My first experience with a financial advisor

Discussion in 'Investing For Beginners' started by yellow heel, Aug 3, 2005.

  1. yellow heel

    yellow heel New Member Original Member

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    Well today, I made the time to actually sit down with my bank's (bofa) financial advisor for the first time in my life. I wanted to talk about opening up IRA account. He looked like he was in his 50's (caucasian).

    We first talked about what I wanted to do: Open either a tIRA or rIRA. We agreed upon that rIRA was better in my case (I'm 27 years old). I have been maxing out my 401k ever since I started working.

    Then we talked about how we want to invest the money in the IRA. I suggested that we go with a ETF. With the ETF (he recommended IVV), he said if I will deposit the $4000 all at once, the fee will be around $90. But I told him that dollar-cost averaging was better, he agreed. With monthly contributions of $335, I will also have to pay a fee of $40 per transaction. We agreed that this was unacceptable.

    We then suggested an index fund (mutual fund). They were all loaded funds (fee of around 5%). He didn't force me into opening an account. He said to come back when I am ready and he will give me more information about the mutual fund he will recommend.

    In between topics he was trying to explain to me the fundamentals of investing and how important it was for me to pay a professional to take care of my money.

    Overall he seemed like a nice guy. I don't know if it will be worth it with the mutual fund with all the fees involved... but he gave me a lot to think about.

    I still haven't decided yet but I wanted to share my experience with everyone here.
     
  2. chahsiubow

    chahsiubow Member Original Member

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    I generally have a disdain for financial advisors. The one my mom uses moves her funds every few months to 'better performing' stocks just so that she earns her $99 comission and my mom loses money every time.

    Beyond that, I was speaking to a friend of mine yesterday that is going through training. His branch manager was telling the recruits to try and lure in the old people. Cause when they die, they're money is going to be lost-- it's going to their kids. So you want to reel them in and take their money from them.

    I'm sure there are genuine financial advisors out their who stand up to their fiduciary responsibilities, but in my experience, every single one of them I came across are white collared thieves.

    Just thought I'd chime in with my thoughts.
     
  3. yellow heel

    yellow heel New Member Original Member

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    That doesn't sound good at all... maybe I trust people too much :(
     
  4. Dave Rathbun

    Dave Rathbun Original Creator Original Member

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    Load funds suck. You can often find the same (or better) returns with no-load funds. Think about it this way... if you're paying a 5% load, then that fund has to beat the market by 5% before you break even. How many funds do that?

    I can understand your concern about the $40 fee for dollar cost averaging... guess what, it doesn't have to be that much. The advantage of DCA is that you make regular purchases over time. There are PLENTY of funds that will allow you to invest a regular deposit with no fees. Take a look at any number of Vanguard funds, they essentially invented the index fund (which is very similar to an ETF). They will often waive an account minimum requirement for an IRA as long as you set up direct deposits on some regular schedule.

    I am not a fan of mutual funds for a non-IRA investment. Here's the thing... if you're investing in a non-IRA account then you have to take taxes into consideration. When you purchase a mutual fund, you are at the mercy of the fund manager as to when they sell holdings and take profits. So you could get hit with a big tax bill at the end of the year if the fund manager sells lots of profitable holdings. That sucks.

    But in an IRA, you pay no taxes. So tax-timing is not an issue.

    My advice, and it doesn't cost you 5% up front, or even 1% :-D is to look at Vanguard funds. Find out what they offer as far as choices, see if there is something that fits your needs. If Vanguard doesn't have what you want, look for other index fund choices. The ETF's are not managed like funds, so you would have to purchase additional shares each month. Even even doing that can be done via a discount broker for $7 a month instead of $40.

    Finally, if you really want to use the BoA guy, ask him what you get for your 5%? What is he going to offer to justify his costs? How is he going to earn that money?

    You're starting out young, and that's fantastic. But that means it's even more important to understand the impact of the 5% load. 5% of 3,000 is only $150, right? Sound trivial? The future value of 30 payments of 3,000 earning 10% is nearly $25K (that's 25 thousand) dollars more than the future value of $2,850. Even if you drop the rate to 5% the difference is still nearly $10,000. So don't think of it as paying $150, think of it as losing $10K of retirement money. Make him earn it, or go elsewhere.
     
  5. yellow heel

    yellow heel New Member Original Member

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    Dave, I am really glad you are here to talk some sense into me!! I really appreciate it :) Thank you.
     
  6. Dave Rathbun

    Dave Rathbun Original Creator Original Member

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    Well, just keep in mind that my advice is worth exactly what you paid for it. 8) Always get a second opinion. I just try to point out things to consider.
     
  7. pinwheel

    pinwheel Member Original Member

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    Aren't there ways to look up Financial Advisors to make sure that they are legit? I've thought about talking to the one at my bank but am always wary that he has his agenda. I'd rather pay for the consultation and avoid unnecessary biases...
     
  8. christinewall

    christinewall New Member Original Member

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  9. greg1980

    greg1980 New Member Original Member

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    I would like to start my own business but I don't have enough money. I was reading on AbsoluteWealth.com that there are some state programs that can help people like me and also there are a few companies who are investing in great ideas. I do have some ideas but I need a loan or investors.
     
  10. caracola213

    caracola213 New Member Original Member

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