puckah18 said:I'm finding it increasingly difficult to communicate to people who have partial knowledge.

You're not the only one.

puckah18 said:"BTW, back when the Vanguard S&P 500 index fund was beating 85% of all mutual funds, what did Bogle call investors who bought that fund on the basis of that performance?"

Sigh...another person who's misled by Bogle. Did you know that Kobe Bryant leads in free throws attempted compared to 99% of all professional athletes?Why didn't you just reply with a simple "no"?

puckah18 said:Mr. Bogle is the best thing that has happened to small investors because he pioneered the low cost method to investing, but nevertheless he has a profiteering motive

How does this profiteering motive manifest itself? It can't be anymore than a simple salary since Vanguard is essentially a mutual company: owned by the investors in its funds. Vanguard does not have separate equity owners for which is needs to try to maximize returns.

This is unlike for-profit financial institutions which have the single-minded goal of diverting money from its customers to its shareholders. Vanguard's mission, like other mutual, co-op, and credit union type financial institutions is to provide efficient services to its customers. Any excess "profits" of the enterprise simply accrue to its customer/owners in form of lower fees or better services.

See http://books.google.com/books?id=m5SEclYQr9MC&pg=PA17&dq=Mutual+... (scroll down)

performance chasers?

zmre2b9 said:
How does this profiteering motive manifest itself? It can't be anymore than a simple salary since Vanguard is essentially a mutual company: owned by the investors in its funds. Vanguard does not have separate equity owners for which is needs to try to maximize returns.

This is unlike for-profit financial institutions which have the single-minded goal of diverting money from its customers to its shareholders. Vanguard's mission, like other mutual, co-op, and credit union type financial institutions is to provide efficient services to its customers. Any excess "profits" of the enterprise simply accrue to its customer/owners in form of lower fees or better services.

See http://books.google.com/books?id=m5SEclYQr9MC&pg=PA17&dq=Mutual+... (scroll down)

Thanks for the clarification. I was not aware of the corporate structure of Vanguard and how all the cost efficiencies are passed through to benefit the fund investors. AVG. expense ratio of 20 bps across all funds is also very impressive indeed.

Shandril said:Anyone that seeks me out to sell me a service is usually not worth hiring. I've had countless exemple of that which all more or less rely on high-pressure sale or scare tactics. Financial planners are in the same bag as any landscaping or home remodeling contractor.

But for financial planners, IMO the only ones worth hiring are hourly rate ones, and especially those recommended by people you trust. They won't get paid more or less if they stir you towards one investment or another. No conflict of interest to push commission-loaded investments since they won't be selling you products to fill your investment needs. In fact, many won't even discuss specific investments right away until they've made with you a thorough financial plan of your needs, your goals, your options and how every financial tool fits or doesn't fit into your plan.

But deep down you can do those financial plans yourself with a little bit of work. The thing is, the financial plans don't need a lot of day-to-day work, mostly infrequent portfolio rebalancing and changes when you experience life events (kids, marriage/divorce, deaths, retirement, etc.). And there are lot of documentation both online and at the library to assist with those.

You'll want to find out life insurance needs (amount of term life depends on income replacement needs basically). You really don't need a planner to decide this, just rigorous analysis of income replacement needs and then multiple online quotes from insweb or similar search services.

Retirement. Well you know where you are in age and assets. That's point A. You have to determine lifestyle upon retirement and at what age and from those determine how much you have to have saved to support it. There are quite a few things to consider but overall that's point B. Once you know those, there are lots of calculators online to help you determine how much you need to save to get from A to B with reasonable chance of success. Fidelity, T-Rowe Price, Vanguard, etc.. all have free tools to do that and also will remind you of factors figuring into this. Yeah most of them have vested interest in giving very conservative estimates but that's still a decent starting point and will give you a ball park of your saving needs and saving vehicles available. You'll need a sense for reasonable returns on investment of various investments but not really precise investment until your plan is finalized.

Same planning with college funding for kids (and other goals). You know point A and you know horizon (18 yrs from birth) and can decide on what you can afford to pay for them, remembering nobody will let you borrow for retirement while many lenders will give student loans so retirement goals > college funding goals.

Once all your life goals are covered, you should have a pretty good picture of your action plan. Term Life Insurance, disability insurance, etc., IRAs + 401k mix and if need be taxable accounts, 529 Plans, emergency funds, etc ... And for investing your savings, I'd start with low-fee index funds at one-stop shops. Yeah you'll get by definition average returns but you'll also avoid excessive fees which would most likely ensure way below average returns. Then depending on inclination, time available, etc ... you can look further into more complex investments, and there maybe you could use advisors once you're more knowledgeable about the various investments. But until then, you do not really need a financial planner. 99% of this stuff can be self-taught in a weekend from basic financial planning books. And more importantly, you will control more what's going on, understand what you can afford, when you have saved enough and can enjoy disposable income, and you'll be sure things are in sync with your needs.

That is a beautiful theory and all, but every time I read stuff like this and then these same people post their portfolio and allocation I just cringe and laugh since almost every time (not always, but almost) their portfolio and return of that portfolio is highly inefficient and the returns are not commensurate with the risk they are taking. So before I would take anyone's advice of "Read about investing in index funds and just do it", I would love to see their portfolio which almost every time shows me that they really don't know what they are doing and then I find an actual "professional" portfolio which has better returns with lower risk and understand that there is a benefit sometimes to using a Financial Planner. While commissioned mutual funds salesmen can have a conflict of interest there are many times an index company has conflicts of interest and limitations that I do not run into when using a financial planner. My financial planner has two goals. To make himself money and make me money. If he does the latter then he gets the former. I don't mind paying a person a % if that % exceeds the % I can get on my own.

The masses here seem to think that a financial planner cannot get a % that exceeds their own (when adjusted for risk). I have seen enough portfolios here and I beg to differ.

Another profession that charges per hour? Lawyers.

Bottom line: the people who are out there to screw you WILL screw you at any chance.

There are conflicts of interest across the board. The conflict with commission-based advisors is the one that is always mentioned, but as puckah18 notes, an hourly professional can screw you just the same. The key is to find an advisor (or a lawyer, or a doctor, or an auto mechanic, etc.) that is ethical and has your best interests at heart.

I found this on another message board and it sums up my thoughts pretty well:

"How does one "avoid all conflicts of interest"? I've asked this of the fee-only crowd and have never received a suitable response. I mean, if you charge by the hour, what's to stop you from working slower to pad your hours? If you charge a flat fee for a plan what is considered fair? And if it's considered fair, what is the motivation to see the client implement a plan? And, in the slight chance the plan does get implemented, what's the motivation to give ongoing advice unless they charge an ongoing fee? Isn't there a chance the planner could schedule unnecessary meetings for the sake of generating fees?"

SlimTim said:You would hypothetically avoid conflicts of interest if the financial planner took a percentage of your long term gains above an agreed market index. But I don't think any of them are confident enough in their services to set up that way - even though the percentage would reasonably be a lot higher than the "rain or shine" fees and commissions that are common now. Excellent performance should still result in excellent commissions, but poor or mediocre performance would earn nothing.

1)It is not legal to charge in that manner.
2)It makes a false assumption that the role of the financial planner is to increase return percentages.
3)It would actually increase conflicts of interest. Ex. The agreed upon market index is up 10% for the year. You are up 3%. The financial planner would be in a position where he would have to choose between not getting paid for the year or taking lots of extra risk with your portfolio.