Suze Orman

I just read something I found somewhat idiotic, yet indicative of the idiocy of Suze Orman. I'd love to hear other's thoughts on this.

In her column for Yahoo, she writes about the 5 signs of bad financial advice. In #2, she talks about how nobody should pay commissions to an advisor, but instead should be paying him/her yearly, based on assets, in the range of 1% - 1.5%. Great, that is often an appropriate fee structure for an investor. I agree with that. Yet, she goes on to say the advisor should also be focused on low cost mutual funds or ETFs. This is where I am confused. We all know what she says about loads and commissions. Commissions and loads are bad. She says it every day. Yet...she's ok with me paying 1.5% A YEAR for an index fund? If I'm going to do that, I might as well just buy a variable annuity, which she told me not to do in #4. I know she specifically mentions IRAs, but still, if I am going to have to pay 1.5% a year for my IRA, I'll take the guarantees that come with the VA any day of the week.
Or, why can't someone just buy into American Funds, Franklin Templeton or something through a good bank or broker, pay one upfront load (with potential for breakpoints) and be done with it, knowing they get an advisor to service them, low annual expense ratios, no additional out of pocket costs, access to the other funds in the family without the commissions, and the proven track record of the fund family? But, the people that read her column or watch her show won't consider something like this, because she blanketly says everyone should avoid loads. Even though, there are cases where this is the most efficient and least expensive way to go.

Here she is again, preaching the concept that one piece of advice is acceptable to everyone.

Here's how I see it: the 1.5% (which I personally think is outlandish, something less than 1% is more reasonable) is not for the purchase of a fund or index, but rather for all of the activities that go along with financial planning - goal setting, plan creation and projection, risk tolerance discussions, tax considerations, insurance analysis, estate planning, etc., PLUS portfolio creation, not to mention management of the portfolio with regard to all of these other factors mentioned before.

Granted, if you're going to do most of the decision-making on your own, this is a ridiculous price to pay, but if you're going with a loaded fund option at your wirehouse broker, you won't be getting the comprehensive analysis to go along with it - and it you don't watch it you'll be getting the "fund of the week" - regardless of how it fits your overall needs.

I'm not saying that I agree totally with Ms. O, but this again is a place where I'm not far from her point of view. The idea of using low-cost funds is an acceptable way to earn a return, albeit not for everyone.

The primary factor of success in investing is having a sound strategy and posessing the discipline to stick with your strategy through the tough times. Portfolio allocation choices are an additional factor - but notice that I didn't say choice of funds. Choice of individual funds is one of the least important success factors; that is to say, you can choose some pretty crappy funds and, as long as they're not long-time losers, and assuming that you didn't bomb out on every fund in your portfolio, you can still realize some degree of success.

The point is that many investors need to pay someone to help them develop a strategy, to maintain that level of discipline and help with the portfolio allocation, and that, coupled with the comprehensive analysis in the areas listed above, is likely worth the AUM charge, in terms of benefit to the investor.

But, I don't think that one size fits all, by any means.

Obviously, those of us that have been in the industry understand what the fee based structure can incorporate in terms of advanced planning services. And for a large number of investors, that is certainly the economical way to go. However, my issue is with the way she blurs those individuals with those who don't have those needs. Her primary audience, is the average to below average investor - i.e. beginners, novices, younger individuals, etc. People that don't have advanced planning needs; people that, in general, just need a little help with where to put their money so it'll accumulate faster. These people are naturally very impressionable, and her strong personality instills in these people that there is only one way to do things - Suze's way. So, while she gives advice appropriate for someone who truly needs a CFP, she markets it to those that don't, who then go out into the world and ignore other bits of good, relevant advice if it in any way differs from Suze's. Broker's are happy to help of course. If I had a dime for every person I've met who got put into a wrap program at 75bps or 100 bps anually, weren't active traders, held mutual funds for the long term, and were still ignored by their broker...I'd be rich. These are the people that should be steered straight to an A share by a conscientious broker who understands what's truly best for the client. Suze doesn't consider this scenario, and that bugs me.

The way I see it, an AUM fee or flat annual fee needs to be justified by more than just performance of the investment. If that investor doesn't actively trade or need exposure to multiple fund familes, or have a complex situation requiring a great deal of personal attention, why pay the annual AUM fee? If they're a beginner or young buy-and-hold mutual fund investor, buying truly inexpensive A shares seems to make sense. As needs increase, they re-evaluate the potential solutions. This gets shot down by Orman, and her word is gospel to some.

Those that have read my posts here also know that I am certainly a strong proponent of advisors and the value they bring to the table. That said, they still need to justify their compensation.

You're preaching to the choir, Sadale... I concur with your point regarding the audience's appropriateness to receive the her comments, and her lack of giving the total picture.

Another, perhaps even more accessible way of providing the appropriate advice and recommendations is the hourly model - which works quite well for the young/novice/beginner, in that they can keep their costs down by working in increments with a planner who operates in this fashion. This way the no-load funds and indexes could still be utilized, keeping ongoing costs minimized as well.

I wholeheartedly agree with you Sadale. i think that i must even find a small area of disagreement with Blank on this too. the fee structure for those who are (i think we all agree) are Suze's primary audience are best served through commission based (ie. A share) advisory personnel. Even on the hourly schedule, I think it quite likely that a client will use 10 hours of a professionals time in fact finding and the generation and presentation and administration of a basic plan. even at $150 an hour (which I think is kinda low) that is still $1500 out of pocket for the client.

the A shares will cost them this as well, but out over a much longer period of time. the advisor can make a decent living using these, the client pays a fair amount for service.

1MO

You are correct, 1MO, if every client required a more or less comprehensive plan - but as I indicated, most young/novice/beginner clients work incrementally with hourly planners, making the costs much more accessible to these folks. By comparision, I doubt seriously if a broker would provide a comprehensive (10 hours or more) financial plan to the same people in exchange for their 4.5% load - right? Especially since financial planning is incidental to their broker work.

Consider this...
While it certainly may be argued that a beginner or novice investor may be best served expense-wise by using an advisor or planner that charges an hourly rate and utilizes no-loads, I'm going to go out on a limb and say this just isn't happening. Why? In my experience, that type of investor doesn't know that type of advisor exists. Why?...because those advisors, in general, just aren't marketing to those investors. If Suze's awake, she knows this. Those investors are walking into their local bank, their insurance agent's office, or getting a broker referred to them by a family member or friend. The bank and insurance agent are likely only able to sell load funds or annuities (again, I'm generalizing), and the broker or wirehouse rep will stick the brand new investor into a wrap program with an annual AUM fee. And since "Suze says" you should never buy a fund with a load, that investor sees the bank broker on one hand with a load fund, and the wirehouse rep on the other without, they choose the wirehouse broker. Over time, they pay more than they would have with an A share, but don't know it, because Suze doesn't go into detail about the different options. Chances are the wirehouse broker won't either. The bank broker likely will, but are fighting an uphill battle because they're pushing A shares and the investor doesn't think they know what they're talking about because Suze already slammed them. And, to boot, the wirehouse rep will probably ignore them anyway because the account balance is small. On the off chance that one of these investors is ballsy enough to say, "why do I have to pay that fee?", the wirehouse broker may choose to instead sell them into C shares, and tell them they're no loads. Why, because wirehouse reps are encouraged to annuitize their business, and wraps and C shares do that pretty well. (I'm not knocking C shares - I love them...just not for everyone) C shares aren't cheap over the long term, and chances are that investor, at this point in their investing career, aren't active traders, so they're buying and holding, and don't know what an expense ratio is.

So my point is, by telling investors in very general terms what to and not to do, but without explaining why or the differences, Suze still leaves investors in danger of making the worst kind of mistake - the one they don't know they made.

Thanks for listening.

... and so we're back to the point where we agree, Sadale. Now, if you'll just tell everyone about hourly planners and point them in that direction, we'll have the problem licked! ;)

The over-generalized nature of the advice given by, you name them, Suze, Dave, Ric, Bob, et al, has always been dangerous, but at the same time it is popular as all get-out, so it's important to know (as you were reading) what they are saying and how to fit that in to reality.

I have, in the past, sent emails to some of these folks trying to get them to give the entire picture, especially when they have no reason (no incentive) to *not* give the whole picture - and well, you can guess the response.

This kind of thread is, I think, helpful to provide some additional information for folks to consider. And it'll have to do until we get the Sadale/1MO/BlankenshipFP radio program syndicated nationwide... :eek:

Thanks for bringing it up, Sadale...

yep, now i am in agreement (generally) with the post. i will state that most of the "good" insurance companies have transitioned well to the fee only basis. while not all of their business is this direction, it is available. in the mean time (especially for new advisory personnel); loaded funds are still an extremely reasonable option for new investors in need of advice.

blank, i believe that you would find advisory personnel willing to spend the time for a cut of the 4.5% load. if the advisor is long term focused then that "underpayment" up front will correct itself over the long term with volume (referrals) and additionally placed business from the client over the years.

that said, make no mistake about it. i like the way you charge. for more established families or businesses, your way is perhaps the most cost effective. but until families get there, i think the alternative is more than feasible.

of note, i believe that these general purveyors of generalized financial pornography do have a reason to not tell their viewers, listeners, readers, et al the full story. they get paid in advertising dollars to support those that support them. clearly their advice is biased and to not recognize this (as most do not) is unfortunate.

1MO

I don't doubt the willingness, what I doubt is the fulfillment. When I made that statement I was comparing the $1,500 of hourly advice (that Sadale mentioned) to what advice the broker may give to the investor with $33,333 (* 4.5% = $1,500) or more. I don't imagine the two would compare very favorably - but that's a generalization as well.

Incidentally, we know Suze's take on funds (no load!), but did you know that Dave Ramsey's call on this is - "always use loaded funds"? I was floored when I found that out... Guess that's the price you pay for calling him up and yelling "I'm debt free!" into the phone.

i have a sincere Love/Hate relationship with Dave Ramsey. gosh the guy seems sincere and i really believe that he is motivated to help people - but land sakes!!! that guy is about the most financially naive public figure i know.

today i heard a caller call and ask about separating his equity from a home he was selling carrying a full mortgage for the full purchase of a new home. now, this concept has been addressed on this forum and the math is pretty tight that this works and it works well. no surprise to me that this caller's financial advisor and his CPA both told him to consider this. the only draw back to doing this is the psychological effect of not paying off the house when you can.

dave on the other hand states (and i mostly quote here), "your financial advisor and CPA are doofuses, they dont understand risk and they don't know how to run the numbers."

dave; buddy, YOU are the doofus. the numbers are bullet proof. risk is assumed and mitigated. the numbers are tight! you can't fight the numbers! but there is his advice - and what galls me is that this caller is going to follow dave's advice and not the competent and fiduciary based advice of professionals.

dave, if you had informed him of the emotional factors on this decision; then i would be singing your praises - but as it is; you probably have screwed this listener who has no recourse for this bad advice you gave. shame on you!

listen, only about a 10th of people actually achieve a decent level of financial success. so, i guess this stuff needs to happen on occassion. otherwise, who will run the McDonalds drive thru so i can get a cheesburger?

1MO

You want fries with that?

you can all write your textbook defenitions for doing one thing and saying another....it's almost scary....did you all copy & paste?!??!.....I have one thing to say....Listen to your Suzy OrmaNs & your Jim Cramers...it's all about HYPE..........HYPE WILL NOT MAKE YOU MONEY!!!!!!!!!! They can all put on a show, but there is someone out there who's not about the HYPE.....someone who folllows your funds 24/7...... b/c they are not in it for the TV...So listen to your get rich in your "24 hour" scam. It is NOT and WILL not make you RICH

Wow, carissa. I'm not sure what you were trying to get across with that post. Are you saying that those of us who have posted on this topic are following a party line and ignoring reality somehow? Because I just don't get that from reading these posts... Please elaborate, but please calm down before you do.

jim, not so harsh please. i think that was pretty clear?!

1MO

see my private message to you

I'll try to tone it down in the future. Thanks for the head's up, 1MO. You are the collective conscious of this site, I hope you know! :eek:

I've read both Dave and Suze to see what everyone was talking about. While their investment advice isn't always spot-on, they both focus first on getting people to change to realistic spending habits and get out of debt. Yes, I know they're extreme. DR hates the credit cards I use which get my husband and me free hotel nights in Europe every year (we pay balances in full every month). He seems to think that anyone who has credit cards will go haywire with them. He's wrong, which is true of any of Dave's and Suze's "always" or "never" statements.

Whatever hype gets people to the point that they're debt-free, I'm all for it. Then when they have spare $$, maybe they'll come here for advice!

You know, Athena53, I agree with that sentiment - that's why I've always had a hard time giving a complete thumbs up or thumbs down to some of these gurus... the problem comes when you buy in to the total package from these folks, with the idea that term life is the only product on the market worth having, that fund loads are terrible (Suze & Bob) or loaded funds are the only way to go (Dave), etc.. The blatant generalization, and the black/white thinking are what gets folks into trouble, in my opinion...

but isnt that just the point. doesnt each of these hosts treat with disdain anyone who does not follow their advice in total and without question? i submit that is exactly what makes them so dangerous. that they are so black and white and that they expect total compliance to their teachings. anyone that doesnt is either "ignorant" or "ripping you off".

in the end of days when we are measured i think it will be small defense to say, "sure, i understand your point in that my bad advice ripped apart the lives of 10,000 families, but dont you see the good i did with the 100,000?"

i dont believe that your knowing actions to hurt others can be offset by helping some different others. course, what do i know?

1MO

for those of you who are thinking, "perhaps dave (or others) just don't know they are wrong but thinks he is doing what is best" then to that i say ... BUNK. he (and others) put themselves out there as financial experts and as such, can't claim ignorance.

I see your point - you might try wearing a hat...

I don't know how Suze will get along without my gushing endorsement... ?

I am not a Dave fan, but my brother is. I think that the reason he is the way he is about credit cards is because of the people he is marketing to. The people that buy his stuff are people that are typically thousands of dollars in the hole, so rather than "tame the tiger" it's easier just to kill him.
At least that is what I have gathered.

Personally, I think that DR should stay out of the "what financial products to buy/not buy" business because he simply doesn't always know what he's talking about. I love how he says that CPA's know "nothing about risk...they are taught book keeping." Being an accounting major, that amuses me.

--Joe

___________________

For God so loved the world that He gave His only begotten Son, that whosoever believeth on Him should not perish but have everlasting life. (John 3:16)

For all have sinned and come short of the glory of God. The wages of sin is death, but the gift of God is eternal life through Jesus Christ, our Lord. (Romans 3&6:23)

But if thou shalt confess with thy mouth the Lord Jesus and believe in thine heart that God hath raised Him from the dead, thou shalt be saved. (Romans 10:9)

Whosoever shall call upon the name of the Lord shall be saved. (Romans 10:13)

Except ye repent, ye shall all likewise perish. --Jesus (Luke 13:3)

I see your point - you might try wearing a hat...

I don't know how Suze will get along without my gushing endorsement... ?

I'm not saying this is cause-and-effect, but read:
http://www.afterellen.com/people/2007/2/suzeorman

Maybe K.T. wouldn't be losing everything if there was some permanent life in the picture for those estate taxes :)

At least she has a revocable living trust! Oh wait, that doesn't help at all.

dang it sadale, i logged on to make the exact same comment! Grrrrrrrr.

1MO

lets see, she could pay about 3% to save the 50% for a net savings of 47% if she was using a GOOD ol' fashioned whole life product. but NOOOOOOOOOOOOO!

physician, heal thyself.

ok blank, you gotta explain the hat analogy/comment. that is outside my generational lingo (and i thought we were close to the same age).

1MO

Ummm... I said I saw your point. Then I suggested you wear a hat. Mayhap the hat would cover the point (on yer head)? ;)

Ah, Sadale, I too was going to say the same thing about whole life insurance. Looks like I would have been beat to it--twice.

-Joe
___________________

For God so loved the world that He gave His only begotten Son, that whosoever believeth on Him should not perish but have everlasting life. (John 3:16)

For all have sinned and come short of the glory of God. The wages of sin is death, but the gift of God is eternal life through Jesus Christ, our Lord. (Romans 3&6:23)

But if thou shalt confess with thy mouth the Lord Jesus and believe in thine heart that God hath raised Him from the dead, thou shalt be saved. (Romans 10:9)

Whosoever shall call upon the name of the Lord shall be saved. (Romans 10:13)

Except ye repent, ye shall all likewise perish. --Jesus (Luke 13:3)

It sounds like she needs a good financial planner.

I agree with the point that many inexperienced investors listen to Suze Orman and Dave Ramsey and take their advice literally. However, as with any advice you are given you should do research and verify the information that is being told to you.

I don't fault Suze Orman or Dave Ramsey for giving across the board advice, however I would not take that approach but if that works for them and they can sleep at night so be it. For anyone who wants to learn about investing they should your homework.

Many people are gullible and believe that if someone is on t.v. they must know what they are talking about and could possibly loss money and be worse off than when they started watching the t.v. show.

I fault the viewers who watch those shows because they take the easy way out and take advice without understanding the advice given and asking the hard questions like we do in this forum. Thanks.

Harrine Freeman
CEO, H.E. Freeman Enterprises.com
www.hefreemanenterprises.com
Speaker, Author of How to Get Out of Debt: Get an "A" Credit Rating for Free

At last! Someone put it writing...

http://articles.moneycentral.msn.com/Investing/Extra/IsSuzeOrmanOutOfTouch.aspx

I'm surprised they didn't mention Suze's Trust (or lack of) problem too. As a side note, it's kind of funny because a whole life would spank the crud out of zero coupon bonds and an ILIT would solve her estate problem. Hmmm.

Suze Orman is an idiot...I have often heard her say that people are too stupid to manage their own finances - case in point!!!!

Suze was on Oprah last week, and in light of this thread, I watched, to see what she would say.

The first guest was a woman who spend all her money on stupid stuff, keeping up with the Joneses, etc. He earned $5k a month, but she had spent them into $136k in credit card debt alone (their house had multiple mortgages on it, and they were upside down in it). He was foolish, too, buying three cars for two drivers, and not complaining that his wife imported snow for their daughter's birthday party.

The get-tough message was okay -- they need to quit all that bad spending, she needs to get a job, etc etc. But then Suze advised them to move to a cheaper place than Southern California, and her advice was.....SEATTLE!!! That's about as expensive as SoCal! Where is this woman living? -- a plastic bubble?????

So, I'm afraid I have to jump on the Suze Hatin' bandwagon. She has lost a lot of touch with reality.

If Suze knew the Seattle housing market she would have known that home values are finally coming down as inventories are mounting. Everyone knows that it's foolish to buy into a topped-out market ... c'mon Suze. How about advising they move someplace where housing has already dropped at least 25%?? I heard a rumor that one should buy low and sell high.

Funny, considering one of her areas of "expertise" is the "Can I Afford it?" segment of her show.

"You don't have enough savings to buy a $1,500 dining room set, but go ahead and get that house!"
And people stop her on the street for advice?

Well, to be honest, I think the idea of moving is not an entirely bad one. But I don't think Seattle is the place to go! The cost of living in SoCal is entirely outrageous, and there are much MUCH cheaper places to live.

My apologies in advance for not reading all the posts. Some of you may have already mentioned these thoughts, but I have to say this about anyone like Suze, Dave Ramsey or any other "financial advice" distributor or self-proclaimed guru. Dispensing financial advice as blanket statements is a dangerous practice that leaves out the invaluable component of knowing the individual situation. This is true for all investment, insurance, retirement and estate planing advice. What's true for some is rarely if ever true for all. Plenty of examples, not enough space...