I Must Be the Dumbest Financial Person on the Planet

[ATSMAN]

I have a few clients who have these type of discretionary investment accounts with name brand brokerage houses and I too see the same high level of transactions that hardly make any profit for the investor but a lot of trade fees for the broker. On top of that they are paying an asset management fee anywhere between 1 and 2 percent.

My father in law had such an account, until I weaned him out of that and had him trade via Scottrade.

[WhiteOleander]

I actually laughed out loud reading these posts. We have had the exact same conversations in our office. And if we try to tactfully tell the client about what might be going on.....Well, they act like you said they have a ugly dog or something!!!!!

[Burke]

I see this too, mostly with institutional investment firms, i.e, the big boys, and large banks' investment arms. I have an elderly (90 yrs old) client who turned his money over to one of them and he has 3 different accounts, one of which has a different beneficiary, so I understand the reason for that one. However, the other two are invested in myriad mutual funds (theirs, of course) divided between 2 accts. The reason? "Different investment goals," according to them. Really? He's 90! The only investment goal he should have is preservation of capital for possible long-term care needs. He has no family. I suppose it is a mixed blessing; he certainly should not be managing his own money at this point.

[JohnH]

This aggravation I'm dealing with today has to indicate how little I understand about high finance. Working on one of those returns I extended because the client has so many pages form their financial adviser. I simply cannot understand why a financial adviser takes about $250K and in the span of two years invests it in such a way that the client gets a 38-page statement and a second 14-page statement from the same company. The 39-page statement contains 3 1099-Divs, 3 1099-Int's, and a 1099-B which reports cycling money from one set of funds into another with a slightly different name. Plus there are two other independent 1099-Divs, not to mention the obligatory K-1 from a Limited Partnership, with a measley $5K invested and 7 line items ($17, $160, -$60, $2, $350, $14, and $17). It costs the client more in fees to enter all this stuff on the return than they are earning. And should I mention the tiny amount invested in a trust that invests in collectibles, a SPDR Gold trust, and all the mutual funds are the most expensive "A" shares? (I'm sure the choice of "A" shares has absolutely nothing to do with the fact that the sales charge comes off the top.)

I don't want to throw around the "churning" accusation too quickly, but that's where my mind goes when I see this sort of thing. So what is it I'm missing? The financial adviser claims he's diversifying, but the client could get the same diversification by putting the equity portions of their investment into the Total Stock Market Index, paying a fraction of the management overhead this guy is raking off.

I can only conclude that this whole process is designed to keep the client confused & off balance, while making it too cumbersome for an outsider to try and explain. It's all smoke and mirrors as far as I'm concerned. As I said at the beginning, this rant must just be because I'm not sophisticated enough to understand all this high finance. Put me down as one of the dumb ones.