Home > A Story of Friendship, Food and Investments

A Story of Friendship, Food and Investments

March 17th, 2008 at 11:54 am

We have some great neighbors: Connie and Jerry. Smart people. Nice people. Responsible people. Hungry people. So, I invited them over for dinner to get to know them better. Towards the end of dinner, the topic of investing came up.(OK - I brought it up.) They said they had a great financial advisor that they trusted 100%. A warning bell went off in my head. I asked 'How much do you pay in fees'? 'Nothing at all, just an initial $600 for a plan', they replied. Those warning bells got much louder. 'Do you have mutual finds', I asked. 'Yes, many’, they replied. Much louder. 'Whom do you invest with?' They said, 'Ameriprise'. Every bell in my head was going full tilt.

I explained to them that all mutual funds have expense ratios that lower their returns. But they weren't buying that. This advisor was a personal friend of theirs. They had known him for years - even before he became a financial advisor. If they were paying fees, he would have told them. It got a bit strained and they left soon after. Yikes!

A few days later, Connie called me. She had done a little research on the internet and found out that mutual funds did indeed have fees. We met and looked at their funds and the fees. What we found sickened her.

We found that they had been sold all Ameriprise-owned Riversource funds which charged a high expense ratio as well as a front end load of 5.75%. That 5.75% comes right off any new money that they put into their investments as a commission to their friendly salesman. They had no idea they were paying this, or the fund's expense ratio. It was in the fine print, but never verbally communicated to them.

The funds had not performed well. They has also been sold a variable annuity - a confusing, expensive product that not many people should be sold - and certainly not sold until they have maxed out contributions to 401(k)s, IRAs, 403(b)s and the like. They hadn't. Connie was heartsick when we added up all the fees, and horrified when I showed her the impact on their investments over time. Years of retirement had already been lost to fees. Had they simply bought low-cost index funds, their returns would have been much higher and their nest egg would be much larger.

Now Connie had a difficult task in front of her. She's not assertive and hates confrontation, yet she had serious questions for her advisor friend. As you might imagine, it did not go well. Remember that although this guy says he's a 'financial advisor', he is really, first and foremost, a salesman. And salesmen are taught to gain confidence, confuse the client and use sales tactics. And this is just what happened when Connie came to the table with her questions. And, he played a big guilt trip on her, too. Even got a bit nasty.

But Connie was strong and held her ground, even though it was hard for her. She had, by this time, learned about the impact of fees and she knew she had been sold funds that benefited the advisor more than they benefited her. So she stuck to her guns. And she watched as the advisor tried every trick in the book to confuse her. It was a big learning experience for her, and not a very nice one.

Connie kept learning and she moved her money to Vanguard and is now in a very low-cost portfolio of mostly index funds. The advisor was angry and even said some nasty things behind Connie's back to friends they had in common. But Connie knew the truth and today she loves investing and Jerry has taken more of an interest and is quite proud of his investor wife. (And she's my BFF and we've had countless meals together now and usually talk investments to the dismay of our dear husbands!!)

I've met a lot of people in the same situation as Connie and Jerry. Chances are, you could be in the same situation. I hope this blog will help you find out.

Thanks so much for reading!!

7 Responses to “A Story of Friendship, Food and Investments”

  1. brownbear Says:

    It's great to read your story and how you were willing to step out there and help your neighbors. I always felt the greatest gift to others can be shared knowledge. Bless you!

  2. Anniebird Says:

    brownbear, thanks very much but I must admit I do this because I enjoy doing it. I never would have imagined talking to people about investing would be so much FUN! My repayment is comments like yours. Smile
    Thanks very much and if you know a Connie and Jerry, please share this story.

    BTW, your cousin the BLACKbear comes up on our porch in Colorado and looks at me through the picture window!

  3. Nic Says:

    WTG Anniebird! Smile We need more advocates like you urging our friends and family to look closely at their investments and "advisors." I attended a financial seminar
    at my old company a few years ago and was very surprised that I knew more about our 401K plan than the speaker. I left after telling the "advisor" there was nothing he could teach me. We owe it to ourselves to educate ourselves.
    BTW, Welcome to SA Blogs!

  4. Ima saver Says:

    I went to an Edward Jones firm because I had no other way to buy stocks. ( no computer and I live in a tiny town.) I soon found out that I knew a lot more than the guy running the place. Every mutual fund they sell has a load. None of my funds do.

  5. Anniebird Says:

    Thank you Nic so much and good going, Ima!

    Trying to spread the message is often difficult because brokers (and their clients!!) attack me on many levels. Like Connie, many people will defend their 'financial advisor' to the death. Plus, there are a lot of people that want to argue for the sake of arguing.

    Face to face and showing people first hand via Morningstar what they pay and their returns is always successful eventually (lol) but I can't meet everyone! My husband is exasperated as it is by how much time I spend on this.

    My big challenge is not rising to the bait that 'financial advisors' throw out. I have to learn to believe that readers can think and will see the evidence that I provide.

    Any ideas on how to spread this message will be greatly appreciated. Including ideas to improve my writing style.

    Thanks for the warm welcome!

  6. Nika Says:

    Great story! This is despicable - I thought that if you pay a fee for advisors time, they should not be making any commision.

    We are doing our own investing - this is the only way to learn.

  7. Anniebird Says:

    Hi Nika,
    95% of them get some form of commission - even the fee-BASED ones that charge a percent of your assets (which can end up costing more than a commission). Fee BASED get % of assets and you don't pay loads but they can still get some form of commission.

    There are about 5% that are fee ONLY and some of them charge a percent of assets but get no commissions at all.

    There are some good (free) online investing classes:

    Great that you are DIYing!!!

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