Financial Advisors

To remount a well-ridden horse, a constant reader writes:

I thought I'd send you an email about what ended up happening with the financial advisor a friend recommended. I finally asked that he close my account after a few red flags:

The website for tracking the investments was dated and confusing. They failed to mail me documentation disclosing a 1.3% wrap fee. The funds recommended already had a 1.5% expense ratio which he implied was how he was paid. The website for tracking the investments was dated and confusing.

I'm not eligible for a roth ira anymore because of income limits. He suggested Variable Life Insurance instead.

I've decided to go back to Vanguard and follow the bogleheads forums implementing the coward portfolio you suggested on your blog.

Here's a few dirty little secrets that I've learned the hard way.

Brokers and Financial Advisors are not putting clients into load funds because it's necessarily best for the client. They're doing it because they're in business to make a living.

I'm not saying these folks are evil. They're not. But they have divided interests. If they put people who come through their door into funds without loads (think "commissions") and 12b-1 fees -- which are generally from .25% up -- then there's no cash going into their pockets. (Financial advisors who are strictly fee-based are, of course, different.)

As I wrote back to CR:

My advice: Build an investment account at Vanguard with 40% tax exempt bonds (limited term and intermediate) and 60% stocks (split equally four ways: total stock market, total international stock market, small cap value -- or just small cap -- and international small cap.) Six funds and done. (Vanguard's Tax-managed stuff is okay, but you gotta keep the money in them for several years or you get stung.)

You don't need a Financial Advisor, in my opinion. You need a plan and discipline.

What I've concluded after years of doing it differently: The answers to building wealth are simplicity, diversification, low costs, tax efficiency (index funds that have low turnover) and sticking with it. ...

The above sounds simple, but is difficult to execute. Most people get caught up in the hot investment of the moment, and end up regretting it. Most people freak when things start going south. And start making mistakes. ...

Note: Steve is not a licensed financial anything. Steve is merely a grizzled, scarred veteran of the investing game.