The Cold, Hard Truth About Brokers and Financial Advisors

The case against stock brokers and financial advisors isn't just all hot air. Today, I have proof that when you use a financial advisor or full-service broker, you may find yourself with lower returns than if you'd handled your investing yourself. Read on and I'll share the details of recent research that shows just how costly professional financial advice can be.

To Germany we go!
I'm referring to a paper titled "Financial Advisors: A Case of Babysitters?" that comes to us from Andreas Hackethal and Michael Haliassos of Goethe University in Frankfurt, Germany, and Tullio Jappelli of the University of Naples Federico II in Italy. The trio of researchers got their hands on a couple of very cool datasets -- one is from a German online brokerage and includes 32,751 randomly selected customers, while the other is 4,447 clients of a large German bank.

In both the online brokerage and the bank, customers were offered the option to manage the accounts themselves or employ an advisor. That choice provided the perfect opportunity to do a side-by-side study of advisor-assisted and individually managed accounts.

Let's get right to those results. Here are the researchers summing up their findings:

Involvement of financial advisors is found to lower portfolio returns net of direct cost, to worsen risk-return profiles, as measured by the Sharpe ratio; and to increase account turnover and investment in mutual funds, consistent with incentives built into the commission structure of both types of financial advisors.

That may be a lot to digest all at once, so let me break this down a little further. There are three very crucial points that the researchers highlighted:

  1. Lower performance. Bottom line, the research showed that the accounts that used financial advisors had lower returns (net of fees) than the accounts that did not. How much lower? A whopping five percentage points lower. That smarts. But just how much does that hurt? Starting with a $100,000 portfolio, over the course of 30 years, getting 7% returns instead of 12% means a difference of a cool $2.2 million, or having a $761,226 account value instead of nearly $3 million.
  2. Lower risk-adjusted performance. A potentially reasonable explanation for No. 1 above is that advisors are serving their clients by creating safer portfolios that produce lower returns but also have lower risk. But that doesn't appear to be the case with this dataset. The researchers found that advisor-assisted accounts also had lower Sharpe ratios. The Sharpe ratio is a measure of performance that adjusts for risk, so the findings suggest that investors using advisors were getting less compensated for the risk they were taking as opposed to investors who weren't using advisors.
  3. Padding their bottom line. Finally, the results suggest that, on the whole, advisors in this dataset were focused on padding their own bottom lines. Accounts that used advisors had higher turnover and were more heavily invested in mutual funds -- both outcomes that would (conveniently!) earn higher commissions for the advisors.

What have you done for me... ever?
Take a moment to think about what it means to pay a professional for their services. I've had problems with scorpions in my house, so I hired a pest professional. Evaluating that service has been simple -- I've been happy because I'm not seeing poisonous arthropods running around anymore. Which, mind you, is an outcome I was woefully unsuccessful at achieving on my own.

Likewise, you could hire a plumber to fix a leaky faucet or a doctor to treat an infection with the expectation that either could do a better job at remedying the problem than you could.

With all of that in mind, consider this: What is a financial advisor worth if you end up with lower investment returns?

Say it ain't so!
I'm sure there are holes that could be poked in this research, and I'd be overreaching if I were to suggest that this one study of a couple of financial outlets in Germany is enough to condemn the entire financial advisory industry worldwide.

At the same time, if I'm Bank of America's (NYSE: BAC  ) Merrill Lynch, Morgan Stanley Smith Barney (a Citigroup (NYSE: C  ) / Morgan Stanley (NYSE: MS  ) joint venture), Wells Fargo (NYSE: WFC  ) , Charles Schwab (Nasdaq: SCHW  ) , or any of the many other players in this multitrillion-dollar business, it's got to be a bit uncomfortable that research like this is coming out. For decades, brokers and financial advisors were very much like the great and powerful Oz, hiding out behind a comfortable and profitable shroud of secrecy. In the age of the Internet, it's becoming much easier to find out the value -- or lack thereof -- that brokers and financial advisors actually offer their customers.

But I'm not writing this to simply crucify the industry. I want to hear what you have to say. Whether you're a financial advisor or broker client or you're a financial advisor or broker yourself, I want to hear why you think this research hits the nail on the head or why it misses the point. Share your thoughts in the comments section below or send us an email at tips@fool.com.

The Motley Fool owns shares of Citigroup and Bank of America. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Charles Schwab. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Morgan Stanley and Bank of America, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 20, 2012, at 1:58 PM, jpanspac wrote:

    I have a suggestion for TMF. Publish a short quiz that people could give to prospective financial advisors to find out how well they know their stuff. I'll even contribute a question:

    1. List all the disadvantages of taking out a loan from your 401k plan.

    You'd be surprised how few people can get that one right.

  • Report this Comment On March 20, 2012, at 2:21 PM, madkin wrote:

    Padding the bottom line is actually called "churning" and that is illegal. So I take it that the Finacial industry will not like this research at all and will try to deflect.

  • Report this Comment On March 20, 2012, at 2:29 PM, futbolgenius wrote:

    I'm conducting my own little experiment. I have what I call MY account, managed by yours truly, and an account managed by a subsidiary of one of the firms you listed in the article. Both accounts started with roughly the same amount. The tenets of the managed account is to protect on the downside and *at least* match on the upside. They use (mainly) ETFs, most of which I've never even heard of and I simply wouldn't have the time myself to vet. MY account does whatever the heck it feels like; options, equities, ETFs, whatever. Net expense ratio for the managed account: 0.70%. Net expense ratio for MY account: my time + whatever ETF costs may be owned in the account at any time (XLU & IAU are the only ones at the moment).

    6 months in for the managed account: MY account is up 15.91%, managed account...drumroll please...up 8.44% (as of yesterday's close). S&P during that timeframe: up 15.2% or thereabouts. I started the managed account as a means of easy, hands-off diversification. HOWEVA, I've now discovered I can't DRIP, weighted yield of the holdings is only 2.07% (MY account in the 3.2% neighborhood), and I'm paying "Pros" to underperform me, an amateur at best.

    Armed with this info, I took 30 minutes out of a workday to throw together a basket of 10 stocks that are just as hands-off, big names, international exposure, weighted yield of 3.6%, DRIP all I want, easily diversifies my ENTIRE brokerage account and NO FEES. I know 6 months in the investing world is like 6 seconds, but I've realized I can achieve the same goal with a portion of my overall account and save money. It's not so much the performance I have a problem with, it's the low yield of a supposedly defensive portfolio and no reinvesting option. Now I have to explain to my wife why I haven't dropped the managed account like a bad habit...

  • Report this Comment On March 20, 2012, at 2:31 PM, TMFMorgan wrote:

    Good stuff Matt.

  • Report this Comment On March 20, 2012, at 3:25 PM, outoffocus wrote:

    Nice of you guys to come out with this article right after I become a financial advisor. Thanks.

    But on a more serious note, I think it depends on the objective of the advisor. As an advisor I want to help the people who need it most; the working class and middle class that lack any really understanding of money and finance. (Mind you the majority of the Financial Advisory industry ignores these people) These are the people who make money but have no friggen clue what to do with it. These people dont even have emergency funds. They don't know what a stock is, let alone savvy enough to have a sharebuilder account. I'm an independent advisor, unbeholden to any particular financial institution. This allows me to set client goals and objectives without having to force proprietary products down my clients throats. For those clients that don't have accounts, yes an advisor can be helpful. As they are building financial freedom they would not have had otherwise.

    In sum, I dont think its fair to lump Financial Advisors in with brokers and paint us with such a broad brush. Not ALL advisors give low returns, not ALL advisors are out to simply making money without any regard for the client. As someone pointed out earlier, "churning" is illegal and can result in a loss of license. And lets be honest, for someone who doesn't anything about stocks or investing, mutual funds can be a good starting point; as many people do not know how to do due diligence on any particular stock and could end up losing their life savings in one of those penny stocks that we all get emails about.

    People need to evaluate what they need in advisor and check an advisor's credentials. But to simply tell people that no one needs advisors can be dangerous and result in people not receiving much needed advise.

  • Report this Comment On March 20, 2012, at 4:02 PM, BxBruce007 wrote:

    Seven years ago, I set up a portion of my savings with an investment advisor. At the time I wasn't paying enough attention to my holdings and thought it was a good idea.

    First the good - In many ways they helped. I got a few investment ideas from them that I applied in my own managed account. Also, the very act of getting them involved led me to focusing more time on my own holdings.

    Now the bad - I compared their results over the time frame to mine and, no surprise, I am out performing them. This really shouldn't be a surprise as one has to remove their commission from their results and consider they play it, allegedly, safer. Also, just as this article says, they do invest much more in mutual funds. And that has disturbed me from the beginning.

    I've decided to let this play out a bit longer but I have to say that the more I spend on my investments the less sense it makes to have someone else handle them.

  • Report this Comment On March 20, 2012, at 6:34 PM, phyllisritvo wrote:

    Why are you not mentioning the difference between fee-only advisors and commission advisors? The former usually have the client's interest at heart.

  • Report this Comment On March 20, 2012, at 7:03 PM, lu10ent wrote:

    how do i fire my broker?

  • Report this Comment On March 20, 2012, at 7:04 PM, xetn wrote:

    How about the laser-sharp management of our money by the Fed: ... " since 1969, the inflationary monetary policy of the Fed has caused the US dollar to depreciate by over 80 percent, so that a $10f0 note in 2010 possessed a purchasing power of only $16.83 in 1969 dollars. That is less purchasing power than a $20 bill in 1969!" ~ from: http://mises.org/daily/5968/Laundered-Money

  • Report this Comment On March 20, 2012, at 7:25 PM, Millsteen wrote:

    Financial advisors in full service brokerage firms earn their commissions when their clients trade. They are therefore sales people first and financial advice takes a backseat to their incentive to encourage buying or selling. They are also going to push products that pay higher commissions. Secondly, anybody willing to take a little time to understand stocks or bonds, will always make better picks than any financial advisor, analyst or tv commentator. In fact, financial advice from brokerage firms is often very bad and detrimental.

  • Report this Comment On March 20, 2012, at 7:35 PM, daveandrae wrote:

    This has been published before, but it bares repeating.

    Over the last 30 years the market has returned 8-9% on an annualized basis vs a 2-3% return by the Individual investor.

    Obviously, when one juxtaposes "investment performance" against Investor return, there is absolutely, positively, no correlation whatsoever. In fact, the two are wildly diametrical.

    This is where an excellent financial advisor steps in. Is it worth 1% to you, per year, to get your average up to into the 8-9% range over the long term, or, do you honestly believe that you WILL GET into the 8-9% range return on your own.

    And no, I am not a financial advisor. What I am saying is that from where I stand, I don't see anyone around me coming anywhere NEAR to matching, let alone exceeding the market's performance.

  • Report this Comment On March 20, 2012, at 8:57 PM, Basilleaf wrote:

    Many years ago, I had completely relied on a broker to manage my savings. The result is that she only bought front-load mutual funds for my account. It means she took the commisions immediately and the return of profit is no more her interest. I have learned my lesson only a few years after. If I had to do it again I would hire a fee-based advisor instead. Or the much better way is DIY: spend some time on regular basis to manage my own account.

  • Report this Comment On March 21, 2012, at 12:27 AM, CitizenH wrote:

    I just fired my Ameriprise Finencial Advisor. What a scam! To summarize the cost and services:

    - $1200 yearly fee

    - $1,25% in fees for money under management

    - $1.15% fees for funds (all of them had front loads. The guy said I don't pay for them - but someone get's the money I guess)

    - Constant pushing of Ameriprise products (Life Insurance, Disability Insurance)

    - Request to sell pretty much all my stocks that I have with Scottrade and move over to Ameriprise

    I got advice on how to allocate my 401(k) and 529 plan - but I never get a full financial picture on how my entire financial situation is doing. Only for the part of the money that is under their management.

    I really wanted to get help - but this is just a scam. Let's hope Supernova actually is a good alternative.

    Good luck

  • Report this Comment On March 21, 2012, at 12:59 AM, goalie37 wrote:

    I worked very, very briefly at a real boiler room type brokerage firm in New York. I don't want to paint the whole industry with a brush based on my experience with one firm, but it taught me never, ever, ever to trust a so-called "pro" with my money. Not only was their interest not in line with the clients, it was usually diametrically opposed to the interest of the client!

    Now I'm back in California working in a job where I have no ethical dilemma, and handling my own portfolio. The results of both are far superior.

  • Report this Comment On March 21, 2012, at 6:08 AM, nivekluap wrote:

    How to fire your broker:

    1. Pick an online brokerage firm. (I use Zecco, but somewhere at the Fool's website there is a listing of many and comments for and against each one.)

    2. Have your online account firm transfer your funds/stocks from your current broker to them.

    3. As soon as you get this ball rolling, write a note to the person you deal with and let them know you will now be your own broker and you appreciate what you've learned from them...No need to be nasty! When I explained this to my old broker, she sent me a letter thanking me for my business and wished me the best of luck. Best of all, no face to face break-up!

    As far as the comment above about "the average investor" not doing as well as the S&P....Spend a couple hundred bucks a year and sign up with Stock Advisor....and take their advice on what to invest in. I just looked it up and since 2002 David's picks are up 122%, Tom's are up 70% and the S&P is up 25%. THIS IS NOT A COMMERCIAL, just a guy who is a satisfied customer for three plus years.

    Fool On!

    KD

  • Report this Comment On March 21, 2012, at 8:15 AM, A2Matty wrote:

    Amen to all of these comments! Great (and now quite obvious to me) article. I fired my financial advisor and went to etrade about 2 years ago. I have a hard time understanding how at from ages 28 - 33 it was recommended that I "reallocate" about 15 times!!!! Yes, a cozy description of churn. They give nice explainations but if I don't have a wildly huge portfolio and I'm adding a significant amount each month, why not just redirect where the money's going? Because they don't make a rediculous amount of money unless balances move. Now married and 35 I've convinced my wife that her "guy" is a crook. She had a SEP with him with a small amount of money in it. He had most of it in cash (?!) and charged a fee to hold that!!!! When I told him to get investing or we're moving it, he stated there was nothing worth buying - in OCTOBER OF 2011! Everyone who follows the market has their wishlist of what they should have bought in early October of last year - needless to say this is now a self managed SEP.

    We are approached regularly by "advisors" who essentially try to sell us on mutuals and insurance products.

    For those who doubt strong individual returns, I promise you - if you spend time on here and watching financial news and paying attention to your money - you'll beat the S&P.

    Fee based advisors may have their place, but I'll likely never work with any of them again.

    Fool On!!!

    Matt

  • Report this Comment On March 21, 2012, at 10:12 AM, MyPortfolioGuide wrote:

    Sorry...this article is a disgrace. I normally like some of the stuff I read here but you put all advisors in the same bucket. The firms you list are a case study on some of the worst of the bunch. One discount broker, three banks, and a commission heavy wire house is not a good sample size. I admittedly haven't read the "German" study but why do I suspect it's not really picking up on the "cold, hard , truth"?

    Of course....if you're with one of these firms, Ameriprise, or perhaps you've been hooked by the cerebral black & white commercials of baby boomers at Edward Jones....you've been taken to the cleaners by salespeople. The EJ commercials are the best. Do these geniuses know that they own loaded or proprietary mutual funds? Smart.

    There are independent RIA firms that don't shove product and aren't on commission. Registered Investment Advisors have a fiduciary duty to do what's right.

    I own such a firm and I have yet to meet a single person where I have not lowered their fees and expenses NET of my own investment management fee. My Portfolio Guide only charges 0.50% and you won't find mutual funds in any portfolio.

    Lastly,,,,you'll see more and more of these articles when the market goes up. It makes a lot of people feel like geniuses. Just by some AAPL and you'll have something to talk about and it of course will keep going up, right? To round out your portfolio just go on sites like this or use other stock screeners and with your incredible due diligence just buy those holdings.

    Super...all set? See you in 2013....

  • Report this Comment On March 21, 2012, at 11:35 AM, sikiliza wrote:

    @ jpanspac

    OK, you win. What are the advantages (if any) of borrowing from your 401k? Isn't that the equivalent of "consuming my future"?

  • Report this Comment On March 21, 2012, at 12:02 PM, outoffocus wrote:

    "Sorry...this article is a disgrace. I normally like some of the stuff I read here but you put all advisors in the same bucket."

    MyPortfolioGuide

    I tried to make this point before. As you can see from the comments it was largely ignored. Also I am curious as to the investing acumen of the people in the study. Because I can tell you right now, the average american does NOT know much about investing. People who come to sites like this are a rare breed and even then just because you read investing knews does not mean you know how to invest. Very reckless indeed.

    I am an independent Financial Advisor who is also a CPA. Which means I have other streams of income outside of financial product commissions. This allows me to put my clients needs first. But if people want to believe an article that labels an entire industry based on a few bad apple, with comments from a few people that want to vent about their bad experiences then so be it. But I'll say it again, there are people out there that will not even save, let alone invest, without the help of an advisor. If people go around bashing all financial advisors based on a few bad apples and an misinterpreted study, then just know you are doing more harm than good.

  • Report this Comment On March 21, 2012, at 12:19 PM, outoffocus wrote:

    investing news*

  • Report this Comment On March 21, 2012, at 1:06 PM, jpanspac wrote:

    sikiliza, I said disadvantages, not advantages. The disadvantage almost every advisor misses is the double taxation.

  • Report this Comment On March 22, 2012, at 12:12 AM, Marmadukemark wrote:

    Of course, the author was generalizing. We all know that there are good apples within the barrel. Some of the comments are revealing. Basilleif said "Or the much better way is DIY: spend some time on regular basis to manage my own account." Basil, I agree, but isn't that what advisors are supposed to do for you?

    It's true. Not everyone has that time, or the wherewithal to go it alone. But we recently learned how Goldman's brokers regard their clients (muppits, i.e. stupid), and whether it can be proved or not really doesn't matter. We know it happens and it happens all the time. Public sentiment has been increasingly negative because of all the problems that they created, mostly because of their most notable attribute: GREED.

    I use Schwab and make my own trades and am not the least uncomfortable. Their $8.95 trades give me access to their investment and other tools I find useful. But they do not manage my portfolio, charge anything additional to their trade cost, and they don't inundate me with sales pitches. Morgan Stanley recently gave me a proposal to manage (invest) a healthy sum of cash they hold because of an inheritance. The cost was unbelievable and they made it whether they make good investments or terrible one. Eh, no thanks.

    And sorry, outoffocus, I love your sense of humor and admire your business morality, but the problem is not everybody going around bashing financial advisors - the problem is one the industry has brought upon itself. From the stories of little old ladies losing their life savings to a crooked advisor, to the unbelievable rates of compensation for undeserving execs, to Occupy Wall Street.

    It is a service industry, and when it fails in that capacity, it must change.

  • Report this Comment On March 22, 2012, at 5:44 AM, nivekluap wrote:

    Good points made about the "average investor" above, BUT, people can become better than average by reading, learning, and reading more.

    If you haven't read "The Intellignet Investor" yet, that's a good starting place. I've read it 3 times now and vow to read it at least every other year to remind myself about "Mr. Market" and the idiots and crooks on Wall Street. Never hurts to read articles like this one to get some "professional" help too.... ;-))

    Fool On!

    KD

  • Report this Comment On March 22, 2012, at 11:09 AM, outoffocus wrote:

    Marmadukemark

    I agree that many advisors are not properly serving their clients. But people need to know that just as there are alternatives to big banks that charge a bunch of fees, (e.g. credit unions, regional banks), there are alternatives to using big brokerage houses. Big brokerage houses treat their clients the way they do because they know they can. And the brokerages can do this because people choose these big brokerages based on name alone. But as with anything, people need to do their due diligence and have an open mind enough to consider the alternatives. It is often in the alternatives that people find the best value and better service.

    Yes people can manage their own portfolios if they do their own research, but isnt the whole point of hiring someone is so you don't have to go through all of that. Typically when someone hires a person to do a service, it is because they don't want to be bothered with doing the service themselves. They are paying money in exchange for the ability to devote the time spent doing it themselves to something else. That is the service industry in a nutshell. So it doesnt matter that people CAN manage their own portfolios. Simple fact is many people WONT. So for THOSE people there needs to be someone who can perform that service. As far as financial advisory is concerned, there is far too much competition out there for a customer to just be stuck with some big brokerage house that's reaming them in fees. If you are unhappy, then leave and find another brokerage that will treat you better. Period.

    But I refuse to be painted as useless because of a few cocky millionaires Wall St.

  • Report this Comment On March 23, 2012, at 11:47 AM, DS31 wrote:

    Funny...I hired a plumber to fixed a water pipe that had burst and he charged me $140 (and was done in 30 minutes). I thought it was worth it at the time because I didn't know how to fix it myself. Then I had another plumbing issue and decided to watch a YouTube video on how to fix it and decided to give the DIY approach a try. Guess what? I fixed it for less than $20! Same thing the plumber would have charged $140 for.

    It should be obvious from my anecdote that if you can do it yourself, you will save a considerable amount of money. But if you can't, then you will most likely need a professional Financial Advisor to assist you. And will all things, caveat emptor!

    Dan

  • Report this Comment On March 23, 2012, at 12:12 PM, Gottamouthoff wrote:

    Before I sat down to read this report I had been trying to see where my prospectus from Blackrock GDEF was earning money for me. Of course I am dissapointed. It always seems to show just losses after fees and taxes. I have the book by Mark Dempsy, ROBBING YOU BLIND. He pretty well sums up what the report suggests. When I called a Merril Lynch office and asked for some explanation as to the lack of returnes they told me to take my account elsewhere. I particularly cant understad how portfolio turnover of 37% is necessary if it cannot deliver. That is 2% to sell, 2% to buy, no frigging wonder there is no gain.

  • Report this Comment On March 23, 2012, at 12:52 PM, scs660 wrote:

    I would say that I trust Fee Based or Asset Growth planners more than commissionable planners or brokers.

  • Report this Comment On March 23, 2012, at 2:58 PM, tnskypilot wrote:

    Used a broker for a small account three years ago - with his advice I lost 12% in a few months as well as paying the normal outrageous commissions for transactions. After I gave him the boot and went with a self managed account, I, a rank amateur, have gained over 50% in my account simply buying low and selling higher. Plus added a bit through dividends.

  • Report this Comment On March 23, 2012, at 4:46 PM, MCCrockett wrote:

    Ever since I rolled over a 401(k) from a former employer into an IRA in 2002, I have worked with a financial advisory group. Before signing up with them, I requested that they prepare a proposal for managing my IRA.

    Their solution was to split the IRA into multiple accounts with differing goals and to use different investment advisory services to determine the mix of bonds and equities to be held in each account.

    I paid a wrap fee based on the value of my account(s) to the financial advisory group. At times I thought the fees were excessive but we were, usually, able to reach an agreement on a new fee schedule. SmithBarney corporate policies did get in the way occasionally.

    Over the past decade my annualized return has been around 9%. My wrap fee has dropped from 3% to 0.5%.

    Given my billing rates or, even, labor rates; it would have cost me much more than what I have paid in wrap fees to do the basic research needed.

  • Report this Comment On March 23, 2012, at 4:57 PM, MCCrockett wrote:

    Oops, I forgot to note that my financial advisory group left JPMorgan/SmithBarney at the beginning of last year. I was invited to go with them.

    I have no illusions about why I was invited. The success of a financial adviser or advisory group is based on the value of assets under management.

    My current wrap fees are a quid pro quo for moving my account.

  • Report this Comment On March 23, 2012, at 8:21 PM, bobbyk1 wrote:

    My grand experiment started in July 2011.I took half my money and put it in a managed account and I handled the other half.After a year and a half I cashed out of the managed account with meager gains.Just seemed to me they tried not to lose money instead of making money.Since October 2011 I am beating the market by 80%.Stock Advisor has been a big help.Fool for life!

  • Report this Comment On March 23, 2012, at 8:56 PM, axvc84 wrote:

    For TMF to paint the Financial Advisor Industry with such a broad brush I find very disappointing. I have been in the brokerage industry with a St. Louis firm for over 29 years now. Admittedly the learning curve was brutal as it took some time to settle in with the firms star analysts and take their recommendations to my clients. I have to say many of my biggest winners were companies recommended by my firm years before I saw them listed on TMF...I could go on..but I don't want to waste my time or yours. A much better title for this "article" may have been something like...Beware, not all Financial Advisors and Brokers are created equal.... I think TMF marketing dept. may want to pick up a copy of the well known read, "How to win friends and influence people".

  • Report this Comment On March 23, 2012, at 9:15 PM, TMFKopp wrote:

    @axvc84

    "For TMF to paint the Financial Advisor Industry with such a broad brush I find very disappointing."

    From the article:

    "I'm sure there are holes that could be poked in this research, and I'd be overreaching if I were to suggest that this one study of a couple of financial outlets in Germany is enough to condemn the entire financial advisory industry worldwide."

    Also:

    "I think TMF marketing dept. may want to pick up a copy of the well known read, "How to win friends and influence people"."

    1) I'm not with the marketing department.

    2) While I have no interest in being antagonistic for its sake alone, I'm also not interested in singing Kumbaya and making friends with everyone. To the extent that I see the financial advice industry not serving clients well, I'm going to call that out.

    That said (also from the article):

    "But I'm not writing this to simply crucify the industry. I want to hear what you have to say. Whether you're a financial advisor or broker client or you're a financial advisor or broker yourself, I want to hear why you think this research hits the nail on the head or why it misses the point."

    On that note, thanks for taking the time to read and share your thoughts (and the same goes to everyone else that's done the same!)

    Matt

  • Report this Comment On March 23, 2012, at 11:06 PM, rabbitt0 wrote:

    Daveandrea, I have never used an advisor (other than TMF, SA and HG) and I am averaging 6 points above SP500 since I began over 10 years ago...

  • Report this Comment On March 24, 2012, at 9:42 AM, theboilermaker wrote:

    We experienced an exception to the double taxation 401k issue--maybe just foolish luck. A 401k loan is not double taxed if the loan is used for an appreciable investment that gains in value more than the loan amount--as we did for a home improvement which resulted in a higher sales price, which is tax-free up to the $500,000 appreciation married limit--the loan is thus paid back with tax free funds. What may be lost is the 'appreciation opportunity' in the deferred 401k account, but as with our home improvement, we just replaced it with another tax free opportunity appreciation. The key is, just don't spend the loan on a taxable investment (unless you can beat the Capital Gains tax). And for gosh sakes, just don't consume the loan, thus it takes after tax dollars to repay back to the 401k account, that gets taxed again in the future when withdrawn.

  • Report this Comment On March 24, 2012, at 12:21 PM, daveandrae wrote:

    Rabbitt-

    My father in law got out of the market in late 2008 around Dow 8,000. He's been watching it go up ever since. I can think of several other real world, true life, stories similar to this that I won't even bother getting into.

    Thus, you are deluding yourself if you believe that the majority of the investing public is better off trying to get from point a to point b by themselves. Not only have i seen them fail, and fail miserably, but I have seen them do so in with exquisitely horrific timing.

  • Report this Comment On March 24, 2012, at 1:28 PM, sunsetdeb wrote:

    I have always said no one cares about my money more than I. Managing one's income and retirement is just as much a business as any other I know. It takes time, effort, research and responsibility. Give that away and you get what you deserve. And by the way I clean my own home too. You just can't pay someone enough to do your dirty work.

  • Report this Comment On March 24, 2012, at 1:55 PM, bucktoothhchuk wrote:

    My wife and I started our 401k's at the same time - maxing it out annually. I have a higher company match because I am self-employed. So I have actually contributed more over the years. We treat our two portfolios as one so our asset allocation is almost identical (only difference being I carry our commodity and REIT asset classes - 10% because lack of availability in her plan). Her plan has a cost basis of about .20% and my solo K was managed -1.25% of assets and .88% average fund expense ratio. After 14 years her 401k has $80,000 more than mine. I always said that I didn't want to be bothered with managing my money until I extrapolated this out another 20 years. Needless to say I became a DIY investor. Last year I read "Asset Allocation for Dummies", transferred my solo K to Fidelity, switched to ETF's and have never been happier. I would gladly pay an advisor for performance but sadly all they did for me was siphon off money that would have been better served compounding. If people only understood the power of compounding and the huge impact that those seeminlgy benign 1-2% management/mutual fund fees have over time you would have a lot more DIY's. Just my 2 cents.

  • Report this Comment On March 25, 2012, at 6:36 PM, jrgyardley wrote:

    I recently closed out my former employer's savings plan and had to decide what to do with the proceeds.

    I concluded I would DIY for the following reasons:

    -While I believe the firm's I deal with are by and large honest, I did not want to take the small but finite risk of having my assets outright stolen or, at best, encumbered by years of recovery litigation given the recent instances of rogue traders (UBS) or even criminal senior principals-Madoff and Corzine (yet to be proven) at MF Global.

    -After reviewing their sample portfolios, I concluded that the advisers would not earn their fees relative to DIY.

  • Report this Comment On March 25, 2012, at 8:18 PM, OzTraderRN wrote:

    I've been happily trading on my own, earning a decent profit, until I signed up with a broker, thinking they know more than I do. I only transferred a portion of my portfolio, and still trading on my own with the remaining portfolio. After a few months, I found that the broker was losing me money, while I was making money on my own trades. Why should I pay someone to lose my money, I could easily do so with my eyes closed.

    They were definitely trying to get me to do more trades, to earn their commission. At 2% commission per trade, the stock had to increase by 4% before I make any money!

    Not to mention that they are pretty late at picking stocks. By the time they make the trade, the price was moving in the wrong direction.

  • Report this Comment On March 25, 2012, at 9:26 PM, Bkeepr100 wrote:

    Yes the individual invester has the potential to outpreform a broker. I have since begining to manage my self directed rollover IRA.

    TDAmeritrade has worked well for me. The average returns have beat the market big time! Being a contrarian helped as well. I was one of the guys buying in the fall of 2008 at or near the low point of the market crash. So far the returns in value are at about 300%. Thanks for the tips, Sinch! One of MF best writers in the area of analysis in the metals sector.

  • Report this Comment On March 26, 2012, at 3:33 PM, jhonnyappleseed wrote:

    I am new to stock market

    Remembering when we played a simulator back in elementary school when internet did not exist. I was intimidated by the numbers. Now today its amazing how technology has advance and now I can learn how to trade all by reading online.

    My point is.... everyone is different and not everyone can intellectually make good stock choices. Getting a financial adviser that is making any money better then not making anything at all.

    I agree to take on my own and wish me luck that I make great choices. Fool has my back with their amazing percentage I think I will do OK.

  • Report this Comment On March 27, 2012, at 9:26 AM, drivebytrucker wrote:

    I got into the "advisor" business because of he same points in your research. Most of the industry suck completely or are NO GOOD. However I am charging a modest fee and only use 2 mutual funds that have averaged 10%+ for the last decade, way better than the market. Also the majority of my business I use index ETF's. I pushed and pushed for my clients to buy QQQ/AAPL in 10/11 of last year. Many didn't bite out of fear. The ones that did also at my rec bought FBT "biotech" and QCOM in late December. Needless to say some of my "key" balanced accounts are up 10% ytd with only a 60% allocation to stocks. Not all of us are bad or don't know what we are doing!!! Many of my clients have serious jobs and don't have a CLUE about what to buy etc...... For those of you that have beat the market on your own I say GREAT. My most aggressive clients are loving my AAPL/QCOM options strategy YTD and know that I can fully hedge them with puts whenever they feel.

  • Report this Comment On March 27, 2012, at 11:10 PM, pastabelly wrote:

    We are all feeling good right now that the market is up. How good did you feel when you lost 10% of your portfolio in one day last summer with the debt deal being delayed? It sounds like every commentator got into the market in Oct 2011 and is a genius right now. Remember that your risk tolerance is much higher for yourself than for a broker. "Hi Mr. client , your balance? MF said to buy RAX and IPGP both lost 30% last week and you lost 10 grand today, but don't worry they'll be back up in April."

    Most Americans are not going to be able to handle this type of risk and would rather put their money in a .0005% savings account. I work with about 40 people and I am 1 of 3 that even have an IRA much less manage one. We have 401k's with many funds to pick from, but it seems like everyone is in money market and bond funds after 2008, and is not enjoying the kind of returns I get with large cap and small cap funds. Most of these people need financial help so there should be plenty of clients out there for advisors to get.

    I am selling stuff now just to lock in some gains for a change after the ups and downs for the past few years. That is my new style, which is a change from the buy and hold, but I remember last summer thinking "If these stocks ever get back to their 52 week highs, I'm selling." If its blue chip I'll hold but the higher risk up and down ones I sold until the next down market. A Broker simply can't do something like this.

  • Report this Comment On January 28, 2014, at 11:11 PM, nighthawk01 wrote:

    What about Interactive Brokers ??

  • Report this Comment On May 30, 2014, at 10:47 PM, tcollier8 wrote:

    I worked for P&G for 12 years. My job was outsourced 5 years ago. I got lucky and landed a state job after 6 months of unemployment. Although the current job I have pays only 2/3 of what I was making I rolled over my profit sharing to a broker I knew. I was with him for 2 years and I did well with him 10% profit. He wanted me to go into a more conservative portfolio as he was going to retire and at 55 I wasn't ready to go conservative as i had 7 years left before I felt I wanted to retire at 62. I went to another broker and let him manage 1/3 or my money and I manage the other 2/3. Well the broker has made 8% for me with the 1/3 I gave him, I trust him and he always talks of staying balanced and having 20% bonds. He takes 1 1/4% of my earnings and so far Im fairly happy with him. The other 2/3 that I have managed I have made over 20% with. I have zero bonds with those funds but do however still have a strong presence of conservative as 1/2 of that fund is still P&G stock. The other remaining stocks I have I pick and choose by how I feel on a company or whom I know that works there through my large network of acquaintances I have made. I also look for mostly good dividend stocks. So far Im happy with where my retirement fund is heading but always feel I need to diminish the 1/3 I have with my broker back into my own hands. I feel I'm a total novice at the stock market but I do research watching historical prices and reading what I can on Motley.

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