Bloodsuckers

Wear a long sleeve shirt!

I'm working with a client who has a broker that receives monthly contributions to put into a Fidelity Fund. The client deposits $166.66 at the 1st of the month; the broker takes $6.33 as a "sales and creation charge" (3.8%) and $1.50 as a "custodial charge."   The bottom line is that $158.83 gets invested in the Fidelity mutual fund.  Thus, before expense ratios or anything else, almost 5% is taken out.

This has been going on with the broker for a number of years.  Here is a press release from NASD on the censuring and fining of this upstanding broker.

A couple of points from the press release:

• “Using misleading sales scripts, inappropriate comparisons and omissions of important information, First Command sold hundreds of thousands of complicated and often enormously expensive plans to young members of our armed services, who are frequently inexperienced investors,” said NASD Vice Chairman Mary L. Schapiro.  I guess this is their way of thanking our military.
• Under Systematic Investment Plans, an investor makes monthly payments for a fixed term, typically 15 years, which are invested in underlying mutual funds.  The purchaser is charged a 50 percent sales load on the first 12 monthly payments.

       Brings to mind Woody Guthrie:

                                    Yes, as through this world I've wandered I've seen lots of funny men; Some will rob you with a six-gun, And some with a fountain pen.

• First Command told its clients that a benefit of the high first-year sales charge was to “instill discipline.”  However, First Command failed to inform its customers of the lost earnings potential as a result of the sales charges deducted from the customer’s first 12 months’ investments. For example, an investor who made monthly payments of $100, totaling $1,200 in the first year, would be left with an investment in the funds of only $600 for that year. How can these people sleep at night? Do they not have a conscience?

THEY ARE STILL IN BUSINESS!!!!!!  Brokers are not fiduciaries.  If you don't know what that means or implies, please find a registered investment advisor, get an hour's worth of consultation, and make sure your investments are in order.  IT IS NOT ILLEGAL TO RIP YOU OFF IN THE INVESTMENT WORLD!

Zecco versus Schwab

DIY Investor has never used Zecco and has no clients who use Zecco, so he's running a bit blind in this post--sort of like Pacino driving the Ferrari blind in "Scent of a Woman."

Zecco had offered zero commission trades as noted by MoneyCone and now is charging $4.95/trade. Understandably, this has some people upset.

This would not be something that would affect DIY Investor because he minimizes trading and, in many instances with the likes of Schwab and Fidelity, uses commission-free trades. Still, DIY Investor wonders how Zecco stacks up against the likes of Schwab, so DIY Investor visited the Zecco site to see what was offered. DIY noted right off the bat plenty of resources for the trader - screeners, alert centers, "QuoteStream," etc. - the kind of tools that are definitely needed for jumping in and out. Zecco actually says "Markets move fast. You need the tools to move faster."  As an aside, this gets at the crux of differing investment philosophies. If you've ever played racketball, you understand that chasing the ball all over the court is futile and just wears you out. You need to understand that the ball mostly comes back to the center of the court, and a key is playing the angles and minimizing your movements.

So, definitely not DIY Investor's cup of tea. DIY Investor moves slow. In fact, as the years have gone by and experience has been gained, DIY Investor has moved ever slower.

What DIY Investor doesn't see at the site (and maybe they are there somewhere) are asset allocation tools, models to determine the appropriate risk tolerance structure for investors, or performance software that enables the investor to compare how they are performing compared to a benchmark  index. Is this the cost for low-priced trades?

Zecco clients must get analytics elsewhere, or maybe they are on the site but DIY Investor just didn't come across them. Or maybe clients watch CNBC and Cramer and sort of shoot from the hip. DIY Investor is going back to watch Pacino drive that Ferrari again.