"I can't believe all the money I lost in fees. Unbelievable! I feel violated." - Angela G.
A Typical Story
We have some great neighbors: Connie and Jerry. Smart people. Nice people. Responsible people. Hungry people. So, I invited them over for dinner. Towards the end of dinner, the topic of investing came 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.
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.
I've met a lot of people in the same situation as Connie and Jerry. Chances are, you are in the same situation. This site will help you find out, and help you learn how to save your nest egg.
