Last month I was informed by my Aunt that I was added as an executor of my grandparents estate. A few weeks ago while visiting my grandparents, they showed me their retirement account information. Upon reviewing their information, I quickly became very depressed. My grandparents have been retired over 20 years now, but their broker has had them in various 'conservative' mutual funds.
I started looking up these funds and found they all have an average of 5% sales load (eg: taken off the top of the purchase) and an average of 1-2% annually in fees/expenses. To make matters worse, the funds they were put into actually managed to out 'under' perform the market. In 2009 when everything bottomed out, the S&P 500 was down 45%, yet this 'growth and income' fund, went down over 65%.
Needless to say, I fired off an email to my Aunt (the other Executor) and let her know where they stand and how important it is for us to get them into a no fee, low expense fund. A week later my grandparents scheduled an appointment to see their broker (from their credit union). I had told them that I took last week off and was available any time to meet with their broker.
On Thursday we all met at their credit union to meet with their broker. She was nice in a way a used car salesman is nice. She wore a fancy dress and told us how she drives all over Southern California to visit her clients. She looked over all the accounts and asked us what we wanted to do. I told them we wanted to move out of their current high risk, high feed funds. She said that Putnam (the family of funds they sell) had a lot of options. I interrupted her and asked if there were any without loads and high fees.
She informed us that the load will be waived since it was already paid on previous funds (I actually question if this is the case) and to not worry. She then provided a few funds. Loads aside, I asked about the expense/fees associated and she said, "wow, you're really concerned about fees aren't you?" and then she pointed out the 1.13% expense ratio (which if you research on your own is 1.05% and .25%). She said if we wanted to go with other options we'd need to close our account and transfer to another brokerage. At this point I mentally checked out.
She went on to outline a plan of how she would like to move us into a mix of bonds and conservative stocks. She went on to say that the bonds she is putting us into we would want to move out of in the next year as interest rates start coming up. At this point I started getting really angry as she was already planning more visits to re-balance their portfolio again.
For those unaware, banking financial consultants like her work on commission. Her only interest she really has is selling funds with high loads so she can pocket some money. They don't care, but the fees associated with this fund (PACAX in this case), costs $1800 per 10k invested over 10 years. 18% of your principal is gone in 10 years, on top of the initial 5.75% off the top on your initial purchase (and they said Madoff was a criminal).
The damage? Maybe Millions. As best I can tell is they had 200-300k in the 80ies. The opportunity costs alone on the front load is approaching 100k today. Luckily, my grandparents have a pension + social security, so they haven't needed to tap into their retirement. I'm currently working out a strategy for them to roll over their brokerage accounts with Vanguard, likely into VTINX (http://finance.yahoo.com/q/pr?s=VTINX+Profile).
The moral of the story? Don't trust people who work on commission, and research all recommendations you get...there are a lot of shady advisers out there.
-rob
I started looking up these funds and found they all have an average of 5% sales load (eg: taken off the top of the purchase) and an average of 1-2% annually in fees/expenses. To make matters worse, the funds they were put into actually managed to out 'under' perform the market. In 2009 when everything bottomed out, the S&P 500 was down 45%, yet this 'growth and income' fund, went down over 65%.
Needless to say, I fired off an email to my Aunt (the other Executor) and let her know where they stand and how important it is for us to get them into a no fee, low expense fund. A week later my grandparents scheduled an appointment to see their broker (from their credit union). I had told them that I took last week off and was available any time to meet with their broker.
On Thursday we all met at their credit union to meet with their broker. She was nice in a way a used car salesman is nice. She wore a fancy dress and told us how she drives all over Southern California to visit her clients. She looked over all the accounts and asked us what we wanted to do. I told them we wanted to move out of their current high risk, high feed funds. She said that Putnam (the family of funds they sell) had a lot of options. I interrupted her and asked if there were any without loads and high fees.
She informed us that the load will be waived since it was already paid on previous funds (I actually question if this is the case) and to not worry. She then provided a few funds. Loads aside, I asked about the expense/fees associated and she said, "wow, you're really concerned about fees aren't you?" and then she pointed out the 1.13% expense ratio (which if you research on your own is 1.05% and .25%). She said if we wanted to go with other options we'd need to close our account and transfer to another brokerage. At this point I mentally checked out.
She went on to outline a plan of how she would like to move us into a mix of bonds and conservative stocks. She went on to say that the bonds she is putting us into we would want to move out of in the next year as interest rates start coming up. At this point I started getting really angry as she was already planning more visits to re-balance their portfolio again.
For those unaware, banking financial consultants like her work on commission. Her only interest she really has is selling funds with high loads so she can pocket some money. They don't care, but the fees associated with this fund (PACAX in this case), costs $1800 per 10k invested over 10 years. 18% of your principal is gone in 10 years, on top of the initial 5.75% off the top on your initial purchase (and they said Madoff was a criminal).
The damage? Maybe Millions. As best I can tell is they had 200-300k in the 80ies. The opportunity costs alone on the front load is approaching 100k today. Luckily, my grandparents have a pension + social security, so they haven't needed to tap into their retirement. I'm currently working out a strategy for them to roll over their brokerage accounts with Vanguard, likely into VTINX (http://finance.yahoo.com/q/pr?s=VTINX+Profile).
The moral of the story? Don't trust people who work on commission, and research all recommendations you get...there are a lot of shady advisers out there.
-rob
