OT: Major changes coming Wed. for retirement accounts
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In many cases, investment managers already have an Investment Policy Statement that lays out their asset management fees and it is generally tiered based on the amount of assets. Not apples to apples, but Vanguard does the exact same thing with INV vs. ADM.
So, to answer your question, no. If there is going to be more work, most will require more pay or simply move upstream. It isn't by coincidence that many places who used to focus on $100,000 plus changed to $500,000 plus and are now $1,000,000 plus.
And so the little guy will get screwed further. While there are certainly bad apples out there in the financial world, this pendulum will be swung so far that the real reason for imposing it will be lost on most people. Congrats if you have a $million or more to invest. Good luck to the average investor; you're going to need it.
I almost shouldn't say this but I would venture a guess that most people who got a start in this business as a true producer got their start selling A-Shares, annuities, etc. Since many were commission only, they had to in order to survive. I know some wires had a different approach - let's say $20M in AUM after three years or your out the door (that was years ago BTW). I know there are people who sold A Shares many, many years ago and the clients are still in those exact same A Shares. If you did it that way, then you certainly didn't do anything to hurt the client IMO.
I think the $1M is probably a bit high. That may not be a lot to those in your location but an individual who has that in a city like Pittsburgh or Cleveland or Akron or Erie or State College has done pretty well for themselves. The people from the more rural areas who are hard pressed to crack $250,000 could definitely be impacted. You may laugh at that but those are the same people who live in a house that is worth less than $100,000 simply because of where they live.
Isn't the point that unsophisticated smaller investors should simply be putting their money in basic low fee index funds that track the s&p and similar? My mother does not need to worry about her exposure to emerging markets and picking individual winners and losers.
Maybe someone wants to be. They should have that choice.
Oh gawd no. Wow. This is how far off the rails vanguard has taken us. Maybe your mother can be invested in the market maybe not. It is afar cry from a blanket statement. Just because a investment is low fee doesn't make it right. You all realize that vanguard has used the low fee argument to become the largest fund company and is now charging the more fees than anyone else because they have more assets under management than anyone else. In the process, vanguard is getting people who have no business trying to select their own investments, ie your mom, invested in the wrong things. Then when the market corrects and your mom's portfolio is down 40% and there is no one for your mom to speak to about her portfolio, she sells out and losses that money.
a couple of days ago I received a letter from Vanguard approving an new advisory agreement with Century Capital this past November, then terminating that agreement one month later .... this must be as a result of the new legislation discussed here, and the letter confusing as to who is
advising from this point on.
the letter seems to stress that the arrangement is no longer in effect, which might signal that when stockholders see what was being
done up to now, might not be happy.
advising from this point on.
the letter seems to stress that the arrangement is no longer in effect, which might signal that when stockholders see what was being
done up to now, might not be happy.
Were you the one who got beat to hell on here over the Vanguard/low fee stuff months ago? Someone kept saying why it was so bad for investors, and how the real planners give much better investment advice despite the higher cost. People challenged you based on all the research out there about how simple investing with low fee funds beats out the managed investor 95% of the time, and you eventually disappeared. If it wasn't you, I apologize.
But lost in your rant is that Vanguard is not doing what you claim. A 60 year old woman who does 3 minutes of research on the Vanguard site and is conceivably a few years from retirement won't have her money invested anywhere that would drop 40% barring a complete collapse of the economy. But keep throwing out these doomsday scenarios for the common investor to keep that fee income churning.
Now is that actucally true or do you just like typing words that have no meaning?
Where is this magic fund or investment strategy you speak of that my mom can invest in as a retail investor? As far as I know, over the long term essentially no retail fund or strategy has out performed the market, but I am all ears.
These rules are primarily aimed at designating a broker who gives advice as a fiduciary - under ERISA.
The rules MAY contain language where there is assistance in placing a rollover to an IRA - designating someone as a fiduciary. ERISA does not cover IRAs - it is the step from a retirement/401k plan that is at issue. For example - a rollover from a Plan at Vanguard to a Vanguard IRA may be an issue.
Need to see what these regulations state - along with the "best Interest contract". These rules will be fought hard against and tested in court.
As above this will have a significant impact on the financial services industry
The rules MAY contain language where there is assistance in placing a rollover to an IRA - designating someone as a fiduciary. ERISA does not cover IRAs - it is the step from a retirement/401k plan that is at issue. For example - a rollover from a Plan at Vanguard to a Vanguard IRA may be an issue.
Need to see what these regulations state - along with the "best Interest contract". These rules will be fought hard against and tested in court.
As above this will have a significant impact on the financial services industry
full disclosure: I generally am a fan of regulation and I have in depth knowledge of this rule ( cannot disclose how on this board how). This rule has very good intentions. Most firms and financial advisors will agree with the idea of this law. If you have a financial advisor who has been providing you financial planning and you are in a fee based account vs a transactional type account not that much will change in the short run. If you are working with one of the big firms (Merrill, Morgan, Wells, UBS) your FA is most likely prepared for all these changes ( this is all good stuff if your in this boat). There are many drawbacks and ripple effects that will effect a lot of firms, financial advisors, and self direct clients. Will continue in another post more detail.
I don't think it's possible to consistently beat the market year over year, regardless of how you invest or how you define 'market'. But what is not only possible but commonplace are portfolios that provide alpha, that is to say, for example, that they capture 80% of the 'market' upside return with 60% of the downside.
There are also a great many hedged strategies that limit downside losses. Many of those strategies have outperformed the 'market' over long periods of time despite lagging significantly in robust up years. Just two events, 911 and the financial crisis, have provided such strategies with a vast cushion of out performance that even trillions in fed pumping has not been able close.
In either of these cases, the ability of funds like these to beat the market is subject largely to volatility and/or the length of bull and bear cycles. It stands to reason that an index fund will stand tall in protracted bull markets. It also stands to reason that they'll get rocked on sharp downturns. That's the trade off. And the bet an unhedged index fund owner is making is that there won't be many sharp downturns during their holding period.
Index funds and ETF's are good investment tools. But what people seem to miss is that they are very much a risk 'on' proposition.
Here is all I will say on the pending DOL Ruling. "The road to hell is paved with good intentions"
Hi PhDKnight, your point is well taken but you might want to look at the minimum volitilty etfs that are now available. Something like iShares USMV which gives you 80% upside capture and only 44% downside capture. You will find that it has done better than the market. The iShare min vol etfs are quite impressive. ( I don't work for Blackrock, which owns iShares). Just a thought for all you moms out there...
What about them? Like anything else, a VA can be fine. Non-qualified money, death benefit riders, living benefit riders, etc. Besides, not all VAs are these expense machines that they are made out to be. Back before ETFs, a VA could actually be cheaper than using a fee based account with mutual funds depending on the VA provider.
Please post the link, I don't recall this white paper and I follow Vanguard research quite closely. I believe you may be misreading or misstating their findings.
Unbelievable the lengths you go to to pin everything under the sun on him.
It's hard for some in the financial industry to accept that their business is being disrupted right before their eyes. The old model is dying so they need to either adapt or die with it.
It started with low cost companies like Vanguard, Fidelity, etc. and now you are seeing things like Betterment and Wealthfront begin to gain traction. The next generation of investors are more savvy than their parents and have access to so much more information. Combine that with increasing transparency and very few people will have the desire to give away 1%-2% in annual commission for something that can be done by an algorithm for a fraction of the price.
If you still like being able to pick up the phone and talk to your adviser, Vanguard begins to offer that service at 0.3% per year. You only need to have $50k under their management to access the personal advising services.
It started with low cost companies like Vanguard, Fidelity, etc. and now you are seeing things like Betterment and Wealthfront begin to gain traction. The next generation of investors are more savvy than their parents and have access to so much more information. Combine that with increasing transparency and very few people will have the desire to give away 1%-2% in annual commission for something that can be done by an algorithm for a fraction of the price.
If you still like being able to pick up the phone and talk to your adviser, Vanguard begins to offer that service at 0.3% per year. You only need to have $50k under their management to access the personal advising services.
http://www.vanguard.com/pdf/ISGQVAA.pdf
Interesting that cost is only good for up to .45% but behavioral finance is up to 1.5%. Shocker.
I would also love to hear DIY's approach to distribution planning and subsequent tax management strategies.
Interesting that cost is only good for up to .45% but behavioral finance is up to 1.5%. Shocker.
I would also love to hear DIY's approach to distribution planning and subsequent tax management strategies.
Thank you for posting the link. I do recall reading this but it didn't register with me, perhaps because I think some of your points are out of context or at least not fully in context. First of all, let me say that I do think there is a place for advisors for many people, providing the advisors follow the principles outlined in white paper (appropriate asset allocation, cost effective implementation, rebalancing, behavioral finance or keeping the course, spending strategy, and net total return focus rather than income focused). I would encourage those interested to read this white paper themselves. You say it is "interesting that cost is only good for 45 basis points but behavioral finance is up to 150 bps." You don't mention that their 45 bps is calculated by moving from the weighted average ER of all funds and ETS to lower cost funds and that the delta is significantly higher if you consider "...total investment cost which includes sales commissions and 12b-1 fees." So for those advisors that sell funds with loads, higher expense ratios, and/or 12b-1 fees, cost can be much more significant and undermine the entire value proposition. In this white paper, Vangaurd is recognizing the value of advisors in some circumstances and encouraging them to embrace core Vanguard values--including but not limited to low cost products--that will benefit the investor and the advisor in the long term. As you know, Vanguard offers advisory services itself, which follow the aforementioned principles. I don't disagree that advisory can be helpful for many. If I were a FA I would embrace these Vanguard principles and build my business accordingly instead of pushing back on them or selectively citing their research to meet one's needs. Just my opinion, of course.
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Their research clearly states that up to 1.5% can be gained from managing behavioral finance. For people like you, I don't want or need you as a client (no flame). I am looking for the 100-150 people out there who are looking for someone to provide expertise and service. This is the major disconnect I always find with DIY. They often feel that people have the ability, time or interest in doing it themselves. The reality is that many out there don't. That's where I can come in.
I know some will rebuff this, but it is really no different than me painting my own house internally, changing my own oil, putting up my own siding or doing my own landscaping. Could I do it? Sure. Do I want to? Absolutely not.
And Vanguard was only citing investment management principles. Do the 30 bps they charge get you financial advice or investment advice. They are two completely different things.
As I said, I don't disagree that there is a need for credible and sound financial advise for many. It is astounding to me how many otherwise intelligent and well educated people are financially illiterate. I also agree with your comparisons to painting a house, lawn care, or providing other services--not everyone wants to do everything. I get the sense that you may be a reputable FA. Peace out.
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Right because he isn't the President. You don't think he is aware of this? "Pin" this on him...you speak as if he is a guy on the street. Though he should be. Soon enough!
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Good conversation. I have no problem with DIY as long as they don't pretend like an FA/FP can't be a valuable resource for those who want to use them.
Yet if this would have happened with a Republican president in office, you would blame it all not not the president, but on the liberals in the Department of Labor.
You're so predictable
We wouldn't have people taking issue with the practices of FA/FP if some of them (not you) could just engage in a rational discussion about the topic without saying that the existence of low fee funds is setting up the small time investor to get killed.
I can be irrational about the discussion as well and may have even been so ITT. I take offense when people act like the service that is provided by professionals doesn't have value. Now, are there bad apples out there? Of course. Is that the same in any profession? Yes. Are there people who would never think of using someone? Yes. Is that okay? Sure. On the other hand, there are people who want the service and are willing to pay for it. As long as you provide Full and Fair, that I will say this though and it will probably be true during the entirety of my lifetime. The #1 reason that people who hire someone to help them leave and find someone else is not performance or expense. It is service and it isn't even close.
Low fees are fine, but if someone wants help, they are going to have to pay for it. It is no different than any other industry out there.
