EDJ mentioned again on the air

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Apr 16, 2009 9:57 am

What do you folks think about the advice given to this lady on CNBC last night by two CFPs ?


http://www.cnbc.com/id/15840232?video=1094569211



It starts about 5:45 into the clip.
Apr 16, 2009 12:36 pm

I think she got the advice she paid for from those two.  The guy in the bowtie is making so many assumptions it's not even funny.  I would guess this guy would have blasted ANY portfolio, just because he didn't put it together.  To say that her advisor made an error in "comission and omission and did her a disservice" 10 seconds in to the conversation is ludicrous.  How many of us have sat down with our clients and said well, Mrs. Smith, it looks like you have $300K in mutual funds, $80K in bonds, some in IRAs some in CDs, some in cash, some in UITs...looks like you're out of balance.  Now I get it that it's a call in show and they don't have time to get into the specific funds she owns, but we don't know what's in her IRA, we don't know what funds they are, we don't know what kind of bonds she owns, we don't know what kind of UITs she owns.  The screen said she's 52.  She said she retired in 2005 and started taking out 5%.   So, she retired at 48 years of age and immediately started pulling money (under 72T provisions I would assume, although they don't say that anything other than $17K is in her IRA).  Her advisor suggested she stop pulling the money, which suggests that she might not really need the money (see, I'm making assumptions too).  So, what gives? 

 
There are too many unanswered questions here that a guy on a talk show can't possibly know the answers to, and yet he's telling her to fire her advisor and that the guy has screwed her.  Those are the kind of things that really make me hate these call in shows.  People sit around all day with CNBC on, listening to this crap, then think their advisor has done something wrong.  Sure, take advice from the guy you've know for 30 seconds.  That's a great plan. 
 
And the black guy (who didn't get on my nerves immediately) tells her that if she has a laddered bond portfolio (generally a good idea) that when her bonds come due, she'll reinvest at a higher rate than she was getting before!  REALLY?!  So, all those people who bought 5% 2 year CDs that are coming due right now, think they'll agree with that statement?  And he seemed so intelligent at first.
 
I finally let it play out all the way.  The bow tie guy said exactly what I thought he would that she work only with an RIA on a fee based basis.  Now, I don't want to open that can of worms right now, but that's one of the most retarded things I've heard.  I get the whole fiduciary angle that the RIA world likes to tout, but they can screw a portfolio up (in the client's best interest of course) just like every other advisor.  We're investing in the same stock market, which falls as much in an RIA's office as it does in mine. 
 
Borker - I'm curious what you think of the clip. 
 
OK, so the black guy tells the lady at the end that she's taking too much risk and that she's got all her money in this growth fund (wrong - it's a growth and income fund from Hartford) and that she should rebalance to include some small and mid.  I agree.  But this comes right after the chick says that it's a bad thing that she's got all that money in that "risky" growth fund.  No wonder those DIY guys who watch this stuff all day long really screw up their portfolios.  I wonder what they'd say if I thought I had cancer so I called into a talk show and asked the doc on the phone how to fix it. 
Apr 16, 2009 12:43 pm

I agree with the CFP’s that a 5% rate of withdraw is too high. As to the asset allocation of her account there was not enough data to make a decision.


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Apr 16, 2009 12:49 pm

I have to agree with Spiff on this. I saw the clip. WAY too many assumptions about the portfolio, and also too many assumptions about the direction the advisor gave her, versus what she said she wanted/needed. She didn't seem to suggest that he had done anything wrong, so I am inclined to think that he may have given her good advice. Maybe SHE said she needed X dollars to live on at the time. She said she was dipping into her emergency reserves. I have clients that are pulling out 6, 7, 8% per year because they NEED the money. I can't stop them. If they went on some talk show and said "I work with and advisor and I'm pulling 8% out of my portfolio", how would these knuckleheads have responded?   



Age 48, needs the 500K or so that she has to live on the rest of her life (we assume), and there is a decent allocation to bonds, MMKt, and CD's. We don't know how much of the MFD's were in bonds, but if there was a decent %, I don't think he made much of a mistake. She may need this stuff to last 30-40 years. And let's not forget, she may have already owned some of that stuff.

Apr 16, 2009 1:03 pm

Did I hear that correctly, 5% per month???

Apr 16, 2009 1:24 pm
Wet_Blanket:

Did I hear that correctly, 5% per month???

 
I think this is the biggest problem, it wasn't 5%/year, but per month...Also the advisor should have told her this was impossible to do to start with or got her in a product(read annuity) where she can take higher withdrawals....
 
But all of that aside.. The portfolio makes sense from a former jones reps point of view...
$300K in funds... so my guess is it used to be $600-700K 2-3 fund families(scatter break points and get 3.25 on the funds)..
 
UIT- renewal income....
Bonds- renewal income, plus reinvesting interest into mutual funds at 3.25%
 
My question is why does she have so much outside her IRA, and only $17K in... This was wrong from the get go...
 
But even then I had a client attend a seminar two weeks ago.. had $600K in funds(EDJ) and now has $307K in the same funds..(63yrs old, 80% equities, 20% bonds) including world famous Founding Funds...somebody at Jones screwed up.
Apr 16, 2009 1:26 pm
B24:

I have to agree with Spiff on this. I saw the clip. WAY too many assumptions about the portfolio, and also too many assumptions about the direction the advisor gave her, versus what she said she wanted/needed. She didn't seem to suggest that he had done anything wrong, so I am inclined to think that he may have given her good advice. Maybe SHE said she needed X dollars to live on at the time. She said she was dipping into her emergency reserves. I have clients that are pulling out 6, 7, 8% per year because they NEED the money. I can't stop them. If they went on some talk show and said "I work with and advisor and I'm pulling 8% out of my portfolio", how would these knuckleheads have responded?   

Age 48, needs the 500K or so that she has to live on the rest of her life (we assume), and there is a decent allocation to bonds, MMKt, and CD's. We don't know how much of the MFD's were in bonds, but if there was a decent %, I don't think he made much of a mistake. She may need this stuff to last 30-40 years. And let's not forget, she may have already owned some of that stuff.

 
That is when you tell clients they can't....or that they can't retire... not something people want to hear, but sometimes they need to be told...
Apr 16, 2009 1:31 pm

CNBC is a complete joke for airing this stuff.

Apr 16, 2009 1:40 pm

I think I might like CNBC now. Some of the stuff they say is crap, but I only hear what I want to anyway. Nice little dig at broker's v. advisors.

Apr 16, 2009 3:52 pm
Squash1:
B24:

I have to agree with Spiff on this. I saw the clip. WAY too many assumptions about the portfolio, and also too many assumptions about the direction the advisor gave her, versus what she said she wanted/needed. She didn't seem to suggest that he had done anything wrong, so I am inclined to think that he may have given her good advice. Maybe SHE said she needed X dollars to live on at the time. She said she was dipping into her emergency reserves. I have clients that are pulling out 6, 7, 8% per year because they NEED the money. I can't stop them. If they went on some talk show and said "I work with and advisor and I'm pulling 8% out of my portfolio", how would these knuckleheads have responded?   

Age 48, needs the 500K or so that she has to live on the rest of her life (we assume), and there is a decent allocation to bonds, MMKt, and CD's. We don't know how much of the MFD's were in bonds, but if there was a decent %, I don't think he made much of a mistake. She may need this stuff to last 30-40 years. And let's not forget, she may have already owned some of that stuff.

 
That is when you tell clients they can't....or that they can't retire... not something people want to hear, but sometimes they need to be told...
 
OK, and if they are disabled or otherwise can't work?  I have clients that, with all best intentions, knew that they had to keep withdrawals low.  But they got sick, the car fell apart, they needed a new roof, whatever - life happens. 
 
And it was NOT 5% per MONTH, even if that's what she said.  Maybe it was 5% of her IRA (which was like 17K).  Likely she meant 5% per year but was withdrawing monthly.  I think everyone is assuming way too much on this.  We know NOTHING about this woman, the advisor, or any of the conversations they ever had.  Nor do we know if the portfolio was great or sucks.  Maybe the advisor recommended an annuity and she said no.  Someone called this a "classic Jones" portfolio because it had stocks, UIT's, CD's, Cash, bonds and funds. Soooooo, Jones is the only firm that uses Stocks, Bonds, UIT's, CD's, Cash and Funds? Hmm.   I have seen plenty of ACAT's come over that are absolutely disgraceful from the "reputable" firms (not sure what their reputations are today).
 
And it was a msitake to have so much outside her IRA?  Huh?  If that's where the money is, that's where it has to be.  Let's say she inherited 400K, you can't just stick it in an IRA "cuz it should be there". 
 
I just think it's stupid for people to jump to so many conclusions about the advisor when we know so little.
Apr 16, 2009 4:58 pm

I agree with Spiff and B24 on this one.  

 
I lose a little more respect for the CFP designation every time one opens their mouth. 
Apr 17, 2009 9:50 am
Squash1:
Wet_Blanket:

Did I hear that correctly, 5% per month???

 
I think this is the biggest problem, it wasn't 5%/year, but per month...Also the advisor should have told her this was impossible to do to start with or got her in a product(read annuity) where she can take higher withdrawals....
 
But all of that aside.. The portfolio makes sense from a former jones reps point of view...
$300K in funds... so my guess is it used to be $600-700K 2-3 fund families(scatter break points and get 3.25 on the funds)..
 
UIT- renewal income....
Bonds- renewal income, plus reinvesting interest into mutual funds at 3.25%
 
My question is why does she have so much outside her IRA, and only $17K in... This was wrong from the get go...
 
But even then I had a client attend a seminar two weeks ago.. had $600K in funds(EDJ) and now has $307K in the same funds..(63yrs old, 80% equities, 20% bonds) including world famous Founding Funds...somebody at Jones screwed up.
 
This may be one of the worst posts I've ever seen you make.  You're assuming about as much as the moron in the bow tie.  How do you know how many fund families the advisor used?  How do you know that they are reinvesting the interest from the bonds back into fund?  Do you know her personal situation to be able to say that having only $17K in her IRA was wrong from the get go?  Maybe she inherited the money.  And I think we can all agree that the woman wasn't pulling 5% a month out.  She'd be out of money right now had she started that back in 2005.   
 
As for your client at the seminar, I'll agree that the Founding Funds strategy isn't the best.  It looks great on paper, but in practice falls short.  How is it that someone at Jones screwed up?  How do you know that the client didn't look at the portfolio that the FA suggested and agree to it.  How do you know that the client didn't originally tell the FA that he wanted to be 80/20 agressive?  I'm sure you didn't waste any time at all throwing the EDJ guy under the bus, telling the new client that you would have done something completely different.  Rear view mirror investing is easy. 
Apr 17, 2009 10:45 am
Borker Boy:

I agree with Spiff and B24 on this one.  

 
I lose a little more respect for the CFP designation every time one opens their mouth. 
 
It's not the CFP's that get on my nerves.  It's the RIAs who use phrases like "error commission and ommission" that are the most annoying.  I understand the fiduciary part of what they are trying to say.  But they almost always imply that if you don't work with someone who is a fiduciary, you're getting screwed.   
Apr 17, 2009 11:06 am
Spaceman Spiff:
Squash1:
Wet_Blanket:

Did I hear that correctly, 5% per month???

 
I think this is the biggest problem, it wasn't 5%/year, but per month...Also the advisor should have told her this was impossible to do to start with or got her in a product(read annuity) where she can take higher withdrawals....
 
But all of that aside.. The portfolio makes sense from a former jones reps point of view...
$300K in funds... so my guess is it used to be $600-700K 2-3 fund families(scatter break points and get 3.25 on the funds)..
 
UIT- renewal income....
Bonds- renewal income, plus reinvesting interest into mutual funds at 3.25%
 
My question is why does she have so much outside her IRA, and only $17K in... This was wrong from the get go...
 
But even then I had a client attend a seminar two weeks ago.. had $600K in funds(EDJ) and now has $307K in the same funds..(63yrs old, 80% equities, 20% bonds) including world famous Founding Funds...somebody at Jones screwed up.
 
This may be one of the worst posts I've ever seen you make.  You're assuming about as much as the moron in the bow tie.  How do you know how many fund families the advisor used?  How do you know that they are reinvesting the interest from the bonds back into fund?  Do you know her personal situation to be able to say that having only $17K in her IRA was wrong from the get go?  Maybe she inherited the money.  And I think we can all agree that the woman wasn't pulling 5% a month out.  She'd be out of money right now had she started that back in 2005.   
 
As for your client at the seminar, I'll agree that the Founding Funds strategy isn't the best.  It looks great on paper, but in practice falls short.  How is it that someone at Jones screwed up?  How do you know that the client didn't look at the portfolio that the FA suggested and agree to it.  How do you know that the client didn't originally tell the FA that he wanted to be 80/20 agressive?  I'm sure you didn't waste any time at all throwing the EDJ guy under the bus, telling the new client that you would have done something completely different.  Rear view mirror investing is easy. 
 
It's not rear view mirror investing when you have done it for other people during the same time period.
The guy never filled out a risk tolerance form, never talked about goals or strategies, just got sold from the Founding Funds slick(you know, never negative for any five year period) diversified in stocks(int'l and domestic) and fixed income(oops by the way fkinx is all junk bonds)...Worse yet he never got a phone call during this whole market except one(we have a great bond)
 
So when I say someone at jones screwed up I wasn't making it up..(Jones isn't the only one, actually I am finding a lot of wirehouse(frm wirehouse) are much worse because the FAs are worried about their jobs)
 
I didn't focus on the investments(all though that would have been easy) but then you end up with stupid clients who go on radio shows and say stupid things...
 
Instead I focused on what his goal was for the money(retirement) and how much he needed when he planned on retiring and when his expected date was.
He filled out a risk tolerance form and I built a portfolio for him... We are now in the process of acating the funds over.
 
 
Apr 17, 2009 11:52 am

Congrats on the new account.  Accounts like that don't leave my office because I take care of them. 



So, are you telling us that the ONLY thing the advisor ever presented to the guy was the FFALX brochure?  I find that difficult to believe, but evidently you don't.  I also find it difficult to believe that he hasn't heard from his advisor except for the one instance.  If that's true the Jones guy deserved to lose the account.  At least he found you and you've got him set up better.  BTW - did you reallocate the FFALX into other funds at FT or did you sell it and move to a different family because FT is such a bad company? 
Apr 17, 2009 1:05 pm
Spaceman Spiff:

Congrats on the new account.  Accounts like that don't leave my office because I take care of them. 



So, are you telling us that the ONLY thing the advisor ever presented to the guy was the FFALX brochure?  I find that difficult to believe, but evidently you don't.  I also find it difficult to believe that he hasn't heard from his advisor except for the one instance.  If that's true the Jones guy deserved to lose the account.  At least he found you and you've got him set up better.  BTW - did you reallocate the FFALX into other funds at FT or did you sell it and move to a different family because FT is such a bad company? 
 
No way he stayed at FT. I am quite sure he churned and burned because he didn't want to side at all with the EJ rep. Also, there is nothing wrong with using the founding funds as part of your fund selection when using FT.
Apr 17, 2009 1:19 pm
Spaceman Spiff:

Congrats on the new account.  Accounts like that don't leave my office because I take care of them. 



So, are you telling us that the ONLY thing the advisor ever presented to the guy was the FFALX brochure?  I find that difficult to believe, but evidently you don't.  I also find it difficult to believe that he hasn't heard from his advisor except for the one instance.  If that's true the Jones guy deserved to lose the account.  At least he found you and you've got him set up better.  BTW - did you reallocate the FFALX into other funds at FT or did you sell it and move to a different family because FT is such a bad company? 
 
I only use 3 funds to account for the mutual fund part of my portfolios(ranging from 15-28% of the portfolio depending on risk). So I am bringing over the account in whole(not liquidating) but will soon.. I fee accounts so i am not churning anything, it would have been the same fee if I was going to leave him in those funds..
Apr 17, 2009 1:47 pm

Hey bspears........do you wear a bowtie??????   

Apr 17, 2009 4:28 pm

No...I wouldn't be on CNBC in the first place.  No defending Jones, but I could take anyone's portfolio and with a little work, make it look like sh*t, especially now.  I reviewed a 92 years old prospects portfolio a few weeks back. He was with another LPL advisor...his 1mil was now close to 600k...very little in the fixed income department or cash.  But after the guy told me ..."you know I take vitamins, and I was out splitting wood the other day. 92 year olds are suppose to do that..."  about 20 times...I told him everything looked good and for him to have a great day.

Apr 17, 2009 5:35 pm

Survivors have learned to stay away from ancient clients and underage girls.