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I’m Retired - The Fiduciary Rule

Discussion in 'Non-Vegas Chat' started by oghuman, Apr 26, 2017.

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  1. oghuman

    oghuman VIP Whale

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    While the Fiduciary rule has not been signed there have been many firms that have already implemented it. I was thinking about this subject because my quarterly fee was just deducted from account yesterday and I have my opinion on it. My guess is that the average fee is around 1-2% annually of total assets, but could be more or less.


    Background

    I’m retired I worked for one of the largest financial firms in the country. After the financial melt down after I was packaged out. I’ve now been retired for six years. I already had taken out my 401K to convert to an IRA at age 59 1/2 because I wanted the freedom of have more choices on how to invest my retirement fund. When I was packaged out I also had a retirement fund with the company that was fully vested. I added that and any remaining 401K money that I accumulated while still working.


    If you are just starting to use an advisor and creating your accounts with various financial products I believe the Fiduciary Rule will be good for you as this is the time when most of the fees are incurred. Obviously it depends on what’s bought and sold during your initial reconfiguration of your retirement funds, but I think overall I think that the new rule as I understand it will benefit new retires converting 401K type accounts to

    IRA and managed by advisors under this rule. Of course enforcement to comply to

    the rule may be difficult because defining what’s in the best interests of the client can be difficult to define.


    Last year my financial advisors that were handling my IRA came to me and told me the company that had decided to implement the Fiduciary Rule and they gave me a discount from the rate I would be charged because I was a good customer as was with them for many years. They changed the classes of almost all of my mutual funds and they ceased to charge my any fees during sales of any issues or purchases for reinvesting dividends. It would be covered in the fee.


    I was thinking about how the Fiduciary Rule affects me.

    I’ve been very happy with my advisors because I’ve been taking withdrawals for six years and I currently have more money than I started with. There is no way I can determine what I was paying in commissions when I started the various funds, and many bonds that were bought because this was all included in the price for each transaction. I thought about it and I feel that for me this is not necessarily a plus. Now I don’t have many transactions and I doubt that commissions would amount to what I currently pay out on a quarterly basis. I think the Fiduciary rule does not much for me but it does help my advisors get paid to watch my account.


    I’d be interested in know what some others are thinking about the rule.
     
  2. NCAAHoops

    NCAAHoops High-Roller

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    Just wondering if you left your $$ in the IRA with your advisors? Also, do you have the same account number as before? I ask due to the way some firms decided to handle the accounts to fit within the law

    My thoughts are they will kill this before it becomes into practice
     
    Last edited by a moderator: Apr 26, 2017
  3. GamblingGolfer

    GamblingGolfer High-Roller

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    As a Canadian, not sure what the "Fiduciary Rule" is (I guess I could Google it). In Canada (at least in BC), all fees and charges must patently obvious to the consumer ... so you can see exactly how your advisor(s) is compensated.

    Not sure if this in on topic, but the transparency has been sometime coming.

    GG
     
  4. The Rumor

    The Rumor VIP Whale

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    Regardless of what the law is or is not, there is a personal question about what to do with the money. Personally, as a retirement consultant, I'd never let someone run my money who wasn't acting in my best interest (i.e. as a fiduciary). And I'd never let someone run my nest egg without clearly understanding what they were doing and what I was paying for it.

    I don't know your personal situation and level of funds so I can't really say more than that. You'd have to explain more about your asset level, your desired investment options and risk tolerance, how complicated a portfolio are you running from a tax structuring standpoint, how much hand holding do you want, etc. for someone to say more than that. I will say that 2% would generally be pretty dang large for a standard investment advisor unless you are in some pretty complicated stuff.

    Do consider if you also want to remain in the active management world vs considering the passive management world, especially if you have a simpler portfolio. There is a fair question to ask for many people about if they really benefit from this level of hand holding vs. moving to a simpler Vanguard type of approach where you could put it in a target date type of fund or use a roboadvisor for high level allocation recommendations.
     
  5. Golfer

    Golfer Low-Roller

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    I self manage. My worst two years were 2008 and 2009 and I was up 1-2% those years. Fundamentally I disagree with additional regulation, but the industry has brought it upon themselves by lying to people about "buy and hold", not recommending a balanced portfolio including assets classes outside of stocks and bonds, selling high expense mutual funds, and some large national firms are nothing more than bond houses.

    Anyone who calls themselves a financial advisor and won't sell VIX insurance, or any financial advisor that doesn't recommend taking gains periodically should be run out of that business. Frankly, any financial advisor that didn't at least suspect a market correction and an overheated housing market in 2007 isn't someone I'd pay to shine my shoes.

    But this is a bad deal for the few good adviser out there.

    My greatest disappointment was free market conservatives not understanding a short, sharp depression would have been a healthy thing, a natural correction, and some of us positioned to be nimble, should have been rewarded more than we were. Instead, a CDS, which is a necessary financial instrument was allowed to be under reserved, and they felt the system needed bailed out. There is no reason why these people shouldn't have been allowed to go on food stamps, and people like myself with more character, capital and capacity allowed to profit from their greed and stupidity.
     
    • Agree Agree x 2
  6. oghuman

    oghuman VIP Whale

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    NCAAHoops: I initially had my account at a different company with the current advisors. The firm they were with were being absorbed by someone else but I stayed with them when they moved to another company they're with now. I don't think it matters if it will pass or not, I think the financial companies that converted will stick with it.

    The Rumor: I agree, I would never leave money with someone I don't trust. My initial amount, I thought was distributed fairly well and was growing. That's why I stayed with them. My portfolio fixed income has numerous callable bonds a few AAA but mostly AA and a couple A. In that mix I have many taxable munis with pretty decent good yield and some corporate bonds, plus about 6 or 7 mutual funds. In my equity I still had some stock from my all firm and about six mutual funds. I also have some munis out side of my IRA that are non-taxable that I converted from some CDs when the rates started going down. BTW, my fee is less that 1%.
    Outside of that I have a not really large brokerage account with another broker that I manage and I'm up over 180% on that. So I'm in good shape.
    Of course, I won't be discussing actual amounts. Plus small to some are large to others and vice versa.
     
    Last edited: Apr 26, 2017
  7. oghuman

    oghuman VIP Whale

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    Golfer: It's too many bonds that are difficult for a novice to manage. Availability of them is often difficult if you don't have connections.

    BTW, I'm about 65% fixed and 35% equity in my account, but my self managed stocks skews that quite a bit. But my self managed stocks, are what keeps me be able to go on vacations and gamble.
     
  8. bluesdude

    bluesdude VIP Whale

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    Can someone explain in laymen's terms what this rule is about? My interpretation is to spell out fees on transactions and other costs. Is that to simplified?
     
    Maybe not this year. Looking forward to 2021!
  9. The Rumor

    The Rumor VIP Whale

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    It's more than that.

    The general idea of a fiduciary is that the core purpose of all of their actions is to benefit the account owner. They are legally obligated to act with your best interests at heart.

    The current threshold is that investments have to be "suitable" for investors, which includes recommending investments that have much higher profit margins/fees for the investment advisor. In practice, you have to be pretty shady to fail this test.
     
  10. The Rumor

    The Rumor VIP Whale

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    The average person is fine owning a bond fund, not individual bonds, though.

    You have to have a hell of a return advantage to offset the 5 or 15 bp investment fees charged by Vanguard on their total bond index fund. That's the challenge with these models - 1% is a huge part of the return.
     
  11. Golfer

    Golfer Low-Roller

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    True. But employees will spend time on FB at work, on their employer's time. But won't log on to their 401K, and rebalance.

    I guess my larger point was about bad, bad investment advice such as by and hold. And VIX is evil, it's s derivative. Something Warren Buffet says when he lies to his shareholders. Because he sells puts all the time to lower his cost basis of entry. And he lost his shareholder's ass on silver, and buried it in the annual report in a footnote.

    But I'm a professional financial advisor. And you have a balanced portfolio. See how all those stocks and bonds are balanced? What? You're asking me whether you should have some investments in precious metals, or other tangible income producing real estate outside of your primary residence? You're not listening to me, you have 100% stocks and bonds, I'm an expert, and you're balanced. No need to insure the downside with VIX calls. Because that's what Edward jones told me to tell you.

    What do you mean you know this message board hero named Golfer, and he says he routinely outperforms you? It's a message board, he must be making it up.

    No, No, I'm an expert. Leave 100% of everything in stocks and bonds. Listen to me, I'm a free market, free enterprise guy, we needed to bail out the banks, even though there were responsible people who could have stepped in and taken over. Of course those bonuses I get paid when my hedge fund aren't really bonuses, they're more like capital gains, let's call it carried interest and let's make me pay a capital gains tax rate on what everyone else has to pay an ordinary income tax rate on, becuase I'm ethical, and a genius. Never mine that correction when you didn't have VIX calls, and never mind you were 100% all in, buy and hold, and had no cash to take advantage of the bargains. Always, always, always stay all in, but only on products edward jones tells me to sell you. Never, ever, ever take gains, stay all in.

    Give me a break. Most financial advisers, and most of their customers are made for each other.
     
  12. Bgoll279

    Bgoll279 Low-Roller

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    I am a financial advisor, and agree with much of what was said here. One immediate effect when the ruling first came into being was an increase in my E&O insurance. I now pay several thousand a year even having never made a claim in 20 years.

    Most of the accounts I deal with already are under a fiduciary relationship. That said, I want to do more than just suitable, fiduciary or not. It is my understanding that that this was intended to protect the "unsuspecting little guy" from the big bad financial advisor who surely will lie to them and cheat them. My firm has also been what I would call a champion of the "little guy". No frills, not fancy, but successful nonetheless. Unfortunately, the little guy is going to be left behind. I now make assumptions that I never gave a second thought....is the guy gonna be trying to sue my if they get a down statement? No more small accounts please, as they just won't be worth taking a chance.

    The positive side of this is fee compression. I am seeing "products" for lack of a better term forced to be much more competitive, which means I may make less $, but I am fine with that. It will be tougher than ever for a new advisor to get started in the business. The average age of a financial advisor in the country was recently reported at 61 years old. (Bloomberg I think). It is essentially becoming a game of if your parent is an advisor and you want to grow into the business, you can. Otherwise, you just don't have the time it takes to build a large enough client base. I am glad I am not starting today.

    I am pretty excited in some respects that I will be able to offer even lower all in pricing to customers. But, my fees have already been relatively low. I start at .75% a year and am using institutional share classes of funds or perhaps Vanguard and other low cost no loads for most of what I do. That fee goes lower as assets go higher. By the time the firm takes their cut, I come out at about .33%. I can make it work b/c I handle almost $100 million. But a new guy with no base can have the best of advice and intentions, but can't survive on a third of one percent, before expenses like licensing, E&O, overhead etc. These expenses run about $9,000 a year with no assistant. Most people (including you reading) aren't looking for a job where you pony up 9K a year just to have the right to go to work.

    I totally agree with he comments about taking profits. I think of an account in a very similar relationship to a craps session. Aggressive bets, conservative bets, but don't be a damn pig and keep letting it ride. The 7 will come eventually. Educating greedy clients on this is very difficult. They want to capture all the upside, and have you tell them exactly when they to take their chips off the table. Bullshit, don't be a hog and you won't get slaughtered!

    It doesn't really matter if the rule goes into effect or not because in some ways the "damage" is done already. In other ways it is forcing change for the better. It really depends on what type of relationship you are looking for in an advisor. Many people can self manage because they have taken the time to educate themselves. Others need some help and there is a cost associated with the help. Not a whole lot different than like avoiding 6:5 BJ, or Sheldon's triple zero roulette wheel. That guy must be a special kind of asshole.

    I will shut up now. Just my two cents on a topic of interest.
     
  13. flyguyfl

    flyguyfl VIP Whale

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    I self manage and my net worth increases each year. I am very conservative (401K , CD's, Money Market funds. etc).The two of us getting 4 paychecks a month and having no debt helps quite a bit.
     
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