Objective information about retirement, financial planning and investments

Is Your Financial Advisor Like a Replacement Ref?

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By now you’ve all seen the replay of the horrible call at the end of Monday night’s football game that gave the Seattle Seahawks a “victory” over my beloved Green Bay Packers.   In the interest of full disclosure I am a lifelong Packer fan.  This love affair with the Pack began towards the end of the 1966 season (I was nine) a season in which they won the first Super Bowl; Vince Lombardi was the coach; and Bart Starr and eight other players from this team would end up in the Pro Football Hall of Fame.  I’ve seen some great wins and some disappointing losses over the past 45 years.   Beyond the botched call on Monday, the whole tone of the games with these unqualified replacement refs is just hard to watch.

Update as of late September 26, 2012 the NFL announced that a tentative deal with the real refs had been reached and hopefully we will never see anything as shameful as this episode again.

Unqualified and incompetent referees in the NFL are discouraging, but an unqualified financial advisor can cause some real harm to you.

Is your advisor qualified?  The ref who signaled touchdown on that last play clearly was not.  He had never officiated a game above the junior college level before this NFL season.  Typically an NFL official must have at least five years experience at the college level.  As far as your financial advisor, ask yourself if she is qualified to advise you on your situation.  Does she take a holistic view of your financial situation or does she simply try to sell you more financial products?  Moreover does your advisor have the proper credentials such as the Certified Financial Planner (CFP®) designation?

Does your financial advisor collaborate with other professionals on your behalf?   One of the comments made by several of the experts on ESPN and other networks is that the head referee never called over the two officials who made the conflicting calls in the end zone to hear their explanations.  One of these experts is a former league referee and he indicated this should have occurred as a matter of course.  As a financial advisor I often tap the expertise of financial advisor colleagues and other professionals in areas like estate planning and insurance on behalf of my clients.  I consider myself a financial planning generalist, but I also know what I don’t know.  The key is doing the best job that I can for my clients.  Does your advisor take this approach?  If not why not?

Does your advisor place your interests first?  Clearly the NFL doesn’t really care about its fans or for that matter its players.  Why else would they put out such a cheapened product for the first three weeks of the season and put their players potentially at greater risk of injury?  It’s all about the money and the NFL is raking it in.  Likewise many financial advisors are all about the sale of financial and insurance products.  They are strictly out for the money; their client’s interests come second.  For many commissioned and fee-based advisors this is both the norm and perfectly legal as they are not held to a Fiduciary standard.  I’m biased, look for a fee-only advisor who holds him or herself out as a Fiduciary and who puts their client’s interests first.

Let’s hope the NFL settles their labor differences soon.  But more importantly, make sure that you have a first stringer as your financial advisor.

Please feel free to contact me with your investing and financial planning questions. 

Please check out our Resources page for links to some tools and services that might be beneficial to you.

Photo credit:  Reuters

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How much is Financial Advice Worth?

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A fellow NAPFA advisor  and I were pondering this question this morning.

Retirement

Our meeting was centered upon marketing our 401(k) participant advice services to employers, individuals, and related service providers.  In our minds people should be beating our doors down given the general state of retirement readiness in this country.

The interesting obstacle that we’ve encountered is a resistance among many plan participants to pay for advice, with fees starting as low as $400 per year.  Both of us run our own separate practices that focus on moderate to high net individuals, and in my case also to retirement plan sponsors, foundations, and endowments.  These folks are used to paying fees and the level of the fees we ask are usually not a surprise to these clients.

We came up with two great questions in terms of the 401(k) participant advice market.  How much is financial advice worth?  Is your financial future worth $400?

I recently needed a new water heater, and we paid upwards of $1,500 for the water heater and the labor to install it.  Given that this is not an area of expertise for me, and the fact that working with our gas connection made me very uncomfortable this seemed like money well-spent.

Depending upon their specialty and your location, an attorney might charge $250 -$500 per hour.  If you find yourself in a situation requiring their legal expertise, most of us wouldn’t bat an eye at these fees.

People routinely spend $1,000; $2,000; or more on a vacation.  This is money well-spent; I know that our adult children still talk about some of the family vacations we took when they were younger.

So how much is competent, unbiased financial advice worth?  Part of the answer lies in the benefit that you expect to receive from spending the money.  I ask the question rhetorically because we really want input.  Please leave a comment with your thoughts; we’d really love to know what you think.

As always please feel free to contact me with your financial planning questions and concerns.

 

Photo credit: 401(K) 2012

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Financial Planning Really Does Make a Difference

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Financial Planning Really Does Make a Difference

According to a joint survey by the Consumer Federation of American and the CFP Board, households with a financial plan in place felt a higher level of financial well-being than those without a plan.  According to the survey of 1,508 financial decision makers in households nationally:

  • Those with plans are more likely to feel they are on pace to meet all of their financial goals, such as saving for retirement or for emergencies, by a margin of 50% to 32% and for all but the lowest income bracket (those making less than $25,000 a year);
  • Those with plans are more likely to feel “very confident” about managing money, savings and investments, by a margin of 52% to 30% and across all income brackets;
  • Those with plans are more likely to describe themselves as living comfortably by a margin of 48% to 22%. In addition, as many people who plan and who make $50,000 to $99,999 a year say that they live comfortably as non-planners in the $100,000 and above income bracket;
  • Among respondents in the two highest income brackets, those with plans report saving a higher percentage of income and having built greater wealth than those without them. For example, people with plans who have incomes between $50,000 and $99,999 are more likely to report they save 10% or more of their income (57% vs. 39%) and to have accumulated at least $100,000 in investments (37% versus 19%);
  • For those in the two lowest income brackets, people with plans who use credit cards report being much more likely to pay credit card bills in full. That is true both for those who make $25,000 to $49,999 – 46% for people with plans and 26% for those without them – and for those with incomes under $25,000: 41% for people with plans and 16% for those without them; and
  • Overall, only 31% of respondents said they have a comprehensive financial plan, while about two-thirds or 65% indicated they follow a plan for at least one of their savings goals.

(Bullet points taken from an article on financial-planning.com Financial Planning Critical Regardless of Wealth: Survey) 

None the less, the findings of this study and others clearly show that having a financial plan in place is a key element in achieving your goals.  Financial planning typically encompasses areas such as:

  • Saving for College
  • Insurance
  • Tax Planning
  • Estate Planning
  • Retirement Planning
  • Employee Benefits
  • Investing

Some financial planning best practices (via the CFP Board) include:

  • Setting measurable financial goals.
  • Understanding the effect of each financial decision.
  • Re-evaluating your financial situation periodically.
  • Start planning as soon as you can.
  • Be realistic in your expectations.
  • Realize that you are in charge.

As a practicing financial planner I believe in the value of hiring a trained financial planner to help you through this process.  However there are many web sites that have financial planning tools that might be of help to you if you choose to do this yourself.  Among them:

  • T. Rowe Price has a number of tools and calculators on their site.
  • Morningstar.com has several planning tools; some may fall under their inexpensive premium umbrella.
  • If you participate in a retirement plan through your employer, many plan provider sites have a number of calculators and planning tools.
  • Mint.com has a number of budgeting and planning tools.

If you are seeking the help of a professional, you can find someone in your area here:

  • NAPFA is the largest professional organization of fee-only financial advisors in the country.  (Full disclosure I am a NAPFA Registered Advisor)
  • The Garret Planning Network is a group of fee-only advisors who mostly work on an hourly basis.  Many Garret members are also members of NAPFA.
  • The Financial Planning Association (fpanet.org) has a find a planner function on their site.
  • The CFP Board site has a link to help you find a Certified Financial Planner™ as well.

Whether you do it yourself, hire a professional to help you, or some combination of the two, the best time to get started is now.  In my experience, your investment strategy should be an outgrowth of your financial plan, not the other way around.

Please remember this:  Financial planning is an ongoing process not a one-time event.  

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.

Photo Credit:  Flickr

Financial Advice – Have it Your Way

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I spent most of today at a seminar conducted by Marie Swift, a marketing and communications guru for financial

Current "blue crescent" logo (July 1...

advisors.  Marie, assisted by her son, did a great job of educating us and stimulating the thought process.  One key takeaway is that content directed to clients and prospects should be all about them, not us the advisor.  This is also true when it comes to the delivery of financial advice.

You are the consumer of professional financial advice, why shouldn’t you have it your way?  I don’t like guacamole and our local Mexican restaurant is glad to put mine on the side so I can give to wife or son.

All too often, investors complain that they can’t or don’t receive the services they need from their financial advisor.

I’ve written often on this blog, US News, and elsewhere that everyone should have a Fee-Only Advisor who takes a comprehensive view of their situation.  That is my service model and it is the right one for my ongoing clients.  That doesn’t mean that it is the right model for your needs and your situation.

With the advent of several online advice sites there are many delivery models that you can consider.  A good place to start is to take stock of where you might need financial help.

  • Are you looking for someone to analyze your overall situation, tell you what you are doing well, and offer actionable suggestions for areas that need improvement?
  • Are you looking for someone to manage your investments using asset allocation and low cost index mutual funds/ETFs?
  • Are you seeking comprehensive ongoing wealth management advice?
  • Do you have just a few issues and would like to work with someone on an “as needed” basis?
  • Do you want to sit down face-to-face with an advisor several times per year to review your investments and overall situation?
  • Are you comfortable doing your own investing and financial planning, but would like to be able to run ideas by a professional on occasion?
  • Are you comfortable working with an advisor remotely?
  • Are you looking for a low cost online solution?
  • Are you concerned about how your advisor is compensated?  About any potential conflicts of interest that may come with their compensation structure?
  • How and how often would you like to be contacted by your advisor?

These questions and many others should be considered when looking for financial advice and the method of delivery for this advice.

Please feel free to contact me with any general questions you may have or if you are interested in learning more about the services I offer.

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Conference Season in Chicago

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Although this year is an exception, we generally have a short non –winter season here in Chicago.  For my money there is no better city for a conference when the weather is nice. 
Sponsors of financial conferences have certainly noticed this and “conference season” is in full swing through early fall.
Yesterday I attended a one-day session sponsored by Pension & Investments Magazine called the 401(k) Investment Line-up Summit.  There were some excellent sessions geared toward retirement plan sponsors and those of us who provide consulting advice to them.
Tomorrow and Friday I will be attending the Fi360 Conference downtown.  I’ve been a user of their Toolkit product for a number of years and have a great deal of respect for the organization.  I am looking forward to many of the sessions.  I will be posting about my experience at the conference here next week.
In May I will be attending the NAPFA (the largest professional organization of fee-only financial advisors in the country) conference here.  It’s always great to see many of my fellow advisors.  As good as the conference sessions might be I always learn more from ad hoc conversations with my fellow advisors.
Finally in June I will be attending the Morningstar Investment Conference.  This conference has really grown over the past decade and always provides insights into the investment process and into specific investment vehicles.
You might be saying to yourself, that’s quite a time commitment.  These conferences are great opportunities to learn from great speakers and to talk shop with other advisors.  My clients pay me for what I know it is my responsibility to stay current within my industry.
Thankfully I really enjoy learning about financial planning, investments, retirement plans, and related areas.  These conferences are hardly all fun and games.  The days are typically long and I generally commute back and forth from home to downtown each day for local events.  There are conference fees and the added cost of travel for out of town events.
Overall the benefits far outweigh the costs in terms of time and money.  Next time you talk with your financial advisor or if you are trying to select one ask them how they keep current and what types of conferences they attend.  There’s no right answer, but listen and judge their response for yourself.
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What do Financial Advisors Talk About? Should You Care?

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I am sitting in the Orlando airport waiting for my flight back home to Chicago. We just finished our fifth annual NAPFA Mix Group winter meeting. This is our third time in Florida and the first time here with decent weather. A Mix Group is a fancy name for a study group.

All eight of us are either solo or run very small financial advisory practices. All of us are members of NAPFA the largest professional organization of fee-only financial advisors in the country.

As both financial advisors and small business owners we have all found it vital to have a sounding board of our peers who are dealing with many of the same issues. The winter meeting is mostly devoted to our businesses. We reviewed our financials from the prior year with the group and also discussed our 2012 goals. In the course of these reviews we provide suggestions about each advisor’s business. Besides the direct input about my practice issues, much of the advice we gave to other members was applicable to me as well. I took many notes on points raised in these discussions.

For example we all told one member that she needed to make a tough personnel decision and that she should not be shy about implementing client fee increases that truly reflect the value she provides to her clients (a suggestion from a prior meeting). As was a surprise to nobody, she mentioned that there has been no negative feedback from the clients whose fees have already been increased.

Additionally we reviewed several sessions from the TD Ameritrade conference that a couple of the members had attended just prior to our meeting in Orlando. We also discussed several specific client and business issues raised by members relative to situations they were dealing with in their practices. At our Phoenix meeting last year we had a local estate planning and asset protection attorney do a presentation on issues we should be considering for our clients in these areas.

We do another face-to-face meeting, generally in Chicago in the summer or early fall where we tend to discuss a broader range of issues including investment ideas and strategies, practice tools such as financial planning and client management software, and often discuss client specific issues a member might be having. We schedule a group conference call bi-monthly and all during the year we call each other to help resolve a wide range of questions or issues ranging from client situations to investments, estate planning, or what have you. In short we serve as each other’s board of directors and collaborators.

As a client or potential client of a financial advisor why should any of this matter to you? I can’t speak for other advisors, but I often share with clients the fact that I have this support system of seven other experienced professionals with whom I can discuss any number of issues that might arise on their behalf. In addition to these folks, the entire membership of NAPFA advisors across the country is generally willing and ready to share their expertise to help a fellow member. I have been on both sides of that help frequently since joining in 2003.

NAPFA has over 20 of these Mix Groups and the feedback from advisors who participate has been excellent. Besides the NAPFA Mix Groups there are many advisors who participate in other study groups. Additionally most of us attend conferences during the year that focus on education on various topics such as investing, retirement planning, estate planning, and other areas. From my experience the best exchanges occur at these conferences via conversations between advisors in the halls and over dinner. Much learning takes place informally.

Ask your advisor if they participate in a study group or attend conferences. Ask about what they take away from these gatherings.

Differentiate between educational sessions and the trips that many financial sales types win as perks for peddling the most financial products. If your advisor goes on many of these outings ask yourself who is really paying for the trip.

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The Similarities Between Buying Coffee and Choosing a Financial Planner

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Choosing a Financial Planner

A couple of years ago my family bought me a Keurig single cup coffee maker. I love the ability to make a freshly brewed cup on-demand; the convenience has served to fuel my already robust coffee addiction.

Our local Sam’s Club sells a variety of K-Cup brands; they typically are boxes of 80 for around $37. Starbucks recently entered the K-Cup market so when I saw their box for sale at Sam’s I bought one. It wasn’t until I opened it a few days later that I noticed there were only 54 individual units for the same $37 price. It was clearly marked on the box, but I was so used to boxes of 80 that I never noticed.

When looking for a financial planner it is also important to know what you are getting for your money before entering into any sort of relationship.

First you need to understand that anyone can call themselves a financial planner. This is no requirement that they have any particular training or credentials in order to hold themselves out as a financial planner.  Do they hold the CFP® certification or perhaps the PFS certification (the CPA’s financial planning certification)? There are an ever increasing number of certifications and designations in this field. Some are more meaningful than others so be sure ask many questions here.

Understand the services offered. Do they provide comprehensive financial planning; investment advice; or advice on an ad hoc basis? More importantly does the planner offer services that match your needs?

Understand how the planner will be compensated. Is this person truly a financial planner, or do they simply sell financial and insurance products? Are they paid an hourly fee, an ongoing retainer or percentage of the investment assets they will be managing for you, or some sort of fixed project fee? Is their compensation all or in part based upon the sale of financial products?

Understand the planner’s value proposition. What does he or she bring to the table that makes their services unique and right for you?

Just like my coffee buying experience, it is important that you fully understand who you are hiring as a financial planner, what they will and will not do for you, the benefits of hiring that person, and how much you will be paying for their services.

NAPFA (the largest professional organization for fee-only financial advisors) has published a guide to finding an advisor.

As always please feel free to contact me  if I can be of help.

Check out our Resources page for links to some tools and services that might be beneficial to you.

Photo credit:  Wikipedia

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“Sweater Vest” and Financial Advisors

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NEW ORLEANS, LA - JANUARY 04:  Head coach Jim ...

Ohio State head football coach Jim Tressel (known for wearing an OSU sweater vest on the sidelines) resigned today amid a growing scandal and an NCAA investigation that will surely include major sanctions.  Several OSU football players were suspended for selling memorabilia (a clear NCAA rule violation) that they had received.  Tressel was given a two game suspension (increased to five games at his request to match what the players received).  Recently it surfaced that Tressel knew about this situation for months before it became public and hid it from Ohio State and NCAA officials.  It is my fervent hope that Ohio State receives the NCAA “death penalty” for these offenses.  Unfortunately even if this does happen, there is little to stop some success starved university president or athletic director from hiring Tressel to bring gridiron “glory” to their university.

There have been countless instances in the news over the years of financial advisors who were sanctioned for violations only to resurface somewhere else and perpetrate additional fraud on unsuspecting clients.  Why do clients keep engaging their services?  In large part because the information that is available to the public on advisors is tough to get at and is fragmented. 

My very biased viewpoint is that consumers should start with a fee-only advisor.  I am a member of NAPFA, the largest organization of fee-only advisors in the country.  Alas, three of our former members have been accused of client malfeasance over the past couple of years.  Regrettably just hiring a NAPFA member is not a complete assurance of integrity.
Referrals are another good source to find an advisor.  However don’t be swayed by an advisor who is a member of your church or affinity group.  Way too much fraud has been perpetrated via this route.
Unfortunately there is no one absolute source to review an advisor’s history.  NAPFA’s new guide is a great resource and contains some useful links as well.
Just as Tressel will likely reappear on the sidelines of some major college football program hungry to win (at all costs?) bad brokers and advisors seem to keep popping up like “bad pennies.”  Don’t be a victim, trust but verify.
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That Nice Man at Church Wants to Sell Me a ….

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My point here is that just because you and a financial product sales type attend the same church or are both members of the same Rotary club doesn’t mean that the financial products or services this person is selling are right for you. English: Bernard Madoff's mugshotMy original inspiration for the above was a pro bono financial counseling event in which I participated about 15 years ago.
I counseled a young couple with two young kids.  A registered rep from their church had sold all four of them a variable annuity product.  For the life of me I can’t come up with a good reason for a 7 and a 9 year old to buy a variable annuity policy. I was trying to be diplomatic in my answers when the wife said to me “…we really got _____ed…”  It was hard to disagree.

On a positive note, a client once asked me to review a long-term care insurance policy they were considering that was offered by an insurance company affiliated with their religious persuasion.  The policy had excellent features, the company was solid, and the price was competitive.  They purchased the policy.

Here are a few examples of affinity fraud from a Wikipedia article on the subject:

  • “Baptist investors lose over $3.5 Million”: The victims of this fraud were mainly African-American Baptists, many of whom were elderly and disabled, as well as a number of Baptist churches and religious organizations located in a number of states. The promoter (Randolph, who was a minister himself and who is currently in jail) promised returns ranging between 7 and 30%, but in reality was operating a Ponzi scheme. In addition to a jail sentence, Randolph was ordered to pay $1 million in the SEC’s civil action.
  • On November 16, 2007, Michael Owen Traynor a Bradenton, Florida, investment broker, who had found many of his clients though his church and private school social circles, was arrested on a first degree felony grand theft charge that he had stolen $6.5 million from his investors. It is believed Traynor stole funds from at least 34 clients in Sarasota, Manatee and Hillsborough counties between 2001 and February 2007. Traynor was subsequently sentenced to 12 years in Florida state penitentiary.
  • “125 members of various Christian churches lose $7.4 million”: The fraudsters allegedly sold members non-existent “prime bank” trading programs by using a sales pitch heavily laden with Biblical references and by enlisting members of the church communities to unwittingly spread the word about the bogus investment.
  • On December 11, 2008, Bernard Madoff, an American businessman, was arrested on charges of securities fraud, having been turned in by his own sons after allegedly telling them his business was a “giant ponzi scheme“. According to the New York Post, Madoff “worked the so-called ‘Jewish circuit’ of well-heeled Jews he met at country clubs on Long Island and in Palm Beach.”. Additionally, one of Madoff’s middlemen was J. Ezra Merkin of Ascot Partners. According to Samuel G. Freedman of the New York Times, Merkin was prominent in the Modern Orthodox community. This allowed him to defraud institutions such as Yeshiva University,Kehilath Jeshurun Synagogue, the Maimonides School, Ramaz and the SAR Academy.

Should a religious or other affinity connection disqualify a prospective financial advisor?  Of course not.  However, this affiliation should not serve to give an advisor or a financial product a free pass either.

In all cases, verify then trust.  Check out the advisor and/or the company behind the financial products you are considering.  Put them through the same rigor you would if the affinity connection was not there.  Tragically there are people who prey on the trust and validity that can come via an affinity connection.  Don’t be another victim of affinity fraud.

Want another opinion on your investments and where you stand overall? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed advice about your situation.

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FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

Vanguard and the Power of Twitter

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Two upfront disclaimers:

1.      Nothing in this post or on this blog should be construed as financial advice or a recommendation to take any action of any kind.  Financial decisions should be made only after a careful review of your personal situation and in consultation with your tax and financial advisor.
2.      I have a great deal of respect and admiration for the Vanguard organization.  Across my base of individual and institutional clients I use a number of Vanguard mutual funds and ETFs.
That said Vanguard recently made a decision to lower the investment minimums on its Admiral Share class of funds for investors in these funds who hold their shares at Vanguard.  The Admiral shares offer an even lower expense ratio than Vanguard’s Investor Share class which already has very low expenses.  This is a great gesture on Vanguard’s part because they are essentially earning less by doing this.  Other than the expense ratios, the fund portfolios are the same across all Vanguard share classes.
However, Vanguard did not initially extend this opportunity to Vanguard fund shareholders at other custodians such as Schwab or Fidelity.  Though this did not impact a large number of my clients, I viewed this as unfair to clients of many financial advisors.  Like many advisors, I use Schwab as my primary custodian for most of my individual clients and one of my larger retirement plan clients.  There we hold mutual funds and ETFs from a variety of fund companies, including Vanguard. 
The idea of Vanguard treating the clients of financial advisors holding their funds elsewhere differently (and worse) than shareholders who dealt directly with Vanguard really bothered me.  This seemed very “un-Vanguard-like.”  Most of my institutional clients are already in lower cost share classes; additionally I have tended to use Vanguard’s ETFs for most of my individual clients which carry a very low expense ratio that is generally comparable to Vanguard’s lowest expense mutual fund share class.
None-the-less I sent several Twitter messages to Vanguard saying in effect that it was wrong to treat our clients as second class shareholders and also asking them why they were anti-advisor.  Evidently so did a number of my fellow advisors and consultants because a short time later I received an email saying that a similar opportunity would be made available to advisor clients at other custodians.  The social media activity was mentioned to me in a conversation with a Vanguard rep.
The point is that Twitter and social media can be a powerful communications tool for financial advisors.  In this case it proved to be an excellent vehicle for us to pressure Vanguard to do the right thing for our clients.  Many mutual fund companies are using social media as a vehicle to engage advisors and shareholders.  That’s great, the more we know the better able we are to make intelligent investment choices for our clients.  The flip side is that the fund companies should expect to be called out when they do something as short-sighted as what Vanguard did recently. 
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