Author Topic: Door to Door Financial Planner...  (Read 4696 times)

cbr shadow

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Door to Door Financial Planner...
« on: May 09, 2013, 11:51:33 AM »
A good friend of mine and his wife had a Charles Schwabb financial planner come to their door and talked them into doing their financial planning.  They ended up each opening up a Roth IRA through him, and I believe a taxable account.  I told my friend to look into what his fees are, since you can do this through Vanguard on your own.  He said the guy told him he charges $60 per year for each Roth IRA, and no other fees. 
Are there other fees I should have him look into?  I just want to make sure my friend isn't getting swindled by a D2D salesman.  He does work for Charles Schwabb so it's not like he's just doing this out of his basement, but still..

Thanks

mlipps

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Re: Door to Door Financial Planner...
« Reply #1 on: May 09, 2013, 12:12:20 PM »
The expense ratios of the funds themselves. 1.08% versus the .08% or so that Vanguard charges may not sound like much but it's $10 for every $1000 or $100 for every $10000 they put in. Here's a simple graphic to illustrate:

http://www.bogleheads.org/wiki/Expense_Ratios

WD

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Re: Door to Door Financial Planner...
« Reply #2 on: May 12, 2013, 10:09:43 PM »
In addition to the expense ratios of the funds, the actual cost of obtaining funds such as trading fees. I had my Roth IRA with Sharebuilder before I switched over to Vanguard and there were fees depending on what you invested in within the Roth IRA. There were some funds that were free such as funds associated with ING which at the time owned Sharebuilder were free. If I wanted to invest in a Vanguard fund I would have to pay a transaction fee each time I deposited. This would have added up as I dollar cost average my contributions throughout the year.


GreenGuava

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Re: Door to Door Financial Planner...
« Reply #3 on: May 12, 2013, 10:56:02 PM »
In addition to high expense ratios, check out if they pay a load - that is, some fraction of their investing money is gone right away, just for the right to buy a fund.  Some of that goes to the "advisor" as a commission.  I'm sure the $60/account isn't all he charges if he went to the trouble to go door-to-door.

JamesAt15

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Re: Door to Door Financial Planner...
« Reply #4 on: May 12, 2013, 11:04:56 PM »
I have my IRA and taxable investment accounts at Charles Schwab.

They do offer a number of mutual funds with no transaction fees, including low expense ratio index funds. There's some threads on Bogleheads about using Schwab and Schwab funds in place of Vanguard funds which I found helpful.

You can buy Vanguard mutual funds from Schwab but they do charge a significant fee to order them. I think it depends on the fund but for VFINX as an example, it was about $50 a pop. Not cheap.

You can also buy the Vanguard ETFs, which should only cost you the regular transaction fee (which is around $9 for me). Cheaper, but they'll still add up if you are contributing to your accounts regularly.

So the concerns for your friend will probably be, will the financial planner be steering your friend towards funds that have high expense ratios and transaction fees? That Frontline program that came around recently also pointed out that some funds include kickbacks (essentially) to financial planners that sell them to their clients, so that might be a concern as well. This financial planner may only charge your friend $60 directly, but if he steers your friend towards funds that have higher expense ratios that will then feed some of that money back to him, he would make considerably more that way.

Will your friend be in a position to say, "no, I don't want those funds, I want to buy these other funds instead," and will the planner go along with that? If so, he can put together a pretty bogleheaded portfolio with the Schwab funds. But if he can do that, it becomes questionable if he needs a financial planner at all.

Edit: Actually, I don't think I was answering the question well.

I guess the point I was making is that Schwab does offer a number of no-load low-expense ratio funds, so it will come down to the specific recommendations the planner makes. Your friend should check out the recommendations by logging into the Schwab site and checking them out by going to Research -> Mutual Funds and searching for the funds recommended. That should list the expense ratios and there may be a section under Fees for "Schwab Transaction Fee" - if it is marked as "yes", click on it to find out what the fee is. I just looked up VFINX as an example and the Schwab fee is $76 to buy or sell it, plus another $25 if it's a "Broker Assisted Trade".  That's some serious money there.

Also, what's the policy for firing the financial planner when/if your friend decides his services are no longer needed?
« Last Edit: May 13, 2013, 12:49:16 AM by JamesAt15 »

cbr shadow

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Re: Door to Door Financial Planner...
« Reply #5 on: May 13, 2013, 12:12:59 PM »
Well as an update:  I brought up some of the points above to my friend, who decided to call the financial advisor to discuss.  The phone had been disconnected and through some research he found out the guy is no longer with Charles Schwabb.  His account was given to a new advisor who showed up at his house the next day (unannounced - weird) to discuss his investments.  My friend decided he wasn't comfortable w/ these guys anymore and is going to do something different with his money now.  I mentioned Vanguard to him but we'll see what he decides.

Another Reader

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Re: Door to Door Financial Planner...
« Reply #6 on: May 13, 2013, 12:49:35 PM »
I don't think these people are with Schwab.  I can't see a Schwab representative going door to door and if a rep leaves Schwab, the phone line would not be disconnected, it would forward somewhere else.  This sounds like either a scam or a very mixed up friend.

cbr shadow

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Re: Door to Door Financial Planner...
« Reply #7 on: May 13, 2013, 02:22:46 PM »
You're right.  I cleared that up with my friend who explained that the phone was not disconnected.  His number went to the new advisor who also showed up at his house (the office is just a few blocks away) to discuss.  It is definitely through Charles Schwab though.

This is all good information on the types of fees an investor can be charged.  I'll bring all of this up to him - thanks!

Dynasty

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Re: Door to Door Financial Planner...
« Reply #8 on: May 13, 2013, 02:30:16 PM »
I don't think these people are with Schwab.  I can't see a Schwab representative going door to door

Probably a new hire who just recently completed his training, and coming up on the end of his probationary period. Needed to have a certain number of new accounts created to stay on with Schwab.

Door to door is but just one of many ways to get new clients and accounts. 

Another Reader

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Re: Door to Door Financial Planner...
« Reply #9 on: May 13, 2013, 02:37:39 PM »
I don't think Schwab works that way, and they don't charge a $60 administrative fee for IRA's.  A broker is not the same as a financial planner.  Perhaps this is another company that keeps client accounts at Schwab.

Has the friend actually been to the office and seen the planner there?

MtnGal

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Re: Door to Door Financial Planner...
« Reply #10 on: May 13, 2013, 03:36:06 PM »
I agree that is odd. I've never been charged an annual fee on either my Roth IRA or my brokerage account at Schwab. Only fees have been transaction fees for individual stocks I've purchased. I own a few mutual funds through them that have low expense ratios from the select list (no transaction fee) and have no load fees. Next I'm looking at some Schwab index ETFs which can also be purchased for no fee.

That sounds fishy to me.

JamesAt15

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Re: Door to Door Financial Planner...
« Reply #11 on: May 13, 2013, 06:31:30 PM »
Schwab isn't charging the fee for the accounts. It's the financial planner charging that fee for their services, per account. At least that's how it sounds to me. It is correct that Schwab doesn't charge a fee for customer accounts.

I took a quick look and found this page about Schwab and how to register with them as an "Independent Registered Investment Advisor". I would guess that's what these door to door guys have done. They have their financial planning business which they have registered with Schwab. So they probably work with Schwab but not for Schwab. Make of that what you will.

Just because they are going door to door doesn't mean they're out to screw you over, but you should have the same amount of caution you would have with anyone who approaches you wanting to be your financial planner. If these guys opened Schwab accounts for your friend, I would advise your friend to make sure they can log in to the Schwab website, change their password, and call Schwab and check with them what, if any, authority the financial planner has to access those accounts, enter trades, etc. Personally, I would want a financial planner to have no authority to do anything but advise, and I would have to make any purchases, trades, etc. myself.