Author Topic: PFA went ape-shit when I told him about index investing  (Read 19913 times)

Tim

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PFA went ape-shit when I told him about index investing
« on: February 21, 2015, 10:56:27 AM »
Followup to this post: http://forum.mrmoneymustache.com/investor-alley/index-investing-in-canada-switching-over-current-investments/

The plan was to switch my mutual funds to index funds. This would mean leaving my personal finance adviser and going self-directed with TD. I expected resistance but this was crazy. He told me, in no uncertain terms, that I would lose my money. He buried me with examples of "great" mutual funds. He told me that although market theory states that everyone has access to the same information at the same time, that's not true with the managers he invests with. They have inside knowledge. He even compared me, with my plan of indexing, to another client of his who invested a bunch of money in silver, after hearing a hot tip from his brother. That guy was, of course, down 40%.

Although he vehemently disagreed with index investing, his only real criticism was that with index investing, I would assume 100% of the risk. I read this (http://canadiancouchpotato.com/2010/09/24/is-indexing-less-risky/) article from Canadian Couch Potato and if I understand it correctly, the risk comes from being exposed to the market continuously? Could use some help with that one.

I ended up second-guessing myself and didn't make any of the big changes I'd planned to. I did walk out thinking my PFA was a colossal asshole who I no longer want to deal with. He's a salesman, plain and simple.

So two questions: can someone clarify this risk he's talking about (kept saying something about alpha and beta), and how do I cut this guy off in the cleanest way possible?  Also, some PFA horror stories would be great, too... just to lighten my mood!
« Last Edit: February 21, 2015, 11:00:07 AM by Tim »

Al1961

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Re: PFA went ape-shit when I told him about index investing
« Reply #1 on: February 21, 2015, 11:25:46 AM »
You have no need to justify your planned investment changes to this buffoon.

In theory, he works for you. In reality, your money is probably working for him almost as much as it is working for you. His bluster and intimidation attempts really show that he knows this, and he is attempting to buffalo you into not believing it.

Just drop him. No need to be excessively rude about it.

Al

iluvzbeach

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Re: PFA went ape-shit when I told him about index investing
« Reply #2 on: February 21, 2015, 11:38:04 AM »
Tim, your post could have been written by me, nearly word for word, following a meeting I had with my FA last week. The alpha, beta, risk...the whole darn thing. They must have a script. An excellent show I watched that someone else posted about in the forums is called The Retirement Gamble by Frontline. Although your funds may not be retirement funds, the gist of the show is all about the fees. The thing I also keep in mind is that the risk either way is all mine because, regardless of where the funds are invested and through whom, if they take a nosedive I am the one who is without their nest egg. Best wishes in whatever you decide, I haven't pulled the trigger and moved my funds yet, but I will very shortly.

ChrisEE

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Re: PFA went ape-shit when I told him about index investing
« Reply #3 on: February 21, 2015, 11:50:08 AM »
You're situation is also very familiar to my own (and I would assume just about anyone else who has used an advisor pushing actively managed mutual funds.)

This recent post from the blog whitecoatinvestor.com will likely help you understand what your advisor is trying to BS you on and shows you the odds that you will beat an index fund with any actively managed fund. 

http://whitecoatinvestor.com/people-still-believe-in-active-management/

Your chances of getting alpha (beating the market) is about 50/50 for any given year, but virtually no one does it year after year and over time you pretty guarantee yourself that you will underperform the index.  If your advisor knows someone who can do this, ask him why with this incredible skill he is worried about you leaving.  He should have people lining up at his door! ;)


Retire-Canada

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Re: PFA went ape-shit when I told him about index investing
« Reply #4 on: February 21, 2015, 12:11:22 PM »
how do I cut this guy off in the cleanest way possible?

Email him and tell him to transfer the $$ to whichever accounts you've setup with TD. Have him courier you any forms you have to sign and you send them back that way.

If he balks just let him know that you aren't interested in discussing it.

If he keeps balking pay a lawyer $100 to call him for you. ;)

Forget about him and move on to a better life.

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icek05

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Re: PFA went ape-shit when I told him about index investing
« Reply #5 on: February 21, 2015, 12:20:11 PM »
Hi Tim,
First off, as others have said, if the PFA is a jerk you can easily find someone else to do his job since he works for you. 

Now to get to your actual questions: It sounds like the only "risk" he is talking about is the fact that it is possible you are as bad as investing as the guy who put all his money in silver which would end poorly for you.  It sounds like he is just using jargon to try and confuse you and make himself seem necessary. 

Beta is simply a measure of volatility.  It's a coefficient that shows how much an investment responds to market swings.  Beta of 1.0 means the investment moves with the market (aka a 10% market drop means your investment drops 10%).  Beta of 1.2 means 10% market drop leads to a 12% drop in your investment. 

Alpha is a measure of performance on a risk adjusted basis.  Typically riskier investments like stocks perform better than less risky investments like bonds or cash.  The promise of added returns are what makes you willing to take on the added risk of the stock market.  Alpha measures the returns based on the risk involved.  If you had an investment that was as risky as stocks but only gave returns like bonds it would have a very low alpha.  Conversely, if you had an investment that was as safe as a bond that gave very high returns it would have a high alpha.

Hope all of that made sense.  Anyways, all that to say is figure out an asset allocation you are comfortable with and stick with it.  Ditch him and don't look back.

Travis

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Re: PFA went ape-shit when I told him about index investing
« Reply #6 on: February 21, 2015, 12:21:54 PM »
Quote
He told me that although market theory states that everyone has access to the same information at the same time, that's not true with the managers he invests with. They have inside knowledge.

He's full of shit.  If his market knowledge is so special, why is he still making a living trying to squeeze you for fees?

MDM

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Re: PFA went ape-shit when I told him about index investing
« Reply #7 on: February 21, 2015, 12:25:23 PM »
Although he vehemently disagreed with index investing, his only real criticism was that with index investing, I would assume 100% of the risk.
Compared with how much risk investing in what he recommends?

Quote
I read this (http://canadiancouchpotato.com/2010/09/24/is-indexing-less-risky/) article from Canadian Couch Potato and if I understand it correctly, the risk comes from being exposed to the market continuously? Could use some help with that one.
What help do you need?  Seems you already understand that the only way to get average market returns is to accept the fact that, over short terms, your investment value can decrease.

Quote
I ended up second-guessing myself and didn't make any of the big changes I'd planned to. I did walk out thinking my PFA was a colossal asshole who I no longer want to deal with. He's a salesman, plain and simple.

So two questions: can someone clarify this risk he's talking about (kept saying something about alpha and beta), and how do I cut this guy off in the cleanest way possible?  Also, some PFA horror stories would be great, too... just to lighten my mood!

Can't clarify something that isn't clarifiable.  In other words, this guy was BS'ing you.  Cleanest way for you to proceed has already been described:


If you don't want to talk to this guy, there's no need to do so ever again. Open an account at any other institution and do an in-kind transfer from your current account. Your new institution will handle talking to the old one for you (or more likely, writing a letter), and you don't ever need to deal with your former adviser again.

In Canada, the former institution is likely to charge a transfer-out fee on the order of $50-200. If you are transferring more than $25,000, the new institution will likely cover this fee.

Cwadda

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Re: PFA went ape-shit when I told him about index investing
« Reply #8 on: February 21, 2015, 12:33:21 PM »
Of course he's going to discourage you from index investing. The fees they charge is how these guys make money.

Watch this if you want to know the truth about "managers inside information".
http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

Quote
So two questions: can someone clarify this risk he's talking about (kept saying something about alpha and beta), and how do I cut this guy off in the cleanest way possible?  Also, some PFA horror stories would be great, too... just to lighten my mood!
I pulled my money from my PFA back when I just opened a Roth IRA. He didn't even call me or anything. Then I pulled my dad's 401(k). :)
Just tell him you're moving your money and there's nothing that will change your decision.

James

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Re: PFA went ape-shit when I told him about index investing
« Reply #9 on: February 21, 2015, 12:42:41 PM »
First, you are absolutely correct, you assume 100% of the risk. But what is also obvious is that you currently have 100% of the risk. The money is 100% your money, so who else is at risk? If he loses money is he going to replace it with his own? Of course not. So the question isn't who is at risk, the question is what is the best investment to provide returns you need with the least risk. The consensus is that index funds do that.

As others have said, don't talk to him, not a single word. There is nothing you can't do without him, simply transfer your money to new accounts to make sure his access is ended and you are in complete control. Let him know by letter that you have severed your relationship with him and thank him for his time. I was very polite to the financial planner who sold me a ton of shit over the years, because what do I gain by saying anything aggressive? I did point out the lost investment returns I experienced due to having my money in his care, but politely, and it really didn't help me feel better so I would skip that. You simply have no obligation to this guy to explain why, and he already knows why. He knows he can't outperform the market at the same risk, and his fees eat performance, so he can't compete. All he can do is attempt to confuse you and convince you of some "greater risk" out there, hoping fear will keep you generating his income. Don't buy it, do your own research, and move you money into low fee index funds.

I used Vanguard, and I simply called them up, told them how much I had and in what kind of accounts, and they walked me through the whole process. They will let you know if you need to do anything else, and you can just guide them in the index funds you wish to use. Any paperwork or other things you need they will explain and help you complete. Lots of posts here about allocating your money, I do all stocks, but adding 20% of bonds is fine if you rebalance on a set schedule. Or use Betterment and pay them a tiny fee to take care of all that. It's not worth it for me, but it's a hell of a lot better than your current manager.

Dodge

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Re: PFA went ape-shit when I told him about index investing
« Reply #10 on: February 21, 2015, 12:53:00 PM »
Echoing the above.  Have Vanguard move the money for you.  No reason to speak to a salesman.

If you still want someone to "manage" the money for you, just get a Vanguard Lifestrategy fund:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

10YearGoal

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Re: PFA went ape-shit when I told him about index investing
« Reply #11 on: February 21, 2015, 12:58:48 PM »
Around 10 years ago, before I knew what I know now about how I would like to invest, I was meeting with my financial advisor to invest into my 403b (duh, didn't even need to have an advisor, could've just picked a company, double charges) and at the time had CC debt.  When I asked him whether it made sense to pay off debt, he looked at me like I was dumb and said "no, the debt will always be there, you'll have plenty of time to pay it off.  You need to invest as much as you can to earn interest from your investments". Embarrassed to say it took several more years to pull my money and go to VG, but I did what other posters said, just called American Funds and had them drop it into VG without talking to my guy.  Of course  he had already made his money by putting me into loaded fund choices and made more when I sold. It's still worth it financially and psychologically.

PS It felt GREAT to make the switch, but unfortunately they don't make it easy, free yourself!!!

sol

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Re: PFA went ape-shit when I told him about index investing
« Reply #12 on: February 21, 2015, 01:00:04 PM »
Man, I would have had trouble not punching that dude.  There are so many things wrong with this scenario I'm not even sure where to begin.

Dump him.  Then send a nice letter to his manager explaining that you're transferring your funds because dude was a total asshole who berated a customer and made you feel like shit. 


GGNoob

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Re: PFA went ape-shit when I told him about index investing
« Reply #13 on: February 21, 2015, 01:03:05 PM »
My younger brother (almost 21 now) got a large inheritance when he was 10. My mom found a financial advisor and let him invest all of the money. About 6 months ago my brother started reading up and learned about index investing and how it usually beats active mutual funds in the long term. Once he started looking into everything, he realized his money was invested in funds charging 2-3% in fees! When my brother went to have a talk with his financial advisor to get all the information about his investments, he brought up indexing and his FA seemed to go kinda crazy as well. Like you, the FA talked about how he'll lose money and he can't manage that kind of money on  his own and how his funds are so much better than index funds. The worst part is that my mom doesn't know anything and trusts the FA more than my brother!

But my brother now has all of his taxable money moved into Vanguard and is moving out the maximum possible from his annuity each year (to avoid large surrender fees) to a new annuity at Vanguard.

At least my mom went to a financial advisor and had the money invested. The money doubled in the 10 years before he started taking control of it on his own. My moms "investments" have always been CDs at the bank, so it wouldn't have surprised me if she would have just done that with his money!

KD

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Re: PFA went ape-shit when I told him about index investing
« Reply #14 on: February 21, 2015, 01:04:12 PM »
Have the receiver of your funds make the transfers as has already been described to you.

IF, he works for a larger firm, other than just himself?  I would certainly have an exit interview AFTER I had moved my money explaining to them that you might have been persuaded if he hadn't acted the fool/tyrant/ape-y!

Berating customers is a no-no. 

James

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Re: PFA went ape-shit when I told him about index investing
« Reply #15 on: February 21, 2015, 01:08:26 PM »
Oh, forgot to share my horror story lol

My PFA came and talked to my anesthesia class as we were graduating. He was working with a lot of the anesthesia providers around the state, and I figured if they worked with him it couldn't be bad, and who else would handle my finances? So I purchased the works, whole life, disability insurance, and let him set up all my retirement accounts through him. Everything seemed to straightforward and great every time I talked to him. I thought I had the best designed and great plan, it wasn't costing me much and was so "simple". I was SET.

And then I started learning things over the next 8 years. I realized he had to be making money somewhere, but I could see where. So I started to find out how they made their money. I found out where the fees were coming from that I didn't see and he didn't explain up front. I realized how much the whole life cost me up front, and how little I had to show for it. I realized even all the additional money I put in was slow to grow due to all the fees, both as the money went in and as fees each year. I realized his choices for accounts were just picking from past performance, he would go with the top performing funds in the last 3 years and rebalance that way. So every year we rebalanced into fund that did the best in the past three years, but that plan was underperforming the market in general, and the plans all had high fees that cut deeply into my returns.

So at our next meeting I explained how I wasn't happy with returns. I showed how I added up every dime I had added to the accounts over the years, and compared that to the current total value. I told him I didn't care how the fees and expenses took place, in the end it was eating much of my returns. I would have done better in the index funds, and without the worry about picking new funds each year and having a very complex balancing.

He did the same as your PFA did to you. He explained away all of my concerns in very slick and professional words. He pulled number out, showed me charts and grafts, talked about where his fees came from and how little they were, talked about risk and future returns, talked about how well other clients had done and how they are about to retire with fortunes, etc, etc. I got confused and started to doubt myself, leaving most of my funds with him for another year and a half. I was busy, and I just didn't want to jump in and risk everything. But then over time I realized it didn't matter what he all said. I was right, he wasn't adding value, he was dragging down the performance of my investments. Period. Why talk to the guy, he was making money and clearly would say anything to keep my business. So I called Vanguard and started the process. I was so relieved to get my money away from my old PFA, and the returns have been great and the funds are easy to control. I now understand my plan, why I do what I do, and the risk doesn't concern me at all. I spent a few years wondering about it before making the jump, and regret that, I should have jumped as soon as I realized I was right, not letting him convince me to keep going for so long.

Finally, let me be clear, he wasn't a "bad" person. If he hadn't come and talked to me I may not have saved as much as I had. We lived pretty frugally and invested a lot of money during my time with him. Sure, we wasted a lot on fees and expenses, but we also set aside a large amount that I otherwise might not have. If I had never switched to Vanguard and got out from him I would have retired just fine. I would have saved up enough and might never have known the amount of money it cost me to be with him. Sure I might have ended up working 5 years longer to get where I wanted, or have 20% less in retirement funds if I retired at the same time, but it would have been fine. I was much better off than all the idiots not saving or setting as much money aside. So I appreciate what they guy did for me. But it wasn't worth those fees once I opened my eyes, so I moved my money. It isn't worth having a grudge against these guys, unless they are really crooks, just realize what they cost and then do the logical thing by managing your own money in a few low fee index funds. Your future self will thank you.

Travis

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Re: PFA went ape-shit when I told him about index investing
« Reply #16 on: February 21, 2015, 01:23:19 PM »
Advisers hate index funds because they require almost no supervision which is their entire purpose in life.  The "risk" is always 100% yours.  It's not your adviser's money - it's yours.  From a market perspective, index funds are less risky than a collection of individual stocks or even many mutual funds because they're looking at the entire market so the pain and gain is spread out.  "The risk is 100% yours" is his way of saying "I'll no longer get a piece of your pie."

tomsang

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Re: PFA went ape-shit when I told him about index investing
« Reply #17 on: February 21, 2015, 01:26:24 PM »
He told me that although market theory states that everyone has access to the same information at the same time, that's not true with the managers he invests with. They have inside knowledge.

I would think that it is your duty to inform the SEC that this firm is trading on insider information. :)

1967mama

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Re: PFA went ape-shit when I told him about index investing
« Reply #18 on: February 21, 2015, 01:35:13 PM »
Great thread! We are in exactly the same spot right now, with all our investments with an advisor. UGH! I started talking to my husband about it last year at this time, and he mentioned index funds to the advisor, and of course, she said all the same things that are posted here.

This year, we have more knowledge, and I will be sharing this thread with my husband this evening. Thanks again!

daverobev

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Re: PFA went ape-shit when I told him about index investing
« Reply #19 on: February 21, 2015, 01:40:49 PM »
You know what the rage/fear is from the PFA, right? That you are giving them a pay cut. That they are, in fact, almost entirely superfluous, a mere leech.

Of course, so are many positions, it's just that financial advisors are more directly tied.

Arguably, shareholders are leeches, too ;)

PharmaStache

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Re: PFA went ape-shit when I told him about index investing
« Reply #20 on: February 21, 2015, 03:41:25 PM »
Going through the same thing right now!  I should post the email my former FA sent to me, LOL (she basically said I wasn't smart enough to do index investing).

You'll feel much better once you leave them.  Trust me on this one!

Frankies Girl

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Re: PFA went ape-shit when I told him about index investing
« Reply #21 on: February 21, 2015, 04:04:38 PM »
I posted this somewhere on this forum before, but when I told one adviser that no, I wasn't giving him any more funds and actually would be taking everything out and self-managing (didn't even mention index funds) he acted like I was a helpless little female and told me that it was a terrible idea "it would be the same as me being a doctor, and you telling me that you want to operate on yourself."

Gah - so annoying. I did report him to the main financial group, mentioning that he was a very hard seller and I felt talked down to.


1967mama

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Re: PFA went ape-shit when I told him about index investing
« Reply #22 on: February 21, 2015, 04:09:29 PM »
Going through the same thing right now!  I should post the email my former FA sent to me, LOL (she basically said I wasn't smart enough to do index investing).


Post it!

LordSquidworth

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Re: PFA went ape-shit when I told him about index investing
« Reply #23 on: February 21, 2015, 04:22:55 PM »
Followup to this post: http://forum.mrmoneymustache.com/investor-alley/index-investing-in-canada-switching-over-current-investments/

The plan was to switch my mutual funds to index funds. This would mean leaving my personal finance adviser and going self-directed with TD. I expected resistance but this was crazy. He told me, in no uncertain terms, that I would lose my money. (1)He buried me with examples of "great" mutual funds. He told me that although market theory states that everyone has access to the same information at the same time, that's not true with the managers he invests with. They have inside knowledge. He even compared me, with my plan of indexing, to another client of his who invested a bunch of money in silver, after hearing a hot tip from his brother. That guy was, of course, down 40%.

Although he vehemently disagreed with index investing, his only real criticism was that with index investing, (2)I would assume 100% of the risk. I read this (http://canadiancouchpotato.com/2010/09/24/is-indexing-less-risky/) article from Canadian Couch Potato and if I understand it correctly, the risk comes from being exposed to the market continuously? Could use some help with that one.

I ended up second-guessing myself and didn't make any of the big changes I'd planned to. I did walk out thinking my PFA was a colossal asshole who I no longer want to deal with. He's a salesman, plain and simple.

So two questions: can someone clarify this risk he's talking about ((3)kept saying something about alpha and beta), and how do I cut this guy off in the cleanest way possible?  Also, some PFA horror stories would be great, too... just to lighten my mood!

As an advisor... The dudes just wriggling in his seat.

(1) Investing naturally has no certain terms unless explicitly outlined in a contract. One of the first disclosures about mutual funds is that past performance is no guarantee on future performance. Indexing has no comparison to a gold/silver bug. Those are people operating off emotion and don't care for past performance as much as simply have their commodities. Indexing and gold/silver bug are not comparable.

and his fund managers don't have any inside information. It's likely his fund managers don't even know his name.

(2) You have 100% of the risk. Your investment goes bust you lose 100%, he/his firm loses nothing.

(3) I wouldn't be surprised if he doesn't know anymore than the definition from investopedia. If you want to index, they're not of huge concern for you. From my experience with the industry, there is an extremely low bar to get into it, and even then the educational levels are minimal. A majority of the people in my office I wouldn't trust my money with.

I consider one of the biggest reasons to have an advisor to be to control the emotional aspect of investing. If you can manage that yourself, go for it.

Easiest way is to just fill out the transfer forms with the new place and block his number.

Advisers hate index funds because they require almost no supervision which is their entire purpose in life.  The "risk" is always 100% yours.  It's not your adviser's money - it's yours.  From a market perspective, index funds are less risky than a collection of individual stocks or even many mutual funds because they're looking at the entire market so the pain and gain is spread out.  "The risk is 100% yours" is his way of saying "I'll no longer get a piece of your pie."

A lot of advisors give little real attention to most peoples portfolios, they might as well be indexes. Saying the risk is 100% yours is simply something to get you to change your mind. You have 100% of the risk. He's not liable for anything if the investment goes to zero, you are for 100% of it.


sandandsun

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Re: PFA went ape-shit when I told him about index investing
« Reply #24 on: February 21, 2015, 04:40:48 PM »
that's funny shit- "the risk is 100% yours"... of course it is!  that's why you want to tip the odds in your favor by not having him skim off the top of every dollar you invest  :)
your new company can contact him and initiate the transfer... but personally id enjoy telling him myself...

Indexer

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Re: PFA went ape-shit when I told him about index investing
« Reply #25 on: February 21, 2015, 05:06:30 PM »
Followup to this post: http://forum.mrmoneymustache.com/investor-alley/index-investing-in-canada-switching-over-current-investments/

The plan was to switch my mutual funds to index funds. This would mean leaving my personal finance adviser and going self-directed with TD. I expected resistance but this was crazy. He told me, in no uncertain terms, that I would lose my money. He buried me with examples of "great" mutual funds. He told me that although market theory states that everyone has access to the same information at the same time, that's not true with the managers he invests with. They have inside knowledge. He even compared me, with my plan of indexing, to another client of his who invested a bunch of money in silver, after hearing a hot tip from his brother. That guy was, of course, down 40%.

Although he vehemently disagreed with index investing, his only real criticism was that with index investing, I would assume 100% of the risk. I read this (http://canadiancouchpotato.com/2010/09/24/is-indexing-less-risky/) article from Canadian Couch Potato and if I understand it correctly, the risk comes from being exposed to the market continuously? Could use some help with that one.

I ended up second-guessing myself and didn't make any of the big changes I'd planned to. I did walk out thinking my PFA was a colossal asshole who I no longer want to deal with. He's a salesman, plain and simple.

So two questions: can someone clarify this risk he's talking about (kept saying something about alpha and beta), and how do I cut this guy off in the cleanest way possible?  Also, some PFA horror stories would be great, too... just to lighten my mood!

Tim I see a lot of good information has already been posted, but I just wanted to hit a couple points.

Insider information:  No they don't.  Recently a big hedge fund got fined because one analyst had insider information, they didn't even trade on it, but the hedge fund manager 'failed' to supervise his analysts.  I can guarantee NO one at the mutual fund company told your advisor they had inside information.  He is full of BS, and looking for a FINRA complaint.

You are 100% at risk.  People love to say this about stock index funds.  You see some people believe that active stock managers are magical, and right before a crash they will shift the portfolio to cash.  Even advisors spout this nonsense.  If a big stock active fund is at the edge of a crash 1. they don't know it, 2. they are too big to shift to cash(imagine the titanic trying to turn in the same amount of space as a Prius needs to turn) 3. and this is the biggy... they couldn't move to cash if they wanted to!  A stock fund has in its prospectus that it is a stock fund.  The manager can't go to cash, it would break the contract with the investors.  If anything in a crash a stock manager will be looking for deals.  In conclusion, the active fund is going to ride the crash just like the index.  Actually because of fees most active funds will likely do worse than the index in a crash.

I think this is obvious, but going 100% to silver, and going 100% to index funds are different things.  With silver there is a ton of risk, and the expected return = inflation(its a commodity).  With the index you are super diversified so there is risk of fluctuation, but you can control that with your asset allocation, and the return is expected growth + dividends/income(higher than inflation).

"kept saying something about alpha and beta"   Beta is just a measure of volatility of your portfolio/fund compared to the benchmark.  If your beta is 0.8 and the benchmark is up 10% you should be up 8%.  Thats all that is.  With an index fund the Beta is normally 1.0 because the fund = benchmark.  Alpha in short is how much better/worse your portfolio did than the portfolio's target benchmark adjusted for risk(beta).  After fees I highly doubt your PFA is achieving any positive alpha. 

PharmaStache

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Re: PFA went ape-shit when I told him about index investing
« Reply #26 on: February 21, 2015, 05:44:01 PM »
Going through the same thing right now!  I should post the email my former FA sent to me, LOL (she basically said I wasn't smart enough to do index investing).


Post it!

I might after 100% of my money is transferred!

I posted this somewhere on this forum before, but when I told one adviser that no, I wasn't giving him any more funds and actually would be taking everything out and self-managing (didn't even mention index funds) he acted like I was a helpless little female and told me that it was a terrible idea "it would be the same as me being a doctor, and you telling me that you want to operate on yourself."

Gah - so annoying. I did report him to the main financial group, mentioning that he was a very hard seller and I felt talked down to.

Must be in the script, as this is what I was told too!
« Last Edit: February 21, 2015, 05:45:53 PM by Nuke »

Tim

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Re: PFA went ape-shit when I told him about index investing
« Reply #27 on: February 21, 2015, 06:21:22 PM »
Thanks everyone... Nice to know that my gut was right. This is such a great community.

Quote from: indexer
I think this is obvious, but going 100% to silver, and going 100% to index funds are different things.  With silver there is a ton of risk, and the expected return = inflation(its a commodity).  With the index you are super diversified so there is risk of fluctuation, but you can control that with your asset allocation, and the return is expected growth + dividends/income(higher than inflation).

I thought at the time this was a pretty strange comparison. I think he was trying to show just how awful this idea was.

If you don't want to talk to this guy, there's no need to do so ever again. Open an account at any other institution and do an in-kind transfer from your current account. Your new institution will handle talking to the old one for you (or more likely, writing a letter), and you don't ever need to deal with your former adviser again.

I think I'll go this route. We've been buddy-buddy in the past but that was obviously just part of the job. There's no point in subjecting myself to the same crap again. If he does pursue, I can remind him that we live in a relatively small town and a single complaint will go a long way.

Frankies Girl

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Re: PFA went ape-shit when I told him about index investing
« Reply #28 on: February 21, 2015, 06:49:55 PM »
http://jlcollinsnh.com/2012/06/06/why-i-dont-like-investment-advisors/
Forgot to put this in here... great read (Jim's whole stock series is solid gold, so do yourself a favor and read the whole thing)

Adventine

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Re: PFA went ape-shit when I told him about index investing
« Reply #29 on: February 21, 2015, 08:54:33 PM »
This thread reminds me of something I've seen a few times on the Boglehead forums:

"It is very hard to get a man to understand something, when his salary depends on his not understanding it."

Applies to pretty much all financial advisers and high-fee fund managers.

Indexer

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Re: PFA went ape-shit when I told him about index investing
« Reply #30 on: February 21, 2015, 09:46:24 PM »
This thread reminds me of something I've seen a few times on the Boglehead forums:

"It is very hard to get a man to understand something, when his salary depends on his not understanding it."

Applies to pretty much all financial advisers and high-fee fund managers.

I like that same quote!   On the note of financial advisors most are glorified car salesmen who managed to pass a securities exam, but there are some (low)fee only planners and hourly planners that use low cost index funds so I wouldn't trash all of them.  Mustachians probably don't need them, but they are good for the people who aren't willing to put in the time.

FI40

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Re: PFA went ape-shit when I told him about index investing
« Reply #31 on: February 21, 2015, 10:30:55 PM »
Certainly would echo the sentiment expressed here (fire this idiot yesterday), but I'd also recommend you check out some investing books just so you'll be more confident about what you're doing and more aware.

Enjoy managing your own money! I think it's great. Insourcing FTW.

Heckler

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Re: PFA went ape-shit when I told him about index investing
« Reply #32 on: February 22, 2015, 08:28:29 AM »
how do I cut this guy off in the cleanest way possible?

Email him and tell him to transfer the $$ to whichever accounts you've setup with TD. Have him courier you any forms you have to sign and you send them back that way.




Don't email him to transfer your funds.  Your new self directed institute has the forms you need to fill in to move your funds there.  You fill them in, give them to the new institute, and they take care of transferring your funds from buddy.  They may even cover fees

Keep in mind, transferring "in kind" means you still own the high fee mutual funds, whereas if you transfer in cash, they will be sold at the old institute and moved as cash, ready for you to buy index funds at the new institute.

Just be aware of fees you'll incur - BEL, back end load is the worst one, as a percentage of what you're selling.  The way to get out of BEL could be to transfer a percentage to FEL every year, but you buddy would have to do that for you.

MarciaB

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Re: PFA went ape-shit when I told him about index investing
« Reply #33 on: February 22, 2015, 01:31:40 PM »
Here's another fun read from Dr Doom (an MMM forum poster) from his wonderfully readable blog:

http://livingafi.com/2015/01/27/a-date-with-fidelity/

Holyoak

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Re: PFA went ape-shit when I told him about index investing
« Reply #34 on: February 22, 2015, 01:51:03 PM »
What a D-bag, who has nothing better but fear and rage from a dying position...  Yeah, I bet he has 'inside' knowledge...  OK commando.  PFA's IMO, and experience, to include "Wealth Managers", are nothing but slimy used car salesman with nicer business cards.  My own experience; I tried USAA WM services, and was shocked at the fees...  Cost would have been about $25k a year, by virtue of the whole nut getting hit with a percentage...  Umm, I only planned/do live on less tan $20K a year.  What a joke.

My silence (Hell NO) after got me a super nice coffee table book about the US army this Christmas...  Sorry, shiny trinkets won't do it sister...  Get free from these leaches, steer your own ship, and feel so good about the decision.  Good luck!

Maxman

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Re: PFA went ape-shit when I told him about index investing
« Reply #35 on: February 22, 2015, 08:24:25 PM »
I use a financial advisor. He uses a portfolio with all index funds. He charges me .3% per year and I feel this is fair. Lately though I been thinking of just doing it myself at Vanguard and saving the fee. He calls us every qtr. and goes over our budget and quality of life in retirement. We don't talk much about investments as we both agree that a passive portfolio is the way to go. So for a couple of hours on the phone a year we fork over about 3k in management fees.

TomTX

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Re: PFA went ape-shit when I told him about index investing
« Reply #36 on: February 23, 2015, 06:03:07 AM »
that's funny shit- "the risk is 100% yours"... of course it is!  that's why you want to tip the odds in your favor by not having him skim off the top of every dollar you invest  :)
your new company can contact him and initiate the transfer... but personally id enjoy telling him myself...

Actually, the FA is technically correct. When he is investing for you, he is "risking" his fees from your investments. So, you have 95-99% of the risk every year. The remaining 1-5% is guaranteed.

Guaranteed to be spent on the FA, that is.

Mr. Green

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Re: PFA went ape-shit when I told him about index investing
« Reply #37 on: February 23, 2015, 06:27:08 AM »
This guy is a shyster. You need to run away as fast as possible. He told you enough lies that I wouldn't be able to trust his judgement or character after a meeting like that. He clearly does not have your best interests in mind.

ShoulderThingThatGoesUp

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Re: PFA went ape-shit when I told him about index investing
« Reply #38 on: February 23, 2015, 07:11:24 AM »
When I transferred an account recently in the US, I just walked into Schwab with the statement from the source account and filled out some paperwork. They took care of the rest.

Jack

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Re: PFA went ape-shit when I told him about index investing
« Reply #39 on: February 23, 2015, 07:14:13 AM »
Although he vehemently disagreed with index investing, his only real criticism was that with index investing, I would assume 100% of the risk.

LOL, you assume 100% of the risk as opposed to what? Is your financial adviser insuring your portfolio against losses or something? I don't think so!

Your adviser is like a small animal that's just been caught by a predator -- he'll do or say anything to survive. However, he only deserves the same consideration from you that a hawk gives to a mouse: make the kill quick and clean.

aj_yooper

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Re: PFA went ape-shit when I told him about index investing
« Reply #40 on: February 23, 2015, 08:26:39 AM »
The FAs really howl and tantrum when you take away their toys.  Long ago when I moved money to Fidelity my broker called me up and offered discounts and what not.  He blamed me as I didn't ask for them.  They don't have an ethical profession as most operate without a fiduciary responsibility.  They are skilled salespeople.  My Morgan Stanley guy used to sell garage doors before he 'learned all about stocks'. 

Good advice to just have Vanguard or almost anybody cheap get the money for you.  No need to be coy.  Just get yourself free.

Cromacster

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Re: PFA went ape-shit when I told him about index investing
« Reply #41 on: February 23, 2015, 08:54:35 AM »
He told me that although market theory states that everyone has access to the same information at the same time, that's not true with the managers he invests with. They have inside knowledge.

I would think that it is your duty to inform the SEC that this firm is trading on insider information. :)

Not necessarily true.  The one type of information that I have heard about are economic/market studies done by Universities.  Several trading firms pay substantial $$$ to get the information 2 seconds sooner than the average Joe.  The reports are fed into their super duper algorithms and theoretically, can make trades before anyone else can.

The main example of this is the Consumer Confidence report, which is compiled by the University of Michigan and distributed by Thomson Reuters.  TR pays the University 1.2 million a year for the rights to distribute.  TR then in turn sells early access to those who want it.

« Last Edit: February 23, 2015, 08:56:24 AM by Cromacster »

FarmerPete

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Re: PFA went ape-shit when I told him about index investing
« Reply #42 on: February 23, 2015, 10:01:15 AM »
I'd claim that I felt threatened and then get a restraining order against the PFA.  I'd then ask the PFA's parent company to transfer all of the money into a swiss account setup under a corporate subsidiary I setup.  If they refused, I'd sue them for all of the fees they had harvested and lost income.  I'd claim that the PFA had been threatening physical harm to me if I didn't invest in the items he had selected.  I'd then settle out of court for 1.6 million dollars, paid out over 30 years.  Then I'd call J.D. Wentworth and get cash now.  I'd then invest the cash in Vanguard and FIRE.

Or, you could just call up Vanguard and have them take care of all of the work.  Sure, you will lose out on that fat 1.6 million dollar settlement, but you wont be a total sleezeball.


UnleashHell

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Re: PFA went ape-shit when I told him about index investing
« Reply #43 on: February 23, 2015, 10:05:46 AM »
Quote
He told me that although market theory states that everyone has access to the same information at the same time, that's not true with the managers he invests with. They have inside knowledge.

He's full of shit.  If his market knowledge is so special, why is he still making a living trying to squeeze you for fees?

just ask him if he's willing to put that in writing.

Bicycle_B

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Re: PFA went ape-shit when I told him about index investing
« Reply #44 on: February 23, 2015, 02:11:08 PM »
You know what the rage/fear is from the PFA, right? That you are giving them a pay cut. That they are, in fact, almost entirely superfluous, a mere leech.

Of course, so are many positions, it's just that financial advisors are more directly tied.

Arguably, shareholders are leeches, too ;)

I considered going into the PFA business once.  I chose not to because I realized my paycheck came out of the investor's pocket. 

If your Personal Finance Advisor is nice to you while taking fees that you now know how to avoid, he is robbing you nicely.  If he is being rude to you, he is robbing you rudely.

PEIslander

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Re: PFA went ape-shit when I told him about index investing
« Reply #45 on: February 23, 2015, 03:15:13 PM »
I started buying mutual funds with an advisor in around 1989. It was the same guy who was my father-in-law's advisor. In those days most mutual fund sales people's backgrounds were in insurance sales - as was our guy. He was very slick. He made no effort to simplify anything -- instead he made himself indispensable by being a fatherly guy who'd "take care of you". He liked to make it look like he was an insider with close ties to all the fund managers. He made sure you knew he met legendary fund managers like Templeton, Dreyfus, and Peter Lynch. The fund companies would have junket trips for the sales people where they'd meet the managers. Eventually I made the connection that my fees were paying for those junket trips. It was a gradual awakening that he worked for me and that I was not indebted to him even though he took every opportunity to tell me how lucky I was that he took me on.

After several years with that advisor, an old friend became a stock broker and I figured I might as well transfer my investments over to my friend's brokerage since if someone was going to make trailing fees off my funds it might as well be my friend. It was a difficult call to the old advisor to let him know I was moving to the brokerage. He basically told me I was being ungrateful after all he had done for me and that I would have had nothing without his taking me on as a client. It was uncomfortable but by that point I understood that he actually hadn't done all that much for me --- and for what he did do he was well compensated for by the fees/loads the funds were charging me. When I told my father-in-law that I had switched advisors my father-in-law was really mad with me. He was still with the first advisor & believed all the lines about him doing us both a favour etc.  Eventually - several years later - my father-in-law switched advisors too but only because he was moving to another Province and felt he needed an advisor close to home.  I think my FIL still feels our switching was disloyal.  By the way switching to the full-service brokerage was a okay move. They treated me more professionally and never resort to the mind games. I still have some investments with them + a questrade account for some more self-directed fun.

Wupper

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Re: PFA went ape-shit when I told him about index investing
« Reply #46 on: February 23, 2015, 03:23:52 PM »
OP- good thing you got away from this guy.

And by the way, love the thread title.

Travis

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Re: PFA went ape-shit when I told him about index investing
« Reply #47 on: February 23, 2015, 06:13:04 PM »
Quote
I think my FIL still feels our switching was disloyal.

If I trust you with all of my money to risk on the market and pay you to do so, the loyalty should be going in my direction.  I'm trying to imagine being paid to do any other job, giving attitude and poor or reckless advice and performance in return, and wondering why I'm being fired.

Left

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Re: PFA went ape-shit when I told him about index investing
« Reply #48 on: February 23, 2015, 06:28:50 PM »
heard the news about obama wanting to lower the fees? make the advisors actually look out for their clients? he invited bogle to talk about it
http://www.mcclatchydc.com/2015/02/23/257449/obama-to-announce-retirement-account.html

LordSquidworth

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Re: PFA went ape-shit when I told him about index investing
« Reply #49 on: February 23, 2015, 07:41:48 PM »
heard the news about obama wanting to lower the fees? make the advisors actually look out for their clients? he invited bogle to talk about it
http://www.mcclatchydc.com/2015/02/23/257449/obama-to-announce-retirement-account.html

Feel good politics.

Nothings going to change.

 

Wow, a phone plan for fifteen bucks!