimes face a bumpy road.

[Desiderata]

Originally Posted by rsmurano

Most if not all of managed funds do worse than an equivalent index fund. Why fund managers charge loads is because most people investing in the stock market are naive, which is a shame because they need this money to live on in retirement. I have helped over a dozen friends get out of their ‘managed’ environment to something much simpler, much cheaper, with much better earnings. Some of them had to pay over 5% sales load fee when they exited which they never knew they had to pay.
As for fees, if your money is under a broker like fidelity, Schwab, etc, then these institutions get paid from the fund even if you do your own trading. So if I’m with fidelity and I have fidelity manage my money for a 1% fee, fidelity will still earn income from the fund itself.
1 more thing to consider when buying a managed fund, you will be paying more in taxes each year because the turnover of imbedded stocks has a much higher turnover within the fund. Nobody looks at this stat. Some of my friends managed funds had over 400% turnover rate because they are always chasing the market. Whereas index funds have very low turnover rates.
There are many low cost index funds (fees less than .1%, normally around .02%) making 20-30% and more during the last 6 months in low risk holdings, or if you are nervous about the market, you can make over 5% with no risk money market funds.

Thank you for your informative post. Do you know if there are funds or stocks that are only available through an advisor? If that’s the case maybe there is some value there in using an advisor, assuming those exclusive funds are doing better than any other fund available to the general public.

[spinner1001]

Originally Posted by Desiderata

If that’s the case maybe there is some value there in using an advisor, assuming those exclusive funds are doing better than any other fund available to the general public.

There is no evidence of such superior performance over the long run.

[MaryMS]

Our advisor at Vanguard is a fiduciary and does not work on commission. He earns a very small percentage of the amount we have invested. To quote another company, “he does better when his clients do better”.

[Boomer]

Originally Posted by spinner1001

I am curious. Assuming you still don’t want to pay AUM fees or loads, why ask about financial advisors (who don’t work for free)?

Even if you choose to make your own investment decisions, others may choose not or not have the knowledge. That leaves a bunch of financial services firms for these kinds of people. Financial service firms are regulated. But don’t depend on the government to provide all protections from investment managers. Like healthcare, investing is best done by spending time educating yourself. Those who don’t sometimes face a bumpy road.

Hi, spinner1001,

Thank you for your contributions to this thread in posts #13, #16 and #19. (And you sure are right about that number #19 one-liner.)

Your posts are right about many things. Although I know the drill at Fidelity, as far as access goes, I will never reveal whether I have been invited to meet with someone on the top floor in those offices with that spectacular view of the city.

Even so, I really do appreciate your explanation of how Fidelity works because you are educating readers who take the time to see what you have to say.

Everything (almost) that you are saying here is a valuable part of the educational process that I am seeing develop in this thread. Seriously, I thank you.

But I am not sure why you are (kind of) coming at me in Post #17. . .I think I actually know why. It’s because you are not reading me — not on the page nor in-between the lines.

You do not have to read what I write. There will not be a quiz. But I wish you would have read me better if you wanted to criticize what I was saying. I have been at this for 30 years and I really, truly was “asking for a friend” who wanted me to look at the report she had received from her advisor.

I was not familiar with such an elaborate report, but I did a little recon where I could and saw some things I would question — although everything I saw was perfectly legal.

Anyway, we know nothing about each other, but I can see that you know some things about advisors and incentives. Thank you.

I am loving how generally educational this thread is turning out to be. Of course, I saw from someone here that old “why not ask the advisor” platitudinous, predictable line from one who cannot possibly have read the thread but cannot resist taking a shot. I can ignore that kind of shot. But although you took a sort of shot, I am very glad you are here in this thread helping to educate readers.

Boomer (who is no eejit and really is “asking for a friend)

[CoachKandSportsguy]

Managed funds and fees versus no load:

1) The relative statistic for measurement is total return after fees and taxes, ie: what you get to keep. If you are not data and tax savvy, probably difficult to get to a good answer. The first question which you should be most interested in is the maximum drawdown annually versus the SP500, which may impact your future as personally shown below. The financial questions/analysis for evaluation of portfolios at the end.

2) The most important information from the prospectus is the fund's goal and benchmark index.
If the fund is 100% equities against equity benchmarks, and long only, then probably won't be worth the expense, as the difficulty in beating the sp500 is very difficult for most.
If the fund is a special situations fund, long/short, then the fund is high risk and not worthy of anything than a small single percentage of thought for diversification, but has a better chance of beating the SP500, though not guaranteed.


3) IMO, the primary reason to invest in a managed fund is to reduce your draw down in a market downturn.
Example, I had two more IRA withdrawals, the second one being all remaining, from my mom's sp500 indexed annuity. I took the first withdrawal in December 2022, when the market was down 20% or so. The loss of fund total value was two months of dementia care costs. The loss was also so big that after the withdrawal the recovery of the lost amount with the remaining funds was over a 50% return before the final withdrawal, just due to timing. If i could have avoid that loss, i would have been very appreciative. The only upside is that I paid total 1% (virtually zero) total taxes on both withdrawals.

4) I took a python course from a managed money / bank programmer, who showed us the code of the type of algorithms which the professional investors currently use. Many of these money managers are using machine learning (ML) to create high risk adjusted alpha (returns higher than their benchmark with high risk risk management scores, such as sharpe and sortino ratios).

5) Instead of buying load / managed funds, the better answer is to find an independent money manager, CTA designation, who uses ETF funds to create a custom portfolio for your risk tolerance, and rebalances at least quarterly and not annually. I have no information for CTAs.

6) Here is a sample of the JPM efficient 5 ETF portfolio which rebalances monthly. Yes there will be taxes, but you will probably a lower drawdown than the SP500, which should be the number one evaluation metric in retirement, as you have relatively little time to recover from lost values. The link pdf shows the "index" or the monthly return of the portfolio using the underlying allocation program of historical and actual returns.

https://www.jpmorgan.com/content/dam...Report_JPM.pdf

The information published is not timely enough to follow along yourself, but is a very good fund to benchmark any portfolio / fund manager's track record against.

Note, this portfolio invests in only a limited set of ETFs, with the weighting shown in the link pdf. JPM moves money between these ETFS based upon the program to determine risk level proportions.







good luck to us with retirement investments

[MikePgh]

There is no clear answer. Most fee only (charging a % on AUM) will buy no load funds for your portfolio. But just because it is a no load fund that does not mean they are not getting paid. There is what is known as a 12b-1 fee that the fund company can share with the advisor.
Dual registered advisors (registered as an advisor and a broker) will usually charge a lower AUM fee but also churn your portfolio to collect more load fees.

Hope that helped.

[dewilson58]

Originally Posted by MaryMS

Our advisor at Vanguard is a fiduciary and does not work on commission. He earns a very small percentage of the amount we have invested. To quote another company, “he does better when his clients do better”.

That "small percentage" adds up over time.

[Stu from NYC]

Originally Posted by dewilson58

That "small percentage" adds up over time.

Sure does. Forbes, before the family sold out, had some great articles on how the yearly cost of a fund including cap gain taxes, will affect your long term performance.

I was a long term subscriber until changes were made that lessened the value of the subscription to me so dropped it.

Financial publications such as Kiplingers personal finance should be required reading for anyone wanting to learn how investments work.

[retiredguy123]

Originally Posted by MikePgh

There is no clear answer. Most fee only (charging a % on AUM) will buy no load funds for your portfolio. But just because it is a no load fund that does not mean they are not getting paid. There is what is known as a 12b-1 fee that the fund company can share with the advisor.
Dual registered advisors (registered as an advisor and a broker) will usually charge a lower AUM fee but also churn your portfolio to collect more load fees.

Hope that helped.

I don't pay any AUM, load, or 12b-1 fees. I only buy indexed mutual funds with no loads or 12b-1 fees. Investing is too important to trust a financial advisor or a mutual fund manager.

[Tyson]

Just buy your mutual funds from Vanguard. Lowest fees in the industry, I have some Admiral funds whose expense ratio is around .18%

[jimjamuser]

Originally Posted by Boomer

I have never bought a mutual fund through an advisor. (I buy them but without an advisor in the middle.)

I know that financial advisors often get paid a 1% annual fee of assets under management, which may vary to a lesser percentage on AUM over a certain amount. This part of advisory fees is clear to me…..

But here’s my question: On top of that fee for AUM, do financial advisors also get paid by the mutual funds they sell? Loads seem obvious to me, but what about those other costs and fees that show up inside mutual funds? Does the advisor get a piece of that action, too?

(I tried to learn about this on the FINRA site which has a section that is supposed to help, but I did not get very far.)

If the advisor is being paid by the funds in addition to being paid by the client, should the advisor report that amount to the client to give a clearer picture of the client’s cost of doing business?

I hope someone knowledgeable here will take pity on me and give me the Cliffs Notes answer to my confusion on this. (So far, no advisor for me, but I am thinking, “What if?”)

In other words, in the world of financial advisors, is there icing on that cake that is the fee quoted for AUM? And, if so, where is it in the mutual funds and/or ETFs?

Boomer

As I understand it, mutual funds have a large "loading" like administrative costs. That's why I prefer an ETF.

[Stu from NYC]

Originally Posted by jimjamuser

As I understand it, mutual funds have a large "loading" like administrative costs. That's why I prefer an ETF.

For a no load fund they just charge a yearly fee which includes their expenses of running the fund. There is no loading when you purchase their shares.

[retiredguy123]

Originally Posted by jimjamuser

As I understand it, mutual funds have a large "loading" like administrative costs. That's why I prefer an ETF.

Vanguard mutual funds and ETFs are both extremely inexpensive, not large loading. I prefer the mutual funds to the ETFs because of the tax efficiency that they offer. Most people who buy mutual funds are "buy and hold" investors, so they are not trading on a daily basis, like ETF investors. This provides a more predictable investment environment that stabilizes the tax liability.