Fidelity is starting to act like Motley Fool and this is not a good thing.
We have been with Fidelity for over 20 years. And for over 20 years, we've never really noticed they were there. Like most young adults, we started the account on advice of a parent, as we figured "old people" (e.g., people my age today) know what they are doing when it comes to retirement.
So for nearly three decades, we have put money into Fidelity accounts and watched them grow. They would send us quarterly reports and we would be pleased to see, most of the time, the amount this month was greater than last month. And that is, largely, how you should invest. In your earning years, put money away, into a panoply of things, and leave it alone and let it grow. A big mistake is to try to "leverage" your savings by investing in "hot stock picks" or gold, or whatever they are hyping on the television.
But about four years ago, Fidelity started to change. We started getting more mail from them - junk mail. They sent us a mailing telling us they had set up an "office" in nearby Jacksonville and that we should meet with an "adviser" there.
So, I figured that free financial advice was never too bad a thing, (what was I thinking?) and we went. Nice fancy offices, that of course are paid for by me and every other Fidelity investor. Funny thing, though, financial advisers never want you to think that. No, no, this is their crib, and you are lucky to be allowed into it!
That was the first thing the adviser told us, that in order to be eligible to hear his words of wisdom, we really should have more money invested with Fidelity, to be a "premier" member or whatnot. The man, selling status, once again, I see. But he would stoop to our level to talk to us, out of the goodness of his heart.
And mostly, he talked about himself, and the more he talked, the less I thought I would get any valuable information from him. He was a young guy in his 30's, with a mortgage, car payments, smart phones, and a cable bill - no doubt raking in a six-figure salary and then spending every penny of it. At least he was saving in his 401(k) plan. But his advice was geared toward the debt generation - people making salaries and then spending in monthly tidbits.
"You shouldn't pay off your mortgage!" he told us, "I could do much better for you in the market!" That may be true (or sometimes not true) but the point is, in order to carry that mortgage, I would have to cough up a couple of grand a month. Now, I suppose I could have invested that money with him, and if the rate of return exceeded 5.6% then I would come out ahead and be able to pay the mortgage. But getting a reliable rate of return like that is hard to do. Yes, you can make 10% in the market - maybe more, if you risk your capital. But if the account did not generate more than 5.6% then I wouldn't have enough to pay the mortgage every month, unless I started dipping into the capital, which in turn would mean next month's return would be lower, and so on, until I lost my house.
As a 55-year-old facing retirement, I can't afford to risk $400,000 on a scheme like that, on the premise that I might make a little more money before I retire. From his perspective - as a 35 year-old with a huge paycheck more than covers the mortgage and he needs a tax deduction to offset his taxes - such a scheme makes more sense. Hey, worst case scenario, he loses it all and starts all over again. A lot easier to do at age 35 than at age 55. He really had no clue, however, what it was like to get old.
His other piece of wisdom was to move funds from other companies to Fidelity. This is obviously self-serving. Funny thing, State Farm suggested the same thing, even telling us to cash in life insurance and sell funds and buy new ones with high loads. At least Fidelity didn't go that far!
As a general rule, I can safely say that any investment adviser is going to advise you to move funds to his company, invest with his company, and do other actions which generate income for the company, points for him, or in some cases, even commissions. Very few investment adviser will say, "Gee, your portfolio looks great, I wouldn't change a thing!" - and by very few I mean none, whatsoever.
And I wonder if he was being pressured by management - "You there, call clients and start hawking funds! Get them to move funds around, churn accounts! Generate commissions! Get to Work!" But while he did suggest I move my money around into different accounts, at least they didn't have loads, as my Northwestern agent suggested. I have come to the conclusion that unless you are utterly clueless about money that an investment adviser is not really necessary. Most young people have a 401(k) that allows them to choose from one of four or five funds. You can roll this over into an IRA when you leave and even put it with the same company in the same funds. But other than picking which funds, I think jumping from fund to fund or churning your account is really not a good idea.
But then the junk mail really started coming. We got these "Fidelity Adviser" letters and e-mails, as well as some sort of "analysis" with pie-charts that really wasn't very illuminating. Four pages of garbage with no real conclusions or insights. '"10% of your porfolio is in large cap stocks!" (or whatever) What does this mean to the average investor who doesn't know what "large cap" even means? Is 10% too much or too little? And for my age and retirement plans, how does this factor in? Pie charts can be utterly useless, as Mint has demonstrated.
We got invitations to online conference calls to discuss our investments. Did we really need to do this? For most small investors, swapping funds and jerking your money around is usually the worst thing you can do. If you have a well-balanced portfolio, this should not be necessary - at all.
But when push came to shove, I asked him, "Well, do you think we need to change the mix of our portfolio at all?" And he thought about this and said, "Well, your portfolio is a bit on the low-risk side. Mark's is a bit more tilted toward risk. Yours should be directed more toward riskier and higher-rate-of-return investments, and Mark's toward safer investments."
I thought about this and replied, "Well, I'm 55, so a lower-risk portfolio makes more sense, doesn't it? And Mark is 50, so a higher-risk portfolio makes more sense, doesn't it? And if you average the two portfolios together, it pretty much is the mix you say we should have, right?"
And this stumped him for a minute, and he said, "Well, yea, I guess you are right."
So I am not sure this adviser had much in the way of great advice to give me. I had 100 questions to ask, but all I got were vague answers. You see, investment advisers (like insurance agents) are trained to be evasive, as they don't want to be seen as promising anything.
For example, I asked him about annuities, as a friend of mine was into them (I am not so sure they are a great thing, but a I was curious). What I got from him was that yes, annuities exist, and yes, you can buy one. No real analysis or discussion or certainly not the answer I was looking for, which was either, "Yes, this might be a good adjunct to your retirement plans to provide a guaranteed fixed income in addition to your other assets" or "No, these are a rip-off, I would avoid them at all costs."
Well, at least he didn't try to sell me one, I guess. But it leaves me right back where I started, which is having to research the snot out of everything and then come to my own conclusions. My 30-year track record of investing has taught me one thing - advice from investment advisers has often been the worst advise I have gotten, and it is usually, if not always, self-serving. I won't go so far as to call them all crooks, but you have to realize they are in business to make a living, and most make a living by selling things on commission.
The other thing that was a bit disturbing is that he sort of pooh-poohed by own investments. I have a small account of dividend-paying stocks. When I compare the rates of return of my own stock picks to that of Fidelity mutual funds, I find that I am cleaning Fidelity's clock by nearly 3-1, and this is with a portfolio of relatively boring blue-chip dividend-paying stocks that are considered low risk. In the last year, the stock market has done well. My Fidelity funds are doing maybe 8% and my own picks, 18%. I need an adviser for this? A mutual fund?
We recently inherited an IRA and we needed to roll it over into Mark's account as an IRA to avoid taxes. From Publication 590 of the IRS:
"However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary. Like the original owner, you generally will not owe tax on the assets in the IRA until you receive distributions from it. You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries."
So, this has to be handled just so, to avoid paying a huge chunk in taxes. You know, the sort of thing you want your investment adviser to help you with.
The Fidelity agent who handled the deceased's IRA told use to set up a new account and to go online to do this. I was a little concerned as I didn't want to have yet another account separate from the original accounts. Mark wanted our "adviser" in Florida to handle it.
So I called him and..... nothing. No returned call, no e-mail, nothing. In fact, it is hard to get in touch with people there, directly. E-mails go through a central clearing house, and phone calls require a five-digit extension that is routed to voice mail. So I called and left a message. I e-mailed and left a message. I gave account numbers, the phone number of the man handling the deceased's account.
Nothing. No return calls, no guidance, no coordination. No help. This big glass-box office and all these people and they do.... nothing. So what's the point?
I finally called the guy in Maine handling the deceased's account and after a few weeks, he called back. We were able to set up the account, which so far has a balance of zero. We'll see if the proceeds transfer or not.
The second thing was that we had sold a house in Florida and now had a six-figure amount to invest in Fidelity. I wanted to ask our "adviser" where we should invest this money. Again, phone calls, e-mails, and no response.
But meanwhile, the junk mail continues to flow in, now peppered with credit-card offers. Do these people really have my back? And what on God's earth is going on here?
I log onto their website, which is OK, but like most financial websites, obsesses about stock price and neglects dividends and income. At least on eTrade I could get a printout of my dividend and interest income and a forecast of income for the next year. On Fidelity, to see my dividend and interest income, I have to either download monthly "statements" (in an unreadable and confusing format) or just look at the cash balance in my account and guess where the money came from.
But as bad as that site was, Fidelity decides to come up with a "New Exciting Website Experience!" - with all sorts of flashy graphics and nonsense which I am sure loaded really quickly on the developer's computer. Sadly, on mine, it crashes, even using a UVERSE connection. On a laptop at an Internet Cafe? Well forget about it.
And this new website, now in Beta, will be shoved down our throats this spring. "But wait!" you say, "Maybe the new website will have all sorts of new information you can use!" And if that were the case, I would be cheering it on. But from what I can see, when I can get it to load (load site, get coffee, take a dump, come back, it might be up) it is the same data as before, but now made to look more like a Facebook page. In other words, Fidelity is going all Social Media, now that the trend has already peaked. And quite frankly, I would not trust my money to a social media page.
Investment houses are based on trust. You hand them the fruits of decades of hard labor, and they hand you sheets of paper with numbers on them, that say you have so much money. Banks work the same way. And that is why both try to use names which sound strong and trustworthy (say, for example, Fidelity). No one names their brokerage "Joe's Fly-by-Night". And it is why banks have vault-like buildings that give the impression of safety and permanence. And yea, a lot of this is illusory, as we discovered about six years ago. Banks and brokerage houses can fly away with the wind on a moment's notice.
What has changed at Fidelity is not something I can point to and say, "There, right there, it is, that ONE THING that seems to be different!" Rather, it is a cumulative number of small annoying changes that cause me to lose faith in Fidelity as being vault-like or safe:
1. Junk Mail
2. Junk e-mail
3. Useless reports with pie charts that mean nothing.
4. Indecipherable monthly statements.
5. Investment advisers who don't advise and don't help and don't answer calls or e-mails.
6. CREDIT CARD OFFERS (WTF????)
7. A new website that is all flash and just trash.
8. The rates of return are not all that great.
9. A feeling in the pit of my stomach that someone at the top, who is being paid seven figures, is deciding on these changes and they are not going to be in my best interests.
And that right there is the problem. You see, money saved in mutual fund accounts, or in stock trading accounts, is not guaranteed, or insured by the FDIC. You can lose it all - every damn penny of it - if the market goes down or if the trading house turns out to be fraudulently operated. And as a plebe, you have no way of telling the good places from the badi.
Employees of Enron put all their 401(k) into company stock. The President of the company exhorted employees to "invest it all" in company stock, just weeks before the company collapsed - and even though he knew the place was insolvent. Moreover, investment advisers were touting the stock and high-priced accounting firms were certifying the books as accurate.
Sure, a few people sounded the alarm. And if you were "in the know" at the time, maybe you got out. But most of us don't have all day to search out data on investments and figure out whether company X is going belly-up.
And this is why I say diversification is the key. Not only to have a panoply of different investments, but to have them spread out over a number of different brokerages and agencies. It doesn't really help to have a "diversified portfolio" but have it all with one company. That is not diversification.
Because when it comes down to it, there are no shares of stock or mutual funds sitting in the Scrooge McDuck Money Vault, with your name scrawled on them in Crayon. Your "investment" is just a number stored in a computer, and represents an equity that the firm may or may not hold or hold blocks of. Of course, if a brokerage goes bankrupt, you may be protected by the SIPC, but then again, maybe not. And the SIPC only protects you up to $500,000, which is another reason not to put "all your eggs in one basket".
So, I decided to pull my individually-owned stocks from Fidelity. $6.95 trades sounds attractive, but free trades at Merrill Edge sounds even better. And I am glad I did this in 2014, as starting this year, you are allowed only one IRA rollover per year. Otherwise, the amount rolled over is considered a distribution (why this is, is beyond me, other than some wily fellow was rolling over money a number of times and then cashing it out and not paying taxes, leaving a difficult trail for the IRS to follow).
And as for the house money and other inheritances, I think I will re-open my Vanguard account and perhaps roll over some money into that in 2015. The low management fees and higher rates of return are indeed attractive.
And we'll see if they send me junk mail and Credit Card offers....