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Posted by Brian on March 9, 2007, 4:59 am
My financial planner who I don't pay directly keeps on moving my
investments around from one broker to another and everytime he does so
costs me fees coming out of old funds and into new.
What gives with this?
B
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Posted by W. Wells on March 9, 2007, 8:11 am
Maybe this is the way you pay him. My experience with financial planners is
that they are only interested in making money for one person. Guess who.
> My financial planner who I don't pay directly keeps on moving my
> investments around from one broker to another and everytime he does so
> costs me fees coming out of old funds and into new.
>
> What gives with this?
>
> B
>
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Posted by kastnna on March 9, 2007, 10:11 am
Don't be so quick to throw the baby out with the bath water. What you
complain about is called the "principal-agent problem" and it can
occur in almost any industry. The agent's measurement of success
(compensation) is not the same measure the principal uses (lowest
costs, maximizing share price, etc). The occurs in real estate sales,
all hourly employment, financial brokering, auto mechanics, medicine,
etc, etc.
The saving grace is thus: if an agent engages in "personal measure
maximization" long enough, it is eventually reflected in his and/or
the principal's performance and he is replaced. The problem takes care
of itself. Furthermore, the process speeds up as public awareness of
the situation rises (that's what Dateline and 20/20 are for). That may
be what is happening right now with this "planner".
The commission method of income generation IS subject to the agent-
principal problem, which is why most of us are moving towards fee-
based management (no commissions). I have clients still on a
commission basis (their choice) that we haven't traded since they
purchased the securities. Then again, we have fee-based clients that
generate no commissions but we rebalance quite often.
To the OP, its not a crime to make your planner explain himself. If he
has "discretion" over your account revoke it ("discretion must be
given in writing, by the way). When he wants to trade something, ask
him why. Make sure he accounts for taxes & fees in his analysis. If it
sounds shady, don't do it. You don't HAVE to take the advice.
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Posted by John A. Weeks III on March 9, 2007, 8:40 am
> My financial planner who I don't pay directly keeps on moving my
> investments around from one broker to another and everytime he does so
> costs me fees coming out of old funds and into new.
>
> What gives with this?
What exactly is your relationship with this person? If you have
given him the green light to trade your account, this may be
perfectly legitimate activity. In my case, I have the broker
give suggestions, and I nearly always follow them. You can
also require a broker to clear all trades with you before
making them, or request that they make no trades on your account
unless you request them.
One possibility is that the broker is taking advantage of you
by moving the money around simply to generate commissions. If
so, this is called "churn". There was a popular 1980's line
that goes "churn'em and burn'em" as a way to make money on
Wall Street. Any broker that does that is doing something that
is at least unethical, and likely criminal. Your best bet would
be to talk to the branch manager or the brach "compliance
officer" to get an explanation. If something isn't kosher, they
are the place to start.
-john-
--
======================================================================
John A. Weeks III 952-432-2708 john@johnweeks.com
Newave Communications http://www.johnweeks.com
======================================================================
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Posted by PeterL on March 9, 2007, 4:14 pm
> My financial planner who I don't pay directly keeps on moving my
> investments around from one broker to another and everytime he does so
> costs me fees coming out of old funds and into new.
>
> What gives with this?
>
> B
What does he say when you ask him this question?
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