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Edward Jones' Proprietary Funds Are Outselling Nearly All Active Managers
From the article: "Jones last year earned $49.4 million in revenue sharing from sales of American Funds mutual funds, according to the firm's website."
Say what!? That's just for putting their customers in one particular fund family. Consider the remaining fund families and then consider what each fund family rakes in on the fees they assess. Yup, I'm in the wrong business.
That's driving the costs of managing the actual money lower, though it's not clear the benefits are always being passed to investors.
I get irked each time I pass an Edward Jones store front. Each time I see an Edward Jones commercial on MLB TV.
So, they charge you 1.5% each year to manage your life savings. Will sell you American's front-loaded funds, which takes 5.75% off the top (and Edward Jones pockets)... and will put you in a new front-loaded funds each year for the rest of your natural life.
That's not accurate, Charles. I hold AF shares at EJ. There is no wrap fee. My sole fee is the ER which is second smallest in the mutual fund industry. EJ (including my advisor) is paid from the 12b1 (.25) which is included in the ER.
Also the load can be reduced or eliminated depending on the amount invested.
EJ is of course wanting more from customers like me, that is what is behind their Portfolio Solutions program and their new proprietary funds.
"So they will charge you 1.5% each year ...." As opposed to someone like Fidelity, who will charge you, um, 1.7% for a Portfolio Advisory Service account (which just puts you into one of their model portfolios based on risk/objectives), or if you've got $200K, they'll come down and match Edward Jones' 1.5% for an SMA account.
With respect to that supposed front end fee - EJ receives the equivalent of 0.024%/year of AUM from American Funds (assuming no sales load). Converting that into a one time sales load (rather than ongoing trailing fee), EJ receives the equivalent of 0.247% in loads. With most fund families, EJ doesn't get sales load revenue at all (just trailing fees).
Now EJ does also receive recordkeeping fees for keeping track of individual investors' accounts and bundling into omnibus accounts. For that it receives up to 0.25% from the fund families. So the total payment/year received is about 0.274%.
Contrast that with the 0.40% or so that Chuck (Charles Schwab) receives for selling you NTF funds. Or even with what Chuck gets for selling you TF funds!
("Most [Transaction] Fee Funds pay Schwab a low annual asset-based fee, typically 0.10% annually of the average fund assets held at Schwab, although the fee can range up to 0.25% annually.")
The money's not in commissions, it's in AUM fees. For which the investor is receiving advice. Same as with Fidelity and other "discount" providers that charge comparable fees. Even Vanguard doesn't give that away for "free" (0.30%/year).
For starters the advisory fee at Fidelity is stated as "between 0.63% and 1.7%" according to the link msf provided.
Those supposed front end fees - I don't think that either Charles or I (I'm sure about me) were suggesting that EJ or anyone else (e.g. Fidelity, Schwab etc) other than the issuing fund company were collecting the loads charged. It's just a simple fact that they exist for certain funds (or fund families) and it seems that the only way to get out of paying them is to invest tons of money which I don't think your average investor can, or invest through an advisor and pay those advisory fees. The work around is to find no load funds that perform as well w/o the addition of loads.
Those fees that Schwab and others charge for selling NTF funds is for the convenience of one-stop, supermarket access through the brokerage firm. An investor does not need to buy the fund there to have access. Ditto the TF funds. I believe that in some cases this fee may be incorporated into the ongoing expense ratio charged by the fund but what I don't know is if one would pay the presumably higher e.r if they transferred in a fund they already held.
The point of my initial response in this thread was that "good gravy that's a lot of fee income." I've no quarrels with an advisor being paid for advice. As a consultant in the building trades I get paid similarly. I just don't get to collect it forever. And as I previously stated, I'm in the wrong business.
"For starters the advisory fee at Fidelity is stated as "between 0.63% and 1.7%" according to the link msf provided."
Charles wrote: "So, they [EJ] charge you 1.5% each year to manage your life savings". I simply responded with the same phrasing, figuring we both knew what that meant. The article states that EJ "charges up to 1.5%", so apples to apples, EJ still looks cheaper than Fidelity.
" I don't think that either Charles or I (I'm sure about me) were suggesting that EJ or anyone else (e.g. Fidelity, Schwab etc) other than the issuing fund company were collecting the loads charged."
Charles continued: "Will sell you American's front-loaded funds, which takes 5.75% off the top (and Edward Jones pockets)." It sure sounded like Charles was suggesting that EJ collected the loads.
You may have meant something different, but your article quote was: "Jones last year earned $49.4 million in revenue sharing from sales". Those are loads (and/or trailing commissions, another form of loads, per SEC). That's $49.4 million of loads collected by EJ. (Well, technically collected by American funds and "shared" with EJ, hence revenue "sharing".) That's why I noted that this amount was in addition to the servicing fees received by EJ from the funds.
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@Maurice - what Fidelity suggests with Premium services is that you "Talk to your [Fidelity] financial consultant about a referral to an independent, registered investment advisor who can provide customized portfolio management, advice, and specialized products."
It seems Fidelity Premium Services does not provide advice - you need to go elsewhere and pay for it.
No pressure for high rev products at Fidelity? When I moved an annuity out of Fidelity, they called me at 6:30 in the morning local time, and spent a half hour trying to talk me into undoing that. They even got an annuity specialist on the line midway through the conversation.
The products for which reps get the highest compensation, i.e. trailing fees, are Portfolio Advisory Services (PAS) and annuities.
I figure that's why my rep kept reminding me for a few years that I could offload all my portfolio management work onto PAS. He gradually accepted my statement that I prefer to do this myself, and has since gently tossed a product idea or two my way from time to time. A much improved working relationship.
It seems that there is no set aum standard for having advisory help, you have to find what works best for you and research the person that will be advising if that is the route you decide to take. When I inherited a portfolio almost three years ago, it was larger than I was used to self managing, so hired a CFP at Merrill whom I knew for about 5 years. I pay less than .75%, AUM fee, get access to Institutional fund class funds, thus a lower ER on many funds and advice as often as I want. I like the idea of a second set of eyes and sometimes we disagree, but I make the final decision in the long run. Sometimes I was right and sometimes she was right, it all balances out.
Only disadvantage is they don't sell all funds like a fund supermarket or discount broker, perhaps that is why those houses charge more for managing or advising. I do still have a small acct at a discount broker for those times I do want to buy a fund ML does not sell. Just my $.02
I might summarize it as: what you get for free is respectable, but hardly flawless. For example, they note that only Vanguard paid attention to the tax implications of portfolio changes. "They also found most of the documents [i.e. across all the brokerages] to be filled with boilerplate language and short on real, actionable advice."
CR states that only very rarely do these reps voluntarily disclose how they're compensated, or discuss fiduciary duty vs. suitability standard.
In your example, that may have been problematic. A CFP is held to a fiduciary standard, at least when doing financial planning. (I like the analogy in the linked article - it's like a doctor escaping his client-first duty by merely prescribing drugs but not not giving medical advice. Were you "prescribed" ETFs?)
If the CFP held himself out as a fiduciary, it seems he should have disclosed a conflict of interest - Fidelity's reps get three times the compensation for assets you invest in ETFs as assets you invest in cash (MMFs, CDs, etc.) If the CFP was not acting as a fiduciary but through silence let you think (because of his title) that he was acting in your best interests, that strikes me as more insidious.
I'm not suggesting that the advice provided wasn't sound, just that free advice is generally limited in both scope and quality.
Seems you can pay what you want to pay for advisers. From what I've heard, not substantiated, Edward Jones is one outfit that costs clients a lot more for their benefit, not yours.
My Schwab experience tells me CS has at least a half dozen different options for portfolio management. Most are around the 1% range. Some of what they offer is free such as the robo or the 'Perfect Portfolio' option at 0% advisory expenses. Yes, they put your money mostly into Schwab ETFs, but what do I care. I chose this option with part of my money plus a managed option in Windhaven with a .9% advisory charge. My local adviser has sat down with me 4 times since last August to advise and explain options, not sell. We have a local office here for Fidelity too, and I'm guessing they would not be much different then Schwab. But I'm happy with my CS decision.
msf said:
I'm not suggesting that the advice provided wasn't sound, just that free advice is generally limited in both scope and quality.
This comment is unsubstantiated and not my experience. My wife actually has here IRA with an independent adviser. She likes and trusts him so that part is great. But I can see he offers no more than my Charles Schwab adviser.
I have done a fair amount of writing fee structure docs (including for Fido, more recently for Belgian sicavs), and I don't think this has ever been the case, going to back to Channing days decades ago. Where did you get this thinking? Perhaps I am mistaken.
What I wrote is pretty much a one-line summary of the CR study; I think that serves as substantiation.
Chuck acknowledges that the free advice you get is limited by asking: "Do you need more customized advice or additional help with your financial situation? A personalized investment plan that’s created and implemented for you by a team of professionals could be the answer. " Schwab Private Client service.
So there's more advice that you're not getting right now. But you do need to pay up for it. And give him $500K to invest. As you noted, Schwab offers a variety of these services (this one is a bit cheaper - 0.90% for equities, 0.70% for bonds).
Here's a column estimating Schwab's take (mostly from the cash allocation, but also from using their own investment products) at around 1% - about what you'd get charged for most of the services discussed in this thread. https://www.hedgeable.com/blog/2015/02/schwab-intelligent-portfolios-review/ "Regrettably, this promising program has turned out to be a lot of smoke and mirrors."
You may be thinking that I'm leading up to saying that the "free" advice you're getting is neither free nor advice. I'm pretty close to that, but not quite there
The name of the game with financial institutions is asset retention. If they can give you something of value (limited advice) at little cost to them, and get you to keep assets there, they win. The advice they're providing has value, apparently enough for your purposes. And they're not charging you, but writing it off as a cost of business (asset retention).
If it works for you, great. When you pay, at EJ or with Chuck, you should be expecting more. At least Chuck gives you a money back guarantee.
@davidrmoran From Investopedia: Front-end loads are paid to investment intermediaries (financial planners, brokers, investment advisors) as sales commissions. As such, these sales charges are not part of a mutual fund's operating expenses. It is argued that a load is a cost that investors incur for obtaining an investment intermediary's expertise in selecting appropriate funds for clients.
From the Motley Fool: "When a broker recommends a fund for one of her clients to buy, that fund will be in all probability a load fund, and the load, or sales charge, is pocketed by the broker and/or other middlemen as payment for the "service of helping you pick a good fund.""
From wikipedia: "Front-end load Often associated with class 'A' shares of a mutual fund. Also known as Sales Charge, this is a fee paid when shares are purchased. Also known as a "front-end load," this fee typically goes to the brokers that sell the fund's shares."
From the Financial Dictionary: A sales fee in a mutual fund that one pays when one buys shares in the fund. That is, when an investor buys a share in a mutual fund with a front-end loan, he/she agrees to pay a third party, usually a financial institution or broker, a certain percentage of the share's value.
@Charles - this suggests that your original thoughts were true and you have no need to apologize.
revenue sharing taken from above; According to my 401-k it's returned to the investor to reduce fees. Also for those that itemize their taxes don't for get to add in adviser fees. Have a good week, derf
Generally, believe that the days when financial advisers could get 1% for portfolio management of four or five mutual funds are rapidly fading.
c
Here, we're not only in complete agreement, but I may have been a step ahead (more critical) than you. I've told people for a long time that the typical one percent-ish fee strikes me as reasonable if it includes solid financial planning, considering all assets (not just AUM) and detailed needs (extended travel, major home repairs/renovation, college, BMW purchases, whatever).
1% for a few funds (or to put you in one of a half dozen "model portfolios")? Are you kidding?
Most 1% advisers I know, from small ones in Wisconsin to big ones like Edelman, and maybe even Fido, do include (at least via initial questionnaire plus periodic review) planning for big purchases / expenditures / needs / child education / emergency savings yada.
Folks might I suggest ... and, if you have the desire ...
Edward Jones has offices in most towns throughout the good old USA ... Why not visit one and meet with one of their advisors, face-to-face, to get the scoop first hand on their Advisor Solutions program. I am not in their advisory program because I felt I'd be taking a pay cut as my portfolio, at last review when compared to their growth & income model(s) was out performing theirs plus I'd be giving up control of my investments and my ability to hire and fire fund managers, positon my portfolio to my choices plus I'd have to pay the advisory solutions management fee ... and, in addition, I'd have to sell funds with large capital gains (TAXES) to make the switch unless I opted to do this in my IRA.
I have been a client of Edward Jones for more than twenty five years and the only account fees I remember to have ever paid myself was the annual fee ($30.00, perhaps now $40.00) on my self directed IRA. And, with building the account(s) to a good size I now have no account, or wrap, fees and many of my purchase transactions are at nav or reduced commissions. Generally, once you buy into a fund family you can do nav exchanges into other funds within that family of funds without a sales charge.
Perhaps you should just get the scoop first hand from them, if interested, and not off the board as I feel some of the information provided by some other posters is not what I have experienced.
We have seen this all before...Merrill Lynch, Raymond James, Prudential, Ameriprise, and many others. Good results or not, great service or not, this is a HUGE conflict of interest. I would hope there is written and verbal disclosure to all clients. Whether expenses are low or high, do the reps tell clients "there are other options available to you, including index funds and no-fee ETFs. But I am recommending funds owned by my employer, who receives income from the sales. And part of my compensation is from the sale of these products." From a compliance officer's standpoint, I would think this could be a nightmare.
I agree with you, except to the extent that you excluded the discount brokerages like Fidelity, Schwab, etc. As I have pointed out, much of your desired disclosure statement applies to these firms too.
Reps pointing investors at NTF funds for which their employer gets a much bigger kickback, even when TF funds would come out cheaper for the investor. (It's not costing you anything. Sure.) Part of their compensation comes from what they can sell (with higher compensation for pushing annuities and advisory products than for selling MMFs).
It doesn't matter whether the conflict is HUGE, the conflict is still there. Either we have a bright line rule - disclose all conflicts and have the investor sign off, no matter what the size, or there's no rule at all. Like CFPs saying they're fiduciaries except when they're not.
When I have been asked about various investment products or vendors, I always attempt to get these "folks" to do their own work/research, too. Too many friends/relatives I have talked with over the years are too lazy; in spite of the fact that they were good enough to have saved monies to invest and that expressing to them that you worked hard for this money and this money should work hard for you going forward, they don't even want to ask some simple questions about how much of their invested monies with vendor "x" would be their NET return.
A recent example is brothers (beneficiaries) whose mother passed away and the account was evenly split into active accounts from this money for the brothers. None of the investment holdings were changed; the "advisor" only sent letters showing the investments and values once each month. The advisor never sent an introduction letter explaining his fees or methods for "deciding" what would be proper investment areas.
Four of the 5 brothers have kept their accounts in place. One asked for the account to be closed and the monies be moved into a credit union account to be used or invested as desired. I asked about the management fee and what discussion had taken place as to whether the investments for the remaining 4 brothers was suitable to and for them. They, of course; didn't know. Apparently the advisor fee is 1% of total account value, transaction fees(?) and they're not sure how to decide about investment areas and remain at the "whim" of the advisor. Two of these folks are very "tight" with their spending habits (stuff on sale, coupons for grocery shopping, etc.), but won't take the time and the infomation offered via the internet to get an "idea" of what to do. Guessing their time is limited after clipping coupons.
Example two is for 2 young men (25-30 y.o.) I encountered a few years ago. They worked for an insurance company and were selling their products and approached me. They briefly explained this and that. I asked about a variable annuity (no life insurance frills, etc.) offering and whether they had a cost/fee schedule in plain wording. Well, no........but............ I explained (all I knew about from the top of my head) that I was aware of a variable annuity product from Fidelity that allowed for investments in 57 active managed mutual funds and that my cost would be the E.R. of the mutual fund, plus an annual fee of .25%. How do your similar products measure against this? Well, they were not able to provide any data of value. I am sure they wanted their foot inside my money door to "help" me with their products. But, for every one of me; there will be 99 others with few questions and these 2 salesmen likely will sell something to a few of them.
Lastly, one could hope for a "plain black on white", 1 page form of all expenses one will encounter doing business with person "x" for investment product "y". One hopes that enough folks with needs and help in this area happen to have a decent person hold their hand through an investment process. I do not begrude anyone "making a living" with helping folks with their investments. It is indeed a special area of knowledge that too few folks have any clue. I suspect many here field questions about investments, from friends and family.
I/we, at this house, are glad we are a tiny bit smart in this area; and have the "devil's advocate" questions at the ready. One can not expect the proper answer without the proper question.
Just my inflation adjusted 2 cents worth of jabber.
@Maurice Thank you for your time with the EJ information. Wondering if they offer an example sheet of what it costs to have investment "A" versus investment "B"? Surely money flowing from somewhere to build those nice buildings for "clients" to visit in various cities. Catch
Hi @Maurice No. Just writing/thinking outloud how well EJ and other retail investment firms detail fees/charges for various types of investment holdings, whatever they may encompass. An example from a conversation with a friend about a portion of a portfolio that could be held in a somewhat broadbased U.S. holding of something similar to VTI or ITOT, with e.r.'s of .05 and .07%. I wonder what EJ or similar would have for an answer to "match" such an investment type. I suspect these folks would rather not deal with an etf or similar investment. Not much money to be made for them with these, eh? Catch
Comments
Say what!? That's just for putting their customers in one particular fund family. Consider the remaining fund families and then consider what each fund family rakes in on the fees they assess. Yup, I'm in the wrong business.
So, they charge you 1.5% each year to manage your life savings. Will sell you American's front-loaded funds, which takes 5.75% off the top (and Edward Jones pockets)... and will put you in a new front-loaded funds each year for the rest of your natural life.
A fear I have ...
Also the load can be reduced or eliminated depending on the amount invested.
EJ is of course wanting more from customers like me, that is what is behind their Portfolio Solutions program and their new proprietary funds.
With respect to that supposed front end fee - EJ receives the equivalent of 0.024%/year of AUM from American Funds (assuming no sales load). Converting that into a one time sales load (rather than ongoing trailing fee), EJ receives the equivalent of 0.247% in loads. With most fund families, EJ doesn't get sales load revenue at all (just trailing fees).
Now EJ does also receive recordkeeping fees for keeping track of individual investors' accounts and bundling into omnibus accounts. For that it receives up to 0.25% from the fund families. So the total payment/year received is about 0.274%.
Contrast that with the 0.40% or so that Chuck (Charles Schwab) receives for selling you NTF funds. Or even with what Chuck gets for selling you TF funds!
("Most [Transaction] Fee Funds pay Schwab a low annual asset-based fee, typically 0.10% annually of the average fund assets held at Schwab, although the fee can range up to 0.25% annually.")
The money's not in commissions, it's in AUM fees. For which the investor is receiving advice. Same as with Fidelity and other "discount" providers that charge comparable fees. Even Vanguard doesn't give that away for "free" (0.30%/year).
Here's EJ's rev share disclosure (where that $49.4M figure came from).
Those supposed front end fees - I don't think that either Charles or I (I'm sure about me) were suggesting that EJ or anyone else (e.g. Fidelity, Schwab etc) other than the issuing fund company were collecting the loads charged. It's just a simple fact that they exist for certain funds (or fund families) and it seems that the only way to get out of paying them is to invest tons of money which I don't think your average investor can, or invest through an advisor and pay those advisory fees. The work around is to find no load funds that perform as well w/o the addition of loads.
Those fees that Schwab and others charge for selling NTF funds is for the convenience of one-stop, supermarket access through the brokerage firm. An investor does not need to buy the fund there to have access. Ditto the TF funds. I believe that in some cases this fee may be incorporated into the ongoing expense ratio charged by the fund but what I don't know is if one would pay the presumably higher e.r if they transferred in a fund they already held.
The point of my initial response in this thread was that "good gravy that's a lot of fee income." I've no quarrels with an advisor being paid for advice. As a consultant in the building trades I get paid similarly. I just don't get to collect it forever. And as I previously stated, I'm in the wrong business.
Charles wrote: "So, they [EJ] charge you 1.5% each year to manage your life savings". I simply responded with the same phrasing, figuring we both knew what that meant. The article states that EJ "charges up to 1.5%", so apples to apples, EJ still looks cheaper than Fidelity.
" I don't think that either Charles or I (I'm sure about me) were suggesting that EJ or anyone else (e.g. Fidelity, Schwab etc) other than the issuing fund company were collecting the loads charged."
Charles continued: "Will sell you American's front-loaded funds, which takes 5.75% off the top (and Edward Jones pockets)." It sure sounded like Charles was suggesting that EJ collected the loads.
You may have meant something different, but your article quote was: "Jones last year earned $49.4 million in revenue sharing from sales". Those are loads (and/or trailing commissions, another form of loads, per SEC). That's $49.4 million of loads collected by EJ. (Well, technically collected by American funds and "shared" with EJ, hence revenue "sharing".) That's why I noted that this amount was in addition to the servicing fees received by EJ from the funds.
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@Maurice - what Fidelity suggests with Premium services is that you "Talk to your [Fidelity] financial consultant about a referral to an independent, registered investment advisor who can provide customized portfolio management, advice, and specialized products."
It seems Fidelity Premium Services does not provide advice - you need to go elsewhere and pay for it.
No pressure for high rev products at Fidelity? When I moved an annuity out of Fidelity, they called me at 6:30 in the morning local time, and spent a half hour trying to talk me into undoing that. They even got an annuity specialist on the line midway through the conversation.
The products for which reps get the highest compensation, i.e. trailing fees, are Portfolio Advisory Services (PAS) and annuities.
I figure that's why my rep kept reminding me for a few years that I could offload all my portfolio management work onto PAS. He gradually accepted my statement that I prefer to do this myself, and has since gently tossed a product idea or two my way from time to time. A much improved working relationship.
Only disadvantage is they don't sell all funds like a fund supermarket or discount broker, perhaps that is why those houses charge more for managing or advising. I do still have a small acct at a discount broker for those times I do want to buy a fund ML does not sell. Just my $.02
Consumer Reports did a study of brokerage advice. Here's their 2011 - 2014 Brokerage Service Buying Guide .
I might summarize it as: what you get for free is respectable, but hardly flawless. For example, they note that only Vanguard paid attention to the tax implications of portfolio changes. "They also found most of the documents [i.e. across all the brokerages] to be filled with boilerplate language and short on real, actionable advice."
CR states that only very rarely do these reps voluntarily disclose how they're compensated, or discuss fiduciary duty vs. suitability standard.
In your example, that may have been problematic. A CFP is held to a fiduciary standard, at least when doing financial planning. (I like the analogy in the linked article - it's like a doctor escaping his client-first duty by merely prescribing drugs but not not giving medical advice. Were you "prescribed" ETFs?)
If the CFP held himself out as a fiduciary, it seems he should have disclosed a conflict of interest - Fidelity's reps get three times the compensation for assets you invest in ETFs as assets you invest in cash (MMFs, CDs, etc.) If the CFP was not acting as a fiduciary but through silence let you think (because of his title) that he was acting in your best interests, that strikes me as more insidious.
I'm not suggesting that the advice provided wasn't sound, just that free advice is generally limited in both scope and quality.
My Schwab experience tells me CS has at least a half dozen different options for portfolio management. Most are around the 1% range. Some of what they offer is free such as the robo or the 'Perfect Portfolio' option at 0% advisory expenses. Yes, they put your money mostly into Schwab ETFs, but what do I care. I chose this option with part of my money plus a managed option in Windhaven with a .9% advisory charge. My local adviser has sat down with me 4 times since last August to advise and explain options, not sell. We have a local office here for Fidelity too, and I'm guessing they would not be much different then Schwab. But I'm happy with my CS decision.
msf said: This comment is unsubstantiated and not my experience. My wife actually has here IRA with an independent adviser. She likes and trusts him so that part is great. But I can see he offers no more than my Charles Schwab adviser.
OK. I thought that front-loads were paid to financial planners, brokers, investment advisors as sales commissions.
So, in this case, I thought EJ would pocket the front load on the AF (or any other loaded) fund they sold to their clients.
If that is not the case, then I stand corrected and my fear in this case unrealized.
Generally, believe that the days when financial advisers could get 1% for portfolio management of four or five mutual funds are rapidly fading.
c
I have done a fair amount of writing fee structure docs (including for Fido, more recently for Belgian sicavs), and I don't think this has ever been the case, going to back to Channing days decades ago. Where did you get this thinking? Perhaps I am mistaken.
Chuck acknowledges that the free advice you get is limited by asking: "Do you need more customized advice or additional help with your financial situation? A personalized investment plan that’s created and implemented for you by a team of professionals could be the answer. " Schwab Private Client service.
So there's more advice that you're not getting right now. But you do need to pay up for it. And give him $500K to invest. As you noted, Schwab offers a variety of these services (this one is a bit cheaper - 0.90% for equities, 0.70% for bonds).
The knock on Schwab's robo manager (Intelligent Portfolios) is that they're making their money off of the cash they allocate to your portfolio. Ted posted an article to that effect in this thread:
Schwab 'Robo-Adviser' Bets Big On Cash And 'Smart' Beta
Here's a column estimating Schwab's take (mostly from the cash allocation, but also from using their own investment products) at around 1% - about what you'd get charged for most of the services discussed in this thread.
https://www.hedgeable.com/blog/2015/02/schwab-intelligent-portfolios-review/
"Regrettably, this promising program has turned out to be a lot of smoke and mirrors."
You may be thinking that I'm leading up to saying that the "free" advice you're getting is neither free nor advice. I'm pretty close to that, but not quite there
The name of the game with financial institutions is asset retention. If they can give you something of value (limited advice) at little cost to them, and get you to keep assets there, they win. The advice they're providing has value, apparently enough for your purposes. And they're not charging you, but writing it off as a cost of business (asset retention).
If it works for you, great. When you pay, at EJ or with Chuck, you should be expecting more. At least Chuck gives you a money back guarantee.
From Investopedia:
Front-end loads are paid to investment intermediaries (financial planners, brokers, investment advisors) as sales commissions. As such, these sales charges are not part of a mutual fund's operating expenses. It is argued that a load is a cost that investors incur for obtaining an investment intermediary's expertise in selecting appropriate funds for clients.
From the Motley Fool: "When a broker recommends a fund for one of her clients to buy, that fund will be in all probability a load fund, and the load, or sales charge, is pocketed by the broker and/or other middlemen as payment for the "service of helping you pick a good fund.""
From wikipedia: "Front-end load
Often associated with class 'A' shares of a mutual fund. Also known as Sales Charge, this is a fee paid when shares are purchased. Also known as a "front-end load," this fee typically goes to the brokers that sell the fund's shares."
From the Financial Dictionary:
A sales fee in a mutual fund that one pays when one buys shares in the fund. That is, when an investor buys a share in a mutual fund with a front-end loan, he/she agrees to pay a third party, usually a financial institution or broker, a certain percentage of the share's value.
@Charles - this suggests that your original thoughts were true and you have no need to apologize.
Have a good week, derf
1% for a few funds (or to put you in one of a half dozen "model portfolios")? Are you kidding?
My EJ quote was not from you but Charles.
Most 1% advisers I know, from small ones in Wisconsin to big ones like Edelman, and maybe even Fido, do include (at least via initial questionnaire plus periodic review) planning for big purchases / expenditures / needs / child education / emergency savings yada.
Edward Jones has offices in most towns throughout the good old USA ... Why not visit one and meet with one of their advisors, face-to-face, to get the scoop first hand on their Advisor Solutions program. I am not in their advisory program because I felt I'd be taking a pay cut as my portfolio, at last review when compared to their growth & income model(s) was out performing theirs plus I'd be giving up control of my investments and my ability to hire and fire fund managers, positon my portfolio to my choices plus I'd have to pay the advisory solutions management fee ... and, in addition, I'd have to sell funds with large capital gains (TAXES) to make the switch unless I opted to do this in my IRA.
I have been a client of Edward Jones for more than twenty five years and the only account fees I remember to have ever paid myself was the annual fee ($30.00, perhaps now $40.00) on my self directed IRA. And, with building the account(s) to a good size I now have no account, or wrap, fees and many of my purchase transactions are at nav or reduced commissions. Generally, once you buy into a fund family you can do nav exchanges into other funds within that family of funds without a sales charge.
Perhaps you should just get the scoop first hand from them, if interested, and not off the board as I feel some of the information provided by some other posters is not what I have experienced.
Reps pointing investors at NTF funds for which their employer gets a much bigger kickback, even when TF funds would come out cheaper for the investor. (It's not costing you anything. Sure.) Part of their compensation comes from what they can sell (with higher compensation for pushing annuities and advisory products than for selling MMFs).
It doesn't matter whether the conflict is HUGE, the conflict is still there. Either we have a bright line rule - disclose all conflicts and have the investor sign off, no matter what the size, or there's no rule at all. Like CFPs saying they're fiduciaries except when they're not.
Too many friends/relatives I have talked with over the years are too lazy; in spite of the fact that they were good enough to have saved monies to invest and that expressing to them that you worked hard for this money and this money should work hard for you going forward, they don't even want to ask some simple questions about how much of their invested monies with vendor "x" would be their NET return.
A recent example is brothers (beneficiaries) whose mother passed away and the account was evenly split into active accounts from this money for the brothers. None of the investment holdings were changed; the "advisor" only sent letters showing the investments and values once each month. The advisor never sent an introduction letter explaining his fees or methods for "deciding" what would be proper investment areas.
Four of the 5 brothers have kept their accounts in place. One asked for the account to be closed and the monies be moved into a credit union account to be used or invested as desired. I asked about the management fee and what discussion had taken place as to whether the investments for the remaining 4 brothers was suitable to and for them.
They, of course; didn't know. Apparently the advisor fee is 1% of total account value, transaction fees(?) and they're not sure how to decide about investment areas and remain at the "whim" of the advisor. Two of these folks are very "tight" with their spending habits (stuff on sale, coupons for grocery shopping, etc.), but won't take the time and the infomation offered via the internet to get an "idea" of what to do. Guessing their time is limited after clipping coupons.
Example two is for 2 young men (25-30 y.o.) I encountered a few years ago. They worked for an insurance company and were selling their products and approached me. They briefly explained this and that. I asked about a variable annuity (no life insurance frills, etc.) offering and whether they had a cost/fee schedule in plain wording. Well, no........but............ I explained (all I knew about from the top of my head) that I was aware of a variable annuity product from Fidelity that allowed for investments in 57 active managed mutual funds and that my cost would be the E.R. of the mutual fund, plus an annual fee of .25%. How do your similar products measure against this? Well, they were not able to provide any data of value. I am sure they wanted their foot inside my money door to "help" me with their products. But, for every one of me; there will be 99 others with few questions and these 2 salesmen likely will sell something to a few of them.
Lastly, one could hope for a "plain black on white", 1 page form of all expenses one will encounter doing business with person "x" for investment product "y".
One hopes that enough folks with needs and help in this area happen to have a decent person hold their hand through an investment process. I do not begrude anyone "making a living" with helping folks with their investments. It is indeed a special area of knowledge that too few folks have any clue.
I suspect many here field questions about investments, from friends and family.
I/we, at this house, are glad we are a tiny bit smart in this area; and have the "devil's advocate" questions at the ready. One can not expect the proper answer without the proper question.
Just my inflation adjusted 2 cents worth of jabber.
Catch
Thank you for your time with the EJ information.
Wondering if they offer an example sheet of what it costs to have investment "A" versus investment "B"?
Surely money flowing from somewhere to build those nice buildings for "clients" to visit in various cities.
Catch
No. Just writing/thinking outloud how well EJ and other retail investment firms detail fees/charges for various types of investment holdings, whatever they may encompass.
An example from a conversation with a friend about a portion of a portfolio that could be held in a somewhat broadbased U.S. holding of something similar to VTI or ITOT, with e.r.'s of .05 and .07%. I wonder what EJ or similar would have for an answer to "match" such an investment type. I suspect these folks would rather not deal with an etf or similar investment. Not much money to be made for them with these, eh?
Catch
Can Your Edward Jones Financial Advisor Really Serve Your Best Interests?
But the worst of EJ remains here:
Edward Jones Saga
@Maurice.
Thanks!