I'm an academic, a scholar. I'm good at research. I also respect expertise. As an academic, outside the insignificant domain about which I know more than anyone, there is always someone who knows more than I do, with whom I consult when I venture into his or her insignificant domain. Become a Complete Fool
This is by way of preface to my disgust with stockbrokers and brokerages and analysts. I believe strongly in expertise and professionalism. None of us can know enough about everything we need to get done in our lives�specialization is one of the hallmarks of civilization, and even "primitive" societies had experts. I don't try to heal myself; I have a good doctor whose advice I take, including when he tells me to do things I don't like. I suppose I could learn to change my own oil, but learning how and having all the necessary stuff around to do it, and taking the time, just isn't worth it, when I can drop the car off at the gas station or pay a little extra for an instant oil change. There's a guy, where I buy wine, who can make recommendations in my price range; since I don't need another hobby, I don't read wine books or columns or belong to a wine club.
For all Motley Fool touts the idea that we can all learn to be our own financial advisors, I don't believe it. Most people in this country can't even balance a check book or set up a simple budget plan to live within their means, let alone decipher SEC filings. There is certainly a need for much better financial education�stock-picking being at the bottom of the list of what needs to be taught. But we also need real experts to help those who don't have the ability, time, or inclination. We need experts who put the client first. We need experts who are experts, and the first part of expertise is critical thinking about that of which you are supposed to be an expert.
I've never wanted to be even an amateur financial planner�though, out of necessity, and with the help of Vanguard and Motley Fool, I'm now a pretty good one. We live frugally because those are our tastes, and as DINKs that makes it easy to live within our means. We avoid debt, other than the mortgage we paid off early, we drip money into retirement plans in a relatively conservative fashion (even more conservative now), and we put money into CDs.
Quite frankly, I've always thought the stock market was pretty much of a scam, and boy have I been proven right. But, you know, the tax advantages are pretty persuasive�it gets annoying paying more than 1/3 every year for being a fiscal conservative. So, after the market crashed for the first time in 2000, with a big CD coming due, I figured it was time to give in to what everyone was telling me and find the most cautious way I could to enter the stock market, a no-load index fund. (I've told this story before.)
This is where my desire for expertise got in the way. I was afraid just to send money to Vanguard, with only distant advice available. I at least wanted to consult an expert with whom I could engage in a discussion. I got recommendations, talked to a couple who didn't impress me, then talked to one who struck me as both knowledgeable and in tune with my conservative inclinations.
Let's just say, if all the full service brokerages in all the world get bankrupted for their sins, I will uncork a bottle of champagne, with or without Ingrid Bergman.
Let's begin with being more or less told that Class B shares on a mutual fund are the same as a no-load fund, if you hold on long enough�we won't mention the higher expense ratio. Then, there's being advised about a new, "enhanced," S&P 500 fund, to be available soon; we can just transfer from the "un-enhanced" fund now available�a transfer that cost over $1000 in short term capital gains taxes, because the market took a sudden surge, before its subsequent downward spiral, over $1000 to no advantage, with my "expert" not even mentioning that you pay capital gains taxes for moving between funds, if you have a gain. What about individual stocks�of course they'll do better than an index fund, so let's get a few. What did I know about valuations? How did I know that Nextlink, with its wonderful new model for telecommunications and its unfailing, innovative entrepreneur, was hopelessly in debt, at best a high-risk investment, with a share price where the possible long-term return was nowhere near commensurate with the risk?
Then, there are the fees. We all know about commissions on trades. But why do I need a margin account, if I refuse to touch margin, or checking and credit card privileges? Why should I pay an annual fee, anyway, if they're already making plenty of money from the expense ratio on my fund and commissions on my trades?
Why am I on my high-horse, today? Having already taken most of the money out by selling the "enhanced" S&P 500 load-fund and moving to the Vanguard Total Stock Market Fund, I am finally getting around to closing what somehow became not only a taxable account, but IRAs for both my wife and myself (we had some small IRA CDs come due during what seemed like "buying opportunities," so small paying account fees is ridiculous, as a real financial advisor would have explained). Now, there are the account closing fees�I've learned enough to expect those; in two years the savings will take care of themselves.
But, just to pour lead into an open wound.... Transfer and account fees for IRAs technically can be paid with money from outside the IRA, unlike trading commissions or fund expenses. Only, this brokerage won't let me pay that way. So, money that could be in an IRA delaying taxes gets depleted, while the money I save instead of paying the fees in cash, will get taxed in the bank.
"Come all ye young fellows" (and gals), "take warning from me...:
And don't pay a broker, a brokerage fee.
For he'll (or she'll) wheel you and deal you and sell you some buys;
But when you add up the money, it's nothing but lies.
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I'm an academic, a scholar. I'm good at research. I also respect expertise. As an academic, outside the insignificant domain about which I know more than anyone, there is always someone who knows more than I do, with whom I consult when I venture into his or her insignificant domain.
Become a Complete Fool