Friday, July 14, 2017

Merrill Edge Guided Investing - Do You Need an Investment Advisor?

So you need an advisor to tell you which funds to invest in?  Maybe.

In the mail today a letter from Merrill Edge asking me if I want to sign up for "guided investing".   I already have an account with them, with no fees for trading.  Why would I want this "guided investing?"

The premise is that an "advisor" is assigned to you and helps you to decide what to invest in.  And there is, of course, a charge for this - 0.45% of your portfolio every year, charged monthly in advance - or about $4500 on a portfolio of a million dollars.   This is indeed a lot of money for a few hours (at most) of investment advice.   The also charge transaction fees of $0.01 to $0.03 per $1000 of principal for trades.

Is this worthwhile?  Is is a good deal?   It depends on your perspective.   Granted, it is about 1/10th of what some "storefront" investment firms charge to transfer funds to their accounts - but that is a one-time fee.   0.45% might not sound like much, but it adds up over time, if it is charged every year.  After 10 years, you've given them $50,000.

For most people, this is probably an unnecessary expense.  Your primary investment vehicle is likely your 401(k) you have from work, and that is limited to a handful of mutual funds.   For others, who have rolled-over their funds to an IRA or have invested in an IRA, a simple index fund or collection of popular funds is really all you need to do.

For some reason the FAQ and the letter goes on at length about Exchange-Traded Funds which would seem to me an indication that is their primary form of investment.   I cannot tell from their FAQ if they are asking for trade authorization in your account - allowing them to buy and sell investments without your confirmation or permission for each trade.  The FAQ and letter seems to imply this, saying that their advisors (which appear to be a computer algorithm that bases your investment choices based on a questionnaire you fill out) as it talks about "re-balancing" your account periodically.

I suspect that perhaps the EFTs they would recommend might be Merrill based EFTs or EFTs for which they get a commission for selling.  Like I said, it is hard to tell from the happy-talk in the FAQ and the letter they sent.

And vagueness is never a good sign of anything.   When you can't figure out something without reading the fine print, chances are it isn't in your favor.  And if you think you are "too dumb to understand" or they tell you this, odds are you do understand and it is a bad deal.

Overall, I would say "take a pass" on this.   Invest in known things or popular funds.  Stay away from IPOs, fancy tech stocks, companies that lose money or have fantastic P/E ratios.   Move money to safer harbors as you retire.   The secret to investing is no real secret.

People who look for "tricks and tips" or get-rich-quick schemes just end up broke.   Investing is not gambling, and trying to make a lot of money in a short period of time is a sure way to go broke.
So thanks, Merrill Edge, but no thanks.   I don't need to spend money to make money.