Strange call from my broker
 

I received an odd call from my broker the other day, and wanted to get the opinion of someone more knowledgeable than me on the matter. This isn't really an active account, this is a rollover IRA from when I changed jobs 19 years ago, plus a taxable account with money I inherited when my mother passed away. I'm not adding anything to either account, I'm putting excess cash into the 401k at work.

He asked me if I was aware of the government mandated changes coming up in April 2017, and I'm not. He said I had to move everything into actively managed funds, and I couldn't leave it in the stocks and funds it was currently in. This would cost me 1.5% per year.

Now I've done some googling, and all I can see is regulations coming into place where they have to work to my benefit, not theirs, when making recommendations. This move doesn't seem to be to my benefit. Is he trying to pull a fast one on me? Time to find a new broker?

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What is the name of the company? It's not E J is it?

I don't know what you mean by " not an active account."

It sounds to me like he works for the company you have your investments with, but, in a not so smart decision, is going against all the compliance training he has taken. Maybe he is trying move you from his "inactive" cue, to get you onto active accounts so he can start making a commision, and show better year end results.........sounds fishy to me.

I'm not adding any more money to it, I'm not withdrawing anything from it, for the most part I'm not keeping track of things and buying and selling stocks or funds. I'll just occasionally use the dividends from a couple of the stocks to buy more of the same stocks.

It is not. It is an employee owned financial services firm, headquartered in Wisconsin.

possibly a self directed account which with a company like Scottrade charges no fee.

This is what he's talking about:

DOL Fiduciary Rule: Everything You Need to Know | Investopedia


Not sure how or if it applies to your relationship with him though. If he is your 'advisor' even though you haven't made any moves with it he might have an obligation to 'advise' you. Or something like that.

Sounds to me like he's just trying to get you into an actively managed situation though.

That sounds like a load of crap to me. I'd be tempted to transfer the stuff to somewhere else. That sounds like a desperate attempt at making a little money at the end of the year.

Any chance you could get him to send you an e-mail as to what he proposes and why?

Sounds like it is in the best interest of the broker, not you. And as was mentioned, probably illegal. I spent a good part of my life in sales, but there sure are some slimey sales people out there!

I agree. You should open a qualified self-directed retirement account, either an IRA or a Keogh, with a discount broker like Schwab. You should then and roll everything over into that account. Put it all into index funds with automatic dividend reinvestment and forget about it until you retire.

I'll ask him. He's not new to the company, but the broker I previously worked with left earlier this year, and I was reassigned to him. I've never met with him in their office. The other guy would call me, we'd talk a couple minutes and then he would email me if I wanted more info.

Gogar thanks for the link, reading it now.

I think this is what he is referring to as well. I just had a consult with my broker and it was a lengthy conversation that they took very serious about the "changes" to the law. I will have to move money as well.

Yes, this is due to the new fiduciary rule from the DOL...which Trump may throw out or delay.

The issue is that the investment firms are interpreting the new rule in different ways. Because of the rule some firms are making their clients move to advisory accounts. This is where they charge you the 1-1.5% annual fee on top any costs the investments have. For example, if he has you in mutual funds you would pay the funds managements fees as well as his 1.5% which could bring total fees to over 2%. I feel this sucks for the guy that is sitting in some A share mutual funds paying only .5% a year and now he has to move his money into an account that is charging him 2%. The logic is that now this rep has to look out for you, stay in touch and recommend changes to show he is doing his job. The sad part is that not everyone needs this. There is nothing wrong with just sitting in a good fund and leaving the money alone for decades.

Other firms are allowing clients to keep the money where it is and having the client sign a best interest contract (BIC). By signing this you are not forced into advisory accounts but some firms think the BIC is too expensive, burdensome and will just lead to a ton or law suits. That is how your current firm must think so they don't want to deal with it and are forcing you to the advisory account.

I feel the government thought they were helping people but at the end of the day all this will do is end up costing clients more money. People that were paying next to nothing will now end up paying around 2% a year. I'm finding that the companies that won't allow the BIC are telling their clients there is a new law and they have to move their money. They are not telling the entire truth that they could move their money to another firm and keep paying the lower fees. I get why they are doing that as they would likely lose a ton of their clients and be out of a job.

The sad thing is that Trump could throw out or change the entire thing but it won't much matter as companies have already spent billions getting ready for this new rule which starts in April. It is too late to go and change everything back now. Basically the Government has created a big mess and none of this was passed by congress...it is another Obama mandate. I get that the idea is popular because anyone that is paid to help you with your money is thought to be a crook and laws need to be passed to protect you from them. I just don't get why this standard isn't used for all the other perceived crooks (car dealer, insurance salesmen, plumbers, electricians, mechanics...). I mean all these guys get paid to help you and we all know they are just trying to charge us as much as they can get away with.

ding, ding, ding!! Winner!!

ding, ding, ding!! Winner!! X2 That's what you should have done a long time ago.

Beat me to it. Kindly say, "Thanks for the heads up, I appreciate you confirming I no longer require your services". Have Vanguard or a similar outfit help you with the transfer.

You don't need a broker. Can the guy. You sure don't need to be paying him 1.5% for this.

Lukeh in post 15 hit the nail on the head. Broker is not trying to screw the guy, just your Government at work for you passing new regs.

Sounds like Merrill Lynch......

If this is what the broker told him, then the broker was indeed trying to screw him. The new rule does not mandate that your investments be kept in actively managed funds. It says your broker has to work in the client's best interest, which this broker clearly isn't doing.

you just gotta luv the PPOT brain trust!

+1
Ask your broker if he knows what ethical means. Or conversely if you have an organization or broker who puts you first then you can give instructions to close out the old one. I have done that myself with an old broker. He likely has no idea what he did wrong and I am not telling him either. He has got to figure it out himself....:eek:

I've had the same discussion recently with my broker/financial adviser for a similar situation. We're sitting down and finalizing an approach next month. Incidentally, my broker is not happy with the new rules and also thinks this will cost people more money than necessary and reduce returns and is driven by the new fiduciary rules.

The whole financial services industry just ticks me off.
Some shyster screwed my father out of a bunch of money - nothing illegal, just fees for this and fees for that and being put in a totally inappropriate investment. These guys try to make investing look like rocket science, charge ridiculous fees, and when they get something wrong they just shrug and send you an invoice.
I talked to a fee/commission based advisor a few years ago, before I educated myself. Even then I didn't get the impression that he know all that much more than I did. Over the years I may not have gotten the highest pre-fees return, but I'm sure my investments have netted more than I would have paying this guy 2% of my portfolio every year.
I go to a fee-only advisor once every two years now. She doesn't sell anything or make trades for me. She strictly advises. That is the only kind of advisor I trust.

How do brokerage houses make money on accounts with stocks in them and there are never any transactions and no fees? The have to send out statements and resend the annual reports etc.

Do you think they are using this new law to move away from this?

Free book in PDF format from the financial guy that I read.

Get Smart or Get Screwed-Complimentary Download | Paul Merriman

"Get Smart or Get Screwed: How To Select The Best and Get The Most From Your Financial Advisor"

A little bit about the author and books.
A couple of excerpts from the book.

Very good call. Basically what the guy that I read (and posted above) recommends. If you aren't paying an advisor, then someone is, and he'll have their best interest in mind not yours.

If there are no transactions or fees, then they don't. But there are plenty of accounts that either have someone using an advisor or are making self-directed trades and paying transaction fees. They make plenty of money from those folks for those folks to cover the guys that aren't costing themselves money. I'm certain that they have enough folks making bad decisions and costing themselves tons of money, to cover the folks that aren't doing anything and just cost the firms money.

Could you please give more details on how this works?

Is it up to you to monitor your investments and then call her when you have questions or does she stay on top of your portfolio and make proactive calls to you? What if 3 months after your last meeting the fed starts raising rates and you should be moving from say long term bonds to short term bonds or floating rate funds? Is it up to you to be on top of changes in interest rates, the economy, changes in tax rates, changes in the law...and then call her with questions when these kinds of changes take place?

Does she advise you on specific investments or just in general. Does she say buy the S&P index fund or does she say you should have 60% in stocks, 30% in bonds and 10% in cash and it is up to you to pick the specific investment product and then track it over the next two years until you meet again?

Trust is the entire reason for the new DOL rule. If an advisor gets paid 1% per year to manage your money he has no incentive to put you in one investment over another. No matter what stock, bond, fund, UIT, ETF... he puts you in he gets paid the exact same amount. The conflict of interest over sales charges and commissions is gone. For the people that think all financial planners are crooks this should help ease their minds.

I've always found it interesting how a person has zero problems paying a high school kid 15-20% every single time they take the couple of minutes to take their order and bring them their burger. However, that same person is outraged that they pay a one time 3% commission or 1% annual fee to a certified financial planner that spends hours with them, has a degree, licenses, 25 years of experience and works with them on their investments, taxes and estate planning.

Does sound fishy, but.... we just voluntarily moved our retirement accounts into an actively managed and traded one from a mutual fund based company.
The new political climate has introduced a high level of uncertainty into the mix, so we want someone with their finger on the trigger if any thing gets too stupid....

Start here: Fee-Only Financial Advisors Home - NAPFA - The National Association of Personal Financial Advisors

Tipping is totally optional. I tip well for good service and don't tip for poor service. Under what circumstances is paying your CFP similarly optional?

Back in the day when you bought stock in a company they issued you a certificate and they corresponded directly with you.

How hard would it be to convert back to this method if all the brokerage houses mandate directed accounts?

Why did you delete and ignore my questions on how your relationship with a fee only planner works? If you feel it is too personal of a question just say so and I can respect that. Otherwise I'm genuinely interested in the process and your experience and I feel your answers would be a benefit to those posting here that are being told by their planners that they have to move to an advisory account. With this law change people need to know their options and you saying a fee based planner is the only one you would trust is a pretty strong endorsement. Help us out and give us some back round on your experience.

Tipping is totally optional and so is going to a CFP. Now that I think about it is tipping really optional? Sure, you don't have to tip but who does that unless the person is just a jerk to you. When you walk into a restaurant you come in with the expectation you will be giving the server 15-20% just like you expect to pay the CFP for their time. I guess I'm looking at this from a point of perspective.

For example, let's say you want to make a $5,000 IRA contribution and you have no idea if you should be in a ROTH or traditional IRA. Should you invest in stocks or bonds? What kinds of stocks and bonds... People in general seem to feel having to pay a 3% commission ($150) for the 1 hour meeting is robbery and rewarding a thief. Now if that same person spent that $5,000 on going out to eat that year it would cost him $750 - $1,000 in tips and the person would have zero issues with that. I feel the fact that you could say tipping is optional is irrelevant to my point which is paying $150 on $5,000 for financial advice is frowned upon while paying a minimum of $750 to have someone bring you your burger is considered perfectly acceptable.

Nobody deals in certificates anymore and their is no reason to. However, with many companies you can still buy stock direct (you can search for a list) and the transfer agent will hold your shares in book entry form and it costs you nothing.

currently no but I thought we were talking about the situation where the law gave an excuse to eliminate the no fee self directed accounts.

You can still have no fee self directed IRA accounts with the new rules. The issue is that some companies have eliminated them because they feel the new law make them not worth the hassle. If you look around you will be able to find an IRA account that will hold your stocks for little or no fee. Several years from now that may not be the case. More and more the government wants to be able to tell you what you can and cannot do with your money. Other countries have already gone down this road.