Disclaimer. Investor Beware!!! Allen Holdsworth. B I Volunteer Advisory Board Online Classes 1. Investor Beware!!! Investor Beware!

Transcription

1 BETTERINVESTING BIVA Board Classes Disclaimer The information in this presentation is for educational purposes only and is not intended to be a recommendation to purchase or sell any of the stocks, mutual funds, or other securities that may be referenced. The securities of companies referenced or featured in the seminar materials are for illustrative purposes only and are not to be considered endorsed or recommended for purchase or sale by BetterInvesting National Association of Investors Corporation ( BI ) or the BetterInvesting Volunteer Advisory Board, its volunteer advisory board ( BIVAB ). The views expressed are those of the instructors, commentators, guests and participants, as the case may be, and do not necessarily represent those of BetterInvesting or BIVAB. Investors should conduct their own review and analysis of any company of interest before making an investment decision. BIVA Board Director Illowa Buy States Chapter Director Securities discussed may be held by the instructors in their own personal portfolios or in those of their clients. BI presenters and volunteers are held to a strict code of conduct that precludes benefiting financially from educational presentations or public activities via any BetterInvesting programs, events and/or educational sessions in which they participate. Any violation is strictly prohibited and should be reported to the President of BetterInvesting or the Manager of Volunteer Relations. Investor Beware! MAD Investment Club-14 yrs Illowa Buy States Chapter Director- 13 yrs BIVA Board Director- 5 yrs! Taught classes for last 13 years Read LOTS about finance and investing Teach Personal Investing class at local community college Financial Advisor/stockbroker 7 yrs Retired Dec Investor Beware! Teach many classes through the local libraries Teach many classes online Have taught at last 4 BINCs Will teach several classes in St. Louis- June 2010! Do what is right for the client!!! That is what ALL brokers should do. BUT not all of them do that. What should you watch for? B I Volunteer Advisory Board Online Classes 1

2 LOTS of pressure at most brokerages to sell Do what is right BUT sell, sell, sell I always wondered how many gave in to the pressure and sold what was NOT right for the client but WAS right for the company or the broker Be sure to understand how they get paid Ask for choices for your investments If you use a full service broker, then you should expect to pay for his help Sometimes the best choice for your situation will make the most money for the broker-but not always Have a goal or a plan for your investments Do you want growth? Do you need income? Are you worried about taxes? Get your goals and time frame written down The broker SHOULD ask about this and help Once you have a plan in place then: Always ask how each investment recommendation fits with your plan You should be given several choices each time Discuss those choices and choose what fits best! How liquid do you need your investments? A small percentage of illiquid can be OK Annuities Public non-traded REITs Oil and gas investments Limited partnerships Some brokers only use annuities or life insurance You should work with someone who can handle stocks, bonds, mutual funds, annuities, and maybe even insurance They should give you choices as to what might best meet your needs B I Volunteer Advisory Board Online Classes 2

3 Fee based accounts (wrap accounts) Charge a percentage fee of assets each year No commissions or transaction costs ALWAYS good for the broker and his company SOMETIMES good for the client Usually a fee of 1% to 2% or even higher Fee based or wrap accounts Since the broker gets more money if the value of your account goes up- he says that now you are both on the same side of the table I say- Why weren t you both there to start with? Do what is right for the client!!!!!!! Wrap accounts Could be good for you IF: You trade a lot The annual fee would be less than the commissions They use no-loads or ETFs Can buy load funds with no load charged For MOST people it is MUCH more expensive Wrap Accounts Sometimes no activity until near year end Window dressing Example of unethical behavior Sometimes the best thing to do-is nothing Front end load funds Front-end loads- American Funds A Shares Front end load-pay fee up front Lowest annual expenses Fee decreases as investment amount grows B I Volunteer Advisory Board Online Classes 3

4 Fees and expenses 3.5%= $3500 one time fee Annual expense avg..6%/year= $600 After 10 years $ (10 x $600)= $9500 total Wrap account fees $100,000 x 1% per year= $1000 Avg. fund expense on ETFs=.3%= $300 After 10 years $1300/year x 10 = $13,000 total $3500 MORE in fees than using the load fund Fees and expenses $250,000 x 2.5% = $6250 $250,000 x.6% = $1500/year $ (10 x $1500)= $21,250 total Wrap account 1% x $250,000 = $2500/year + $750/yr. 10 x $3250 = $32,500 ( $11,000 more) Fees and Expenses Do it yourself ETFs and Scottrade Buy 8 different $7 a trade Annual expense avg. of.4%/year Invest $100,000 8 x $7 = $56 $100,000 x.4%= $400/year x 10= $4000 Fees and expenses Invest $100,000 for 10 years Fees and expenses for 10 years DIY= $4056 Load fund= $9500 Wrap Acct.= $13,000 Share classes A shares-front end load B shares- back end load C shares- 1% per year fee B I Volunteer Advisory Board Online Classes 4

5 Share Classes A Shares Front end load Lowest annual fee Brokers sometimes split money between several fund companies so do not hit the breakpoints Good for broker-bad for you Share classes B shares C Shares I can think of no good reason to use either one of these share classes Lifestyle Funds Funds of funds Fees on top of fees Based on your age/years till retirement Not a good choice Annuities Can be good investments in the right place Very high commissions Fixed Variable Index Fixed Annuities Variable Annuities Fixed Like a tax deferred CD Usually has minimum % earned Can go higher Long surrender periods High commissions Variable results Invest in stock market High annual expenses 2% to 3% or higher Many bells and whistles B I Volunteer Advisory Board Online Classes 5

6 Index Annuities Index annuity Compared to an index Cannot lose money Mediocre returns Annuities Lots of abuses in selling annuities People do not understand them High expenses High commissions Avoid brokers where annuities are all they sell Abuse of friend by annuity person Life Insurance What kind do you need? How much do you need? How long do you need it? Whole life vs. term Term is MUCH cheaper Bigger commissions on whole life Life Insurance Many abuses My own example Mother died-daughter was sold three life policies from three different brokers though she had no dependants- no economic benefit to herself-big commissions Life Insurance NEVER buy life insurance as an investment!!!! Bank Trust Departments VERY expensive Example B I Volunteer Advisory Board Online Classes 6

7 Changing Brokers Happens a lot Easy to do May be some fee from old broker Transfer in kind rather than liquidate and transfer Father-in-law story NEVER give a broker discretionthe power to trade as they see fit without telling you until after it happens Churning can be a major problem Protect yourself As you get older, ask if you can have a son or daughter along to hear your broker If they refuse- RUN Keep good records and notes The broker keeps notes on clients for two reasons To remember what was talked about To protect himself You should do the same!!!! Investor Beware! If a broker does something you did not authorize: Contact the broker first Next contact his manager Keep pushing till satisfied May need to go to arbitration If you don t understand it-don t do it!!! NEVER give in to pressure Any deal that you have to sign right now-is a deal you should walk away from Always ask for several choices of investments Make sure they understand your goals B I Volunteer Advisory Board Online Classes 7