Why pay a broker when they have no skin in the game?
 

Who makes money 100% of the time, you or your broker when using a broker to handle your investments? When the market goes down, do you get a break from your broker commissions? Worse, if you lose money because your broker isn't very good and the market is going gangbusters, do you get a rebate from the broker?
You know the answer to all of these questions.

1 brokerage firm that has tried many times to hook me into coming over to them, that also has the commercials with "we do better when our clients do better", I just laugh when I hear this. Why??
Say I have millions of dollars in my portfolio, if I would go over to this broker, or any broker, they will charge me a fee up front based on my portfolio value. Say I have $2M portfolio, any broker would want me to pay .5% to 1% ($10,000 to $20,000 depending on fee) up front. WHY? the broker didn't get me this money, I did. Plus, every year after this, I will be paying at least this much (give or take) depending on your portfolio gains and losses. Again, they didn't do anything for me on the initial $2M, but I will be paying on that amount forever. At the same time, no broker can guarantee me that they will make more money with their investing picks than what I can do. There is no way to know how a broker has done for their clients that I have found either, so you are relying on a salesman (never) or by a friend who has used them. Before listening to my friend, I would need to see proof of his gains/losses over the past 5-10 years, not just that they are a nice broker.

As for skin in the game, I would recommend (would never use 1) a broker that would charge a 1% fee on the gains they made me, not based on my initial portfolio value. The more money they have to work with, the easier it would be for an experienced broker to make me money so they can make money. If they don't make money, they don't make money.
For example: say I gave them a $2M to invest, and they did well and made me $100,000, I would pay them 1% of that $100,000 gain, not the $10,000-$20,000 fee that they would charge me for the $2M I gave them. Also, if they lost me money, then they would make no money, or better yet, they would give me 1% of my losses.

You know no broker will do this methodology, they want to make money whether they do good or not and on money they never did work for.

I believe they also do better when their clients lose money.

Than you have the investment sales rep who preaches safety safety and safety showing misleading charts of the S & P over selected 20 year periods and trying to sell the poor soul into annuities.

I do like to know what has qualified to handle other peoples money so I ask. Answers have been an on line class, a computer program that only they have access too or just some on the job training. Remarkable have few people will even ask this question.

You have to admit they are aptly named. Hire one and you will end up “broker”. Never used one and never will. I estimated how much I would have paid a financial planner during my working and retirement years and it was a staggering number. Unfortunately, people who call themselves financial planners may be college educated or simply passed a 3 month online course. Buyer beware!

Unless you have a seat on the stock exchange, in one way or another you have to utilize a "broker", even if it is Charles Schwab. I think what is being discussed here falls into the category of "wealth management" or "financial advisors".

Which brings up another point. While these guys make money regardless of performance, how many individual investors have more knowledge than the professionals, not to mention the data and analysis of a large team? Unless you're just going to dump everything into a fixed asset, they are probably worth their 3/4%

Turn this around and ask yourself- Would you have accepted this arrangement with an employer when you worked for a living? Would you forfeit your paycheck if the company wasn't profitable? For salary or wages, would you share 1% of the company profits with every employee? Most people wouldn't, but there may be an exception or two.

Metal capacity is another factor as we age. At some point, we may need professional help.

Many examples of people losing their savings. A fiduciary can help protect against those situations.

And they are there to help your heirs once you pass.

If these brokers could predict the market, wouldn't they all be rich ? They make money off you, not the market.

But they make money even when you loose money!

I like to scoop up "loose" money :1rotfl::1rotfl::1rotfl: Really shouldn't let it get "loose" in the first place. :1rotfl::1rotfl::1rotfl:

:sigh:

Put it under mattress so u can find it next time.

So far my solution is to do my own thing using Schwab and Vanguard. When my brain starts to fizzle I will see a fee-only well vetted advisor willing to sign on as a fiduciary.

They have your skin in game, more you trade the more they can get, skin that is. :pepper2::pepper2:

Just buy gold! A commercial told me so.:oops:

I use a brokerage house to make trades, I don't use a broker.
I have more knowledge than the professionals that used to handle my friends accounts. Also, I would be a more knowledgeable professional investor than a professional working at a brokerage house. Why? Because I know what I'm looking for, I know my risk level, and I know what I want to invest in. I don't need somebody I don't know to tell me how to invest. For example, you mentioned a large team of professionals, I will never go with a large team, which means I will never go down the active fund route, mine are all index funds if not individual stocks.

Also, all my life I have ignored bonds and the last couple of decades, never been in a target or balanced fund. Why? They don't make you money. When I'm fully invested, I go for the index funds and stocks that I have been in for 1 or 2 decades that keep making me 30+% in good times or in stocks that make me more than that. Then the last few years, I get out when things don't look good and get back in when I think I can make good money, if its a sideways market, I'll be in money market funds until its time to invest.

I used to keep my portfolio intact during the 3 big downturns in the last 24 years and it worked out to stay in. Now, I don't want to wait years for my portfolio to recover.
Will a team of brokers direct me to do this? No way.

Your hypothetical business model doesn’t happen in the real world for good reason. Bankruptcy.

You are looking for someone to be your business partner where you keep 99% of any gross profit and they pay 100% of the overhead costs.

Any business with that model will be out of business soon.

So, in other and fewer words, you do think you know more than the professionals. OK.

Investing is a gamble and if you are going to participate you have to understand that. If you do your homework the odds are better than Las Vagas, but there still are winners and losers. Before you even place your money on the table, there should be a few key decisions you should make. First are you skilled enough and have the time to invest on your own without an advisor. The second thing is how much money do you need to live in comfort. The second reason might determine if you need to get into the market at all. If you have a large enough nest egg you might earn enough on an FDIC, CD or some type of insured savings. CDs these days range from 4% to 5% depending on its life span. Just really study before you sign on the dotted line.

Some of these so called professionals are anything but.

. I have a financial advisor within my investment company and they charge me Pennies. It depends on the company. Not all are the same at all. And if someone isn’t familiar with buying and selling stocks then a financial advisor is definitely the way to go.

At one time I did it myself. I invested in mutual funds that had solid track records and a couple solid stocks. I worked around a group of friends that were all about investing, funds, stocks, etc. and were on top of it. In 1987 (Black Monday), my solid stock (IBM) took a beating, and it took many years to recover to breakeven. In the decades that followed I let my "safe" mutual funds churn along doing reasonably well. I didn't see the tech bubble was about to burst nor how badly it was going to take a hit, so I lost about 50% in several funds. I was working somewhere else where people weren't focused on their investments, and I just "let it ride". That was a major lesson for me; if I don't have the time or knowledge to stay on top of it, let someone (company) that does it 24/7 manage it. Sure, I pay a fee, no one works for free! I don't want my retirement years even modestly consumed with my investments vs turmoil in the world, markets, elections, etc. IMO, if staying on top of investments is something you want to do, great; me, I'm content to know my money will outlive me as I enjoy the coming years worrying about nothing.

Investing
 

The most important factor when choosing someone to help manage your investments is to find someone you TRUST. Spend some time getting to know them on a personal basis to better understand their investing philosophy, talk with some of their clients and set up a managed agency account with joint management (you and your advisor). This is often in a bank's trust department or a brokerage firm with trust powers. I prefer an organization that is a fiduciary who can administer the trusts we have established in our wills.

Aren’t mutual funds professionally managed?

Did anyone’s financial advisor tell them to get into cash just before the 1987 crash or the 2007/2008 crash?

A lot of my professionally managed mutual funds and my 401(k) lost a lot of money in 2007/2008!

In my opinion, a bank's trust department is not an organization you can trust. It is one of the worst places to invest your money. I use a bank for a checking account only. I never invest any money with a bank.

I have always used Fidelity Investments and Vanguard Investments for mutual funds, and I have never paid a penny to a broker.

Nobody can time the market on a regular basis. Many people panic when the market suddenly tanks and pulls all their money back leaving them no chance to get it back.

Banks trust depts known for being very conservative and first priority is never to lose money.

That leads to not making much either.

They make a lot of money on fees, especially if they manage a trust or an estate after someone dies.

The huge difference between the crashes of black Monday, the tech bubble, and the financial crash 17 years ago to me was this: I was still working, didn’t need any money anytime soon, and the biggest thing, I was dollar cost averaging, so sure it was nice seeing my portfolio at its best but I wanted it to go down so I can buy more shares while its down and then when I need it, I hope it would be at its highest.
Now, I don’t need the money so when I invest I’m in it for a month, 6 months, or until I see issues coming up and then I’m out.
I timed getting out at the peak at the end of 2021, stayed out until I started to get back in in 2023 and got back out 5 months ago.
No broker could have done better, except for maybe a hedge fund mgr but then the fees are huge. Nobody can time the market, but I’m not timing the market either. I got out of some of the stocks that went up over 100%, but some of them kept going up. So I missed out, so what, I made a small fortune during those 6-9 month months.
I have learned, pigs get slaughtered. It’s better to get out if I think the future looks bad and keep my wins, than stay in the market and watch my earnings tank when I knew the future looked bad

We learned early on not to hire financial advisors that make a profit off of what they sell to you as they are biased. We went with fee-only advisors.
From napfa dot org:
People also ask
What is a fee-only financial planner?
A fee-only financial planner is someone who earns a fee for their services from their clients and does not receive commissions on the sale of financial products as additional compensation. The fee may be paid as an hourly rate, a flat fee or as a percentage of assets under management (typically around one percent).
We tried the assets under management and did not like that. The hourly rate was fine when we were young without many assets, but found the flat fee for advice works best to biannually review our finances. They act as a fiduciary where the customer's individuall optimal financial situation is considered.

What worked well for us was being very diversified in our investments and staying in long-term and not panicking. Our average risk level was high to moderate but lowered as we aged. With diversification some of our stuff was way up and some down but we were always balanced. Individual stocks never worked for us. The mutual funds and the like are professionally managed and diversified themselves. At our ages, it's changing to focus on creative tax planning and taking out cash as we have no pensions.
Every person has his own characteristics so what works for one may not work for another. If you don't like the way it is now, change it. Good luck!

Just use Vanguard. They have thepowest expense ratios in the business. Some of my Admiral ratios are .18 of a percent.

Some are, but I only buy index funds. The manager doesn't pick stocks and bonds, he/she only buys the products that make up the index. Hence, index funds have extremely low expense ratios.

Wow. REALITY I did not work for free. Did other readers?

We make money when the clients make money is word SPIN like all advertising . If, the clients balance goes up and they are making one percent, One percent of 10,000 is 100
Assuming a 7% normal market return one percent of 10700 is 107.

Few people understand math. Thought SPIN gains compound. So do losses.
Example 10,000 and you make 10% one year and loose 10% the next year. Many think they are even. 10,000 plus 10%=11000. 11000 less 10%=9900 you are short 100.

Now no commission trades. Again no one works for free. They do not do this because they so love ME that they company spends money and does not charge me. The numbers are so large that a penny of millions of trades is serious money.

Buffetlike has become am adjective and or an adverb. We at least I am not allowed to swim in the same market-pool-where Buffet buys.

FYI T Rowe has a similar set up. I do not recall what they call it. ?????? pehaps we saw we were loosing too many customers to Vanguard shares. Admiral shares, you need to have 50,000 in the fund and it reduces the management fee by roughly a third. T Rowe is similar. Fidelity has a similar deal offered to company retirement plans same fund different trading code. The more you learn the more HUH it gets. Many Funds hold other funds hold Berkshire hathaway. HUH. You can buy partial shares why pay a management fee?.

Rowe Price reduces by 20%.

It appears many stock brokers/financial advisors want to be paid a fee based upon assets under management (AUM). Most want 1% + or - , depending on portfolio size and other matters. They argue it is only 1% but it is one percent of assets and is not a function of income or the lack thereof. If a portfolio returns an average of 7% per year that 1% of AUM works out to be 1/7, more than 14% of income. That is a huge bite out of income.

Moreover studies have shown that a low cost index fund of the S&P 500 or other broad market, low fee index fund over a period of 10-20 years outperforms 95% of professional money managers. If they are active managers the total cost is even higher due to the "friction" of trading cost and income taxes.

yes and no. Most people have no idea how to check out a broker, (FINRA) has ever registered broker there with their entire history listed there. If they have ever been sued, fined, sanctioned or any other problem. IMO, always use a R.I.A. (registered Investment advisor). They have to give you an ADV form at your 1st meeting, which is a FULL disclosure form, that has to be updated annually. RIAs will have a fiduciary responsibility towards their clients, which means that they have a moral obligation to give financial advice that is always in the best interests of their clients. Directly supervised by the Securities and Exchange Commission (SEC), RIAs are deemed to be operating in a fiduciary capacity and, therefore, to have a higher level of conduct than licensed agents. This standard trustee mandates that the RIA must always unconditionally put the best interests of the client ahead of its own interests, irrespective of any other circumstances.
RIAs are also expected to report any potential conflicts of interest to their clients and to behave ethically in all of their business dealings. A few RIAs charge their clients with a percentage of their assets under administration, while others charge an hourly or flat fee for advice. Advisors who choose this model for their practice must obtain a Series 65 license in addition to other investment license. You can find any SEC-registered investment adviser’s Form ADV on the SEC’s Investment Adviser Public Disclosure (IAPD) website. There, you can perform a Form ADV search for any firm using the firm’s name, location or Central Registration Depository (CRD) number, which is the license number the industry regulatory authority FINRA issues to firms. What can a Form ADV search tell you?
There’s a wealth of information inside a Form ADV. We’ll help you navigate each section like a pro and highlight the information you’ll find in each part.
Form ADV Part 1a
Part 1 is a disclosure that’s in a check-the-box, fill-in-the-blank format, which is not the most exciting to read, but it does contain helpful information, such as:
• States licenses. You can see the states where the advisor is licensed to do business under Item 2.C: State Securities Authority Notice Filings and State Reporting by Exempt Reporting Advisers.
• Employees, clients and compensation. Find the number of employees, advisors and clients the firm has, client types and how advisors earn money in Item 5: Information About Your Advisory Business.
• Assets under management. See how much money others have entrusted the firm to manage and the firm’s total number of clients in Item 9: Custody.
• Disclosure information. See if the firm or its employees have been subject to regulatory actions in the past 10 years in Item 11.
• Disciplinary action. If the firm or its employees have disclosures, you can get the details of all disciplinary actions and resolutions in DRPs (Disclosure Reporting Page).
Form ADV Part 2
Part 2 items are generally an easy read and broken into two subparts: Part 2a and Part 2b.
Part 2a
You can think of Part 2 as a marketing brochure that explains how the firm works, its fees and how it handles clients’ money. Inside this PDF document, you’ll find much of the same information in Part 1, but more detail on the firm’s fees, commissions, investment offerings and strategy and any potential conflicts of interest you may encounter as a client. We won’t say it’s a light read, but we will say that all firms must report the same information in the same sections. So, once you’ve read a couple of Part 2 brochures, you’ll know that Item 7 is always “Types of Clients” (the kinds of investors a firm serves and any investment minimums).
If the firm changes how it does business, it must clearly outline the changes in Part 2a when it files a new Form ADV each year, then offer you a revised brochure.
Part 2b
Called the “brochure supplement,” advisory firms must provide you with a Form ADV part 2b for each person who provides you with investment advice. This includes anyone at the firm who makes discretionary investment decisions on your behalf, even if that person never has direct contact with you.
Form ADV Part 3
Form ADV part 3, called the “Relationship Summary,” is the easiest part of the form to digest. The advisor must summarize in “plain English” much of the information in Part 2, including services, fee structure, conflicts of interest and disciplinary actions. And yes, it’s a much easier read than a Part 2 Brochure.
Part 3 also includes key questions to ask an advisor and how to get more information about the firm.

From a retired R.I.A. with 23 years service and not 1 complaint filed against me or my firm.

If this isn't a first-world problem, I don't know what is. If I had millions of dollars, at my age, I'd spend the rest of my life spending it, and not worry too much about investing it. I figure I have less than 40 years left on this planet. A few million bucks will cover a whole lot of great experiences. And a new car. And a new golf cart. Roll the double-wide off the property and put a newer one in - this time with real plywood flooring instead of the particle board. What the heck - I could afford to splurge, right?

Screw investments. Spend it and enjoy. Leave your kids with enough money to bury you when you go.

cheap also means other intangibles not working well with Vanguard. Their paper reports suck. They have one nice feature on their web site, BUT, they want long term investors and not anyone who looks like a short term trader. They shun short term traders. .

And historically they wanted to sell only their own products, even if the new ETFs were more liquid, they want to sell just their ETFS.

Cheap also is relative to performance, higher returns with higher expense ratios can still net out better than just cheap. I do not like working with Vanguard, in either 401K, IRA or taxable accounts, from experience.