Fidelity Observer

Fidelity after Edward Johnson III

2006-08-03T20:43:00.000-04:00

A Boston Globe columnist, Steven Syre, has a column about speculation currently swirling around Boston: What will happen to Fidelity after Chairman Edward C. "Ned" Johnson III? Johnson is 76, and his daughter Abigail is a major Fidelity shareholder, but it's not clear what role she would play. Another potential internal candidate may be out of the running, too, says Syre and Fidelity Investor editor Jim Lowell:

Now Bob Reynolds , the company's chief operating officer and legitimate dark-horse succession candidate, has complicated the picture further by becoming a finalist in the competition to select a new commissioner for the National Football League. He is among five remaining candidates for one of the best jobs in professional sports.

"Everyone at Fidelity understands there's going to be a major transition sooner rather than later," says Jim Lowell , publisher of the Fidelity Investor newsletter. "It sounds to me that he's laying the groundwork for his own exit strategy. There's something in Fidelity's current playbook that has led Bob Reynolds to say he's willing to switch teams."

Syre has more to say on the subject, and prints a lot of gossip in the column, but the important thing for Fidelity customers to remember is changes at the top will have an inevitable effect on the services we receive from the company. Because when a new chairman comes in, personnel changes and policy changes are a given. And the new folks may not like the way the website looks or performs, and may determine certain services are not profitable enough and push through changes that make it more expensive or less convenient for the little guy.

And while some of these changes will be transparent and well publicized, others may pushed to the end of a legalese-filled license agreement or buried in the fine print of a prospectus, where we're less likely to notice and therefore less likely to complain.

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Blowing the whistle on mutual funds/hedge fund cheating

2006-07-23T21:57:00.000-04:00

Brooke Masters of the Washington Post has an article ("Tipster Set Fund Scandal Snowballing") about how a series of "drop a dime" calls to Eliot Spitzer's office resulted in an investigation of the mutual funds industry, and related hedge funds. The tipster, Noreen Harrington, a former Goldman Sachs trader, lifted the covers on after-hours trading and other market-timing tactics, and blew the whistle. It's a very interesting story, and it's told in language that non-traders can understand. Read the article here.

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Heat wave: Energy tips, and a blackout hits

2006-07-19T08:30:00.000-04:00

The country is moving through a heatwave. 100-degree temperatures. People darting between air-conditioned cars and office buildings. Kids running through sprinklers. Air con and fans on all night. Eggs frying on sidewalks.

But there are some opportunities to save money, especially when it comes to energy costs. Timing air conditioning on/off times is an obvious choice. Using the cooler basement rec room to relax or sleep is another.

Less obvious: Adjusting water heater standby temperatures. We switch from 140 degrees to 120 degrees in July, because hot showers are out of the question in the summer, and our boiler will use a lot less energy trying to maintain hot water at 120 degrees, compared to 140 degrees.

In the car, I open the windows in town, rather than using A/C to cool off. But when I hit the highway, I close the windows and turn on the A/C -- the increase in aerodynamic efficiency outweighs the energy loss from using A/C. I also carpool two days a week, and try to coast as much as possible, which entails using both the gas and brake pedals less. If I had cruise control, I would use that as well, but that's not a feature on our Ford Escort wagon.

What about when there's no power? We lost power four times in the past 24 hours. During the day, there's not much we could do -- head to the basement maybe, or out to the backyard, where there's some shade and the kiddie pool. The fridge and freezer can't be opened, so we have some canned juice in a cupboard. At night, we tried to keep the kiddies calm (all under five, and anxious when the lights failed). We have candles ready, and a hand-cranked flashlight in the cupboard as well (incidentally, this a great item to have in the vacation home, if you have one).

What are your energy-saving tips? Do you have a blackout emergency drawer, or do you just wing it when one hits?

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Burned by Cingular II: A pattern of poor service, and sales sleaze?

2006-07-11T23:05:00.000-04:00

Well, well, well. Remember Fidelity Observer's post in April, complaining about poor service from Cingular ("Customer disservice: Burned by Cingular")? It seems that this is not an isolated incident. A Federal lawsuit claims that millions of former AT&T Wireless customers (such as myself) were the victims of a deliberate effort to force them to upgrade to more expensive plans, but degrading service. Ars Technica has more details.

Is Fidelity Observer surprised by Cingular's alleged sleazy treatment of inherited customers from AT&T Wireless? Not at all. Promises to give us the same service levels we experienced under AT&T are typical corporate P.R. speak, designed to lull customers and regulators into a state of trust and acceptance.

Will the legal activity right the wrongs? Fidelity Observer is doubtful. I think we all know what will happen when a class action lawsuit is filed on our "behalf", and it actually succeeds. A bunch of lawyers walk away with millions, customers get $25 coupons to use for future Cingular services, and Cingular gets to walk away without admitting any wrongdoing.

Caveat Emptor!

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How to screw up your indexing strategy

2006-07-02T13:19:00.000-04:00

Mark Hulbert of the New York Times revisits the indexing debate, by pointing to the results of a long-term study by The Hulbert Financial Digest tracking the performance of newsletter recommendations and the S&P index. Fewer than one in seven was able to beat the S&P over the 26 years of the study. But there's another element that must be considered, and that's the psychological stamina of individual investors:

This psychological dimension is crucial in interpreting long-term performance. In the usual pattern, buying and holding an index fund becomes a widely popular strategy during long bull markets At such times, many investors find it much better — and more predictable — than trying to determine either the market's short-term gyrations or which individual stocks will outperform others. By the bottom of the subsequent bear market, however, most of those converts to buy-and-hold index fund investing will have thrown in the towel, unable to tolerate the pain of pursuing it over the long term.

Hulbert notes that investors without the discipline to stick to the strategy during the downturn will lose more than they would have by following a newsletter's picks, or taking up the services of a professional adviser.

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Creative credit card purchases to build air miles

2006-06-26T00:50:00.000-04:00

The Washington Post has a great article by Keith L. Alexander about frequent flyer programs, and how people are using credit cards to build up miles to earn trips. Charging funeral expenses, new cars, and -- Fidelity Observer has a friend who did this -- kids' college tuition costs are all some of the tactics that people use on frequent flyer credit cards. From the article:

Thanks to airline-branded cards, paying for home improvements can lead to get-away-from-home vacations. Carol Lane, a West End advertising writer, recently took out a home-equity line of credit to remodel her bathroom. But instead of paying for the new bathroom fixtures with the line, she used her United Airlines credit card and received 40,000 award miles. She then used her line of credit to pay off the credit card bill.

But there's a hitch, that millions of people have found out when they've tried to cash in their loyalty program miles:

The rush to accumulate miles comes at a time when it is harder than ever to use them. Some airlines have raised the number of miles needed for trips and have reduced the number of U.S. destinations and are flying smaller planes.

Frequent-flier guru Randy Petersen, publisher of Inside Flyer magazine, said travelers often have to book from six to 10 months ahead to get an available seat to popular destinations such as Paris.

Anyone have tales of creative credit card purchases to fund air travel? Or difficulties redeeming frequent flyer points?

TIAA-CREF's five-step program for financial health: Fidelity Observer fails!

2006-06-21T00:07:00.000-04:00

There's an article in the June 2006 issue of TIAA-CREF Advance, "Get Your Financial House in Order." It suggests five steps members should take as part of a financial review. Unfortunately, Fidelity Observer only had one of the recommended steps fully under control. The other four steps were either partially completed, or not even started. Here are the five steps, and Fidelity Observer's status for each:

1) Organize your finances

This step involves effectively filing and organizing all of the important documentation you receive. Included are bank and credit card statements, mutual fund documentation, insurance policies, and kids' accounts. This is the only step Fidelity Observer got right -- almost all day-to-day documentation goes into one of those accordian files, with different pockets for bank statements, medical receipts, documents that I might need for filing taxes, etc. At the end of each year I close the accordian file and stow it in the basement, usually only bringing it out at tax time the following April. For the new year, I buy a new accordian file at the office supply store for $10 and start over. Important documentation (birth certs, car and house title, etc.) goes into a fireproof safe that's in the basement. For my mutual fund accounts, which generate too much paperwork for the accordian file, I use 6" three-ring binders -- one for Fidelity, and one for Vanguard. They take years to fill up. I used to use a system of manila envelopes and binders, but there were too many different places to file things, and it was a pain to punch holes in so many documents.

2) Create a Budget and 5) Build an Emergency Fund

Step two in the Advance article explains that you should plan out your budget according to liabilities, net worth, cash flow, etc. By doing so, you'll be better able to plan for retirement and free up money for savings. Step five says you should create an emergency fund to carry you through crises. Fidelity Observer isn't so thorough with budgeting; our family pretty much spends everything we have on living expenses without any planning and the extra goes into retirement accounts.

We know our mortgage and average credit card bill; when our USAA bank account seems to build up an excess of cash it usually gets eaten up by one-time large expenses -- car repairs, a crown not covered by dental insurance, summer camp fees, or our trip to visit the in-laws overseas. When savings gets up to $5000, we put a few thousand dollars into our Roth IRAs or the kids' 529 plans.

Over the past few years I've noticed we've been unable to fully fund our Roth IRAs; we simply don't have the extra cash. I am not sure budgeting -- perhaps using an electronic tool like Quicken or Microsoft Money -- would help, as we already are very stingy. We don't get cable TV, we don't have monthly mobile phone plans, we drive used cars and I carpool a few days per week, and we clip coupons. Building an Emergency Fund is simply out of the question, unless I decreased my workplace 401k contributions.

3) Review and Update Your Insurance

This step is all about life insurance, and it's an area that Fidelity Observer must admit that's lacking. My wife is probably the only person in the family who's adequately covered through a term insurance policy and my workplace group insurance. I have maxed out my workplace group insurance (about 1.2 times my annual salary), but got a rude awakenening when I applied for term life insurance: a medical condition effectively doubled what I would have to pay every year. We simply didn't have the money. Until we do, there's not much I can do for life insurance.

4) Work on a Will

Bottom line: Fidelity Observer simply doesn't have one. I don't know how much lawyers cost if I want to get a will professionally drawn up, but I've heard that there are simple computer-based wills you can generate which do a basic job. I'll look into these and report back in a different post.

5) See step 3

Do any readers have advice regarding the five steps described above? Can anyone say that they have all five under control?

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What the USAA ad didn't mention

2006-06-12T00:22:00.000-04:00

"pfblog reader" left a few comments and questions on an earlier post ("Bait and Switch: USAA Federal Savings Bank"). Despite the fact that USAA is raising fees as much as 400%, he or she seems to be supportive of USAA. He/she suggests there may be a very good reason for raising the photocopying fee from $1 to $5:

Does USAA offer electronic access to scanned checks and past statements? If so, then maybe the copying fee is sort of a discouragement to prevent people from asking USAA to do something that the customer could just print off the webpage? In that way, I can see why the statement copy and photocopying fees are that high. I would imagine that it is not because photocoying something costs $5, but that they have to hire someone to do this [obsolete?] job ...

Interesting, but that doesn't make much sense, as customers are sent printouts of their statements and cashed checks every month, and they are free, at least for the type of checking account I have. Of course, there must be some reason behind USAA doubling and quadrupling fees, but they did not explain it in any of the documentation I was sent.

The comment by pfblog reader brings up another point, about the marketing material that highlighted the features of the accounts:

I didn't see any of the adverts that touted the low fee checking accounts--did they publish the old fees (for statement copies, etc.--the ones you listed in the post) as examples of these low fees? If so, then that does seem like bait and switch. Most of the "low fee" checking account adverts I've seen, though, tout the low fees associated with minimium balances, electronic bill pay, and stuff like that. If they didn't cite these as specific examples, then I'm not so sure the bait and switch argument is as strong. If someone didn't even know what the cost was before, then maybe they don't care about it or at least it didn't "bait" them into signing up for the checking account. Right? If you don't see the bait, then how can it bait you?

Hmmm. What exactly did the advertisements say about low fees, back when I signed up? I went into my basement, and dug out last year's bank paperwork to examine the marketing material that USAA used to lure me and other USAA members to register for Federal Savings Bank accounts.

And you know what? It turns out the advertisement didn't say anything about low fees.

It said "no fees".

That's right, no fees. Not "no fees" with an asterisk, or "no fees, except for certain types of bank services." No fees, period. Here's the text of the advertisement, which is featured on page 4 of a little booklet entitled "Your Guide To Banking at USAA":

Put your money to work

Checking. Pay no fees, optimize cash flow.

You'll never need to change accounts again. Our no-fee checking account will follow you no matter where you live or travel. Enjoy no monthly service fees, no minimum balance requirements and unlimited check writing privileges.

There are then nine bullet points describing some of the features of the account, and urging people to sign up. Only one of them mentions fees:

Automatic refunds every month on fees other banks charge for using their ATMs.

This bullet also refers to some fine print at the bottom of the page, which says "No charge for the first 10 ATM withdrawals at non-USAA ATMs per monthly statement cycle; additional withdrawals are $1 each. USAA Federal Savings Bank will refund up to $15 for ATM surcharges incurred per account, per statement cycle."

Still, there is no fine print talking about photocopying fees or any other fees. I am sure a lot of people read that and said -- "Sounds great, sign me up!"

But wait. On page 16 of the booklet there is a "Service Fee Schedule". Are these applicable to the checking account? It's not clear. There is no reference to these fees on the page 4 advertisement, nor is there any indication on page 16 about which accounts the service fee schedule applies to -- there is USAA savings account, CDs, and IRAs described in the booklet.

So, pfblog reader, there's the bait: A bank account that's described as "no-fee checking", but actually has fees, which seem to rise very significantly every once and a while.

Notably, the USAA Web site still describes this account as "No Fee Checking," and the fine print on that page does not mention the service fee schedule. If I were USAA, I'd think about changing the name of this account, making the presence of fees very clear to prospective customers, and taking a hard look at how new services are marketed to members. Customers don't like being misled. Deceptive advertising, and unexplained major fee increases are resented by customers. If repeated, they could erode USAA's status as one of America's most trusted companies.

Caveat emptor!

Related Posts:

Bait and Switch: USAA Federal Savings Bank

USAA responds to Fidelity Observer with a playground insult

A corporate partnership that's useless for consumers

BOA customers beware: More nickel-and-diming ahead!

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S&P Lowers Fidelity's Debt Outlook

2006-06-06T19:41:00.000-04:00

Standard and Poors reports that Fidelity Investments Life Insurance Co. and Empire Fidelity Investments Life Insurance Co. (collectively, Fidelity Investments Life Insurance Group, or FILIG) debt outlook has been lowered (click on "Fidelity Investments Life Insurance Co. And Affiliate Outlook Revised To Neg From Stable"). This has an impact on FMR, the parent company that runs Fidelity. Here's the reason for the downgrade:

The negative outlook on FMR is principally due to the loss of market share caused by the underperformance in domestic equities, as well as the higher risk profile stemming from the investments in noncore businesses. If FMR fund performance backslides or if higher risk/lower margin noncore businesses, such as Pro-Build, were to exert significant pressure on FMR's financial performance, ratings could be lowered. Alternatively, if last year's restructuring of the asset management business proves a success in more challenging equity markets, or the operations, sale, or other disposition of these noncore businesses enhance FMR's financial position, the outlook could be revised to stable.

Fidelity Observer doesn't have any other analysis relating to the S&P report, although Chris Reidy over at the Boston Globe was able to dig up a few quotes from Fidelity's PR ace, Anne Crowley.

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Bait and Switch: USAA Federal Savings Bank

2006-06-06T07:35:00.000-04:00

I made a comment in an earlier post about USAA, "A corporate partnership that's useless for consumers," that has turned out to be wrong. Here's the comment:

The benefits of the USAA Federal Savngs Bank account are generally quite good. I have free bill pay, I have not been nickel and dimed with fees (like BOA) and most ATM fees are refunded.

I spoke too soon about the nickel-and-dime part. I just opened my monthly statement from the USAA Federal Savings Bank, and inside is a three-page document describing changes to the account agreement. The boring legalese changes are put in the front, which no doubt fools a lot of customers into thinking the paper can be thrown in the trash. However, on the last page are some significant changes to USAA's "Service Fee" structure. Here's the rundown:

ATM Service Fee beyond the first ten free withdrawals:
100% increase (From $1 to $2)

Check Chargeback Fee
No increase ($5)

Official Check Fee
150% increase (from $2 to $5)

Statement Copy
100% increase (from $5 to $10)

Photocopy Fee
400% increase (from $1 to $5)

Federal Express Fee
14% increase (from $7 to $8)

Outgoing Wire Transfer Fee
60% increase (from $12 to $20)

USAA insurance has built a reputation of being great to its customers in terms of service and keeping costs low, as evidenced by the praise-filled comments on the Consumerist. But after seeing the USAA Federal Savings Bank new fee structure, I am convinced it is not much different than any other national bank out there. It's the same classic bait-and-switch tactic I've seen practiced by Bank of America, Citizens Bank, and many other institutions out there: Launch a big marketing campaign stressing low fees on its accounts to build market share, and then two years later, once customers have gotten all of their bills hooked into online bill pay and are dependent upon other banking services, nickel and dime them with new fees and various restrictions.

The fact that USAA Bank is heavily used by military personnel makes this even more discouraging. Lots of folks serving overseas or moving around are more likely to need photocopied documents, Federal Express delivery of statements, etc.

Caveat Emptor!

Update:

There has been a response to my posts about the playground insults and the fee increases from an anonymous USAA employee at the following link:

http://fidelityobserver.blogspot.com/2006/06/usaa-responds-to-fidelity-observer.html#comments

I have also responded at that location.

Related Posts:

What The USAA Ad Didn't Mention

USAA responds to Fidelity Observer with a playground insult

A corporate partnership that's useless for consumers

BOA customers beware: More nickel-and-diming ahead!

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USAA responds to Fidelity Observer with a playground insult

2006-06-01T08:33:00.000-04:00

A few weeks back, Fidelity Observer criticized USAA for its expensive marketing campaign touting the supposed convenience of using the UPS Store QuickPost to mail in deposits to the USAA Federal Savings Bank. I didn't see any added convenience -- in fact, driving to a UPS Store to mail a deposit envelope is very inconvenient for most customers, as they are not nearly as common as post offices or mailboxes.

However, a reader named Jason pointed out an actual benefit of the USAA/UPS Store partnership:

The major advantage seems to be the option having your money post to your account the next day if you needed the money in there or just wanted the extra days of interest.

Jason's right. This indeed may be helpful to some customers who have a big check that they need to clear ASAP. However, this wasn't stressed in the original message (see text here). Even if it were, it didn't deserve a glossy, expensive mailing to the many thousands of USAA banking customers.

In any case, yesterday afternoon I was surprised to see this new comment by another poster. It echoes what Jason said, but ends on a nasty note:

One benefit of the QuickPost system is that it sends your checks next day air to the processing center, meaning they clear faster. Might be worth reading the info you get in the mail next time. Next time, ask for an info packet with fewer "big fancy words" and more pictures, perhaps your small brain will understand it better!

The immature tone of the comment is typical fare for online discussions, but I was quite suprised to see who made it. The person didn't leave his or her name, but left an electronic trail nonetheless, which showed up in the website visitors' log. The trail leads to San Antonio, Texas, and one of the corporate servers of USAA. Here are the details:

Referring Link: http://www.google.com/search?hl=en&q=usaa and QuickPost&safe=active
Host Name: poplar.usaa.com
IP Address: 167.24.104.150
Country: United States
Region: Texas
City: San Antonio
ISP: Usaa

This tells me that someone with access to one of USAA's corporate servers -- probably a USAA employee -- didn't like Fidelity Observer's negative evaluation of the QuickPost service. He or she explained the next-day benefit of the service, which is fair enough, but the "small brain" comment is out of line. After all, I'm a USAA customer, and expressed some legitimate complaints about the service and how it was marketed. Yet the company has to resort to playground insults to show its displeasure?

Related Posts:

What The USAA Ad Didn't Mention

A corporate partnership that's useless for consumers

Bait and Switch: USAA Federal Savings Bank

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Good News: Fidelity's customer protection guarantee

2006-05-25T21:24:00.000-04:00

Fidelity Observer spotted this guarantee, linked on the front page of Fidelity.com. Fidelity has apparently retooled its anti-fraud policies, and will "reimburse your Fidelity account for any losses due to unauthorized activity." The page details what is and is not covered by the guarantee:

Fidelity will reimburse your Fidelity account if we conclude that there was unauthorized activity resulting in a loss and that the activity occurred through no fault of your own. We will also need to ensure that the activity was not initiated by you (the account owner) or by someone you allowed to access your account.

There are a couple of other catches in the fine print, including this doozy:

"The guarantee will not apply in any situation in which you do not report unauthorized activity promptly to Fidelity."

It's not clear what Fidelity means by "promptly", but obviously this will be a problem for the hundreds of thousands of Fidelity customers who seldom check their account paperwork or online status. I mean, seriously. Fidelity expects us to check our accounts every few days to make sure no one has emptied it? I am not an active trader; it's not uncommon for me to review my account status just once per month, when I am mailed my paper Fidelity statement.

Nevertheless, Fidelity Observer is overall quite impressed by the guarantee, particularly after the negative buzz for Fidelity policies following news of the Strotman memo.

Fidelity also deserves credit for making the customer protection guarantee easy to understand. This is a sharp departure from earlier policy changes, which are usually legalese-filled statements Fidelity periodically forces its customers to agree to online.

Related Fidelity Observer posts:

If Hackers Empty Your Online Mutual Fund Accounts, Too Bad! (Unless ...)

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Spammed by Vanguard!

2006-05-19T08:13:00.000-04:00

Whenever I sign up for a website, or register for some service, or even subscribe to a magazine, I always make sure to check off the little box that ensures my email address won't get on some sort of mailing list for company or "partner" promotions. If the form doesn't make it clear what the company needs my email address for, I either leave that field blank or supply my work email address.

Some companies, however, monkey around with communications policies or manage to forget that you opted out of promotional email. Such is the case with Vanguard, which, after many years of obeying my opt-out wishes, suddenly sends an email to my personal account that says "The word is out--low-cost funds."

In other words, Vanguard spammed me.

I am quite disappointed in Vanguard for doing this, but don't have the time to call them up in an attempt to get a "why" or "how" answer. Also, Vanguard has an opt-out link on the spam, so I clicked that, and hopefully the problem is taken care of ... Or should I say, taken care of until the next time Vanguard yet again changes its communications policies, or "forgets" that I opted out.

Caveat Emptor!

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One answer to rising gas prices: Commute by bicycle

2006-05-14T14:55:00.000-04:00

Fuel is selling for around $3/gallon, with no relief in sight. A lot of people are ditching their SUVs and other gas hogs for smaller, more fuel-efficient vehicles, or taking public transportation, if it's available. But there's another way to get to work, that is not only cheaper than driving or taking the subway, but has the added benefit of improving your physical health: Riding a bike.

Fidelity Observer did just that for three years, in the spring, summer, and the early fall, weather permitting. I didn't have to buy any special gear except for panniers and a bell, which cost about $140 combined. I already had a midrange mountain bike, lock, and helmet. I wore shorts and an old T-shirt most days, putting my work clothes and shoes in the panners. The commute was seven miles each way, which worked out to about 35-40 minutes door to door. I felt great about saving on transportation costs -- in fact, we managed on just one car for the entire time -- and felt even better about staying in reasonably good shape.

Of course, commuting by bicycle is not for everyone. You may live too far away from work, or the route may be too dangerous. But if you're interested in getting started, I recommend visiting Bike Worker or a bicycle commuter website local to your area to learn about routes, gear, facilities, shops, and other information.

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The Magellan distribution and taxes

2006-05-12T20:23:00.000-04:00

The Fidelity Report blogger has posted about Fidelity Magellan's massive distribution last week.

He/She makes a good point about large mutual fund distributions and the tax consequences for funds held outside of retirement accounts. It's basic advice that most of you already know, but worth visiting if you are just getting started on saving and investing using mutual funds.

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Bogle hypocrisy on mutual fund pay?

2006-05-12T08:03:00.000-04:00

Ross Kerber of the Boston Globe has an interesting story this morning about Vanguard founder John Bogle (of indexing fame) and his quest to force fund companies to reveal top executives' pay. One of his critics, Daniel Wiener, editor of the Independent Adviser for Vanguard Investors, points out that Bogle took steps to shield his own pay levels when he ran Vanguard in the 1990s. From the article:

In the May issue of the Independent Adviser for Vanguard Investors, editor Daniel P. Wiener wrote that Bogle's recent proposals make him ''the 180-degree man." In an interview, Wiener said Bogle oversaw steps that removed details about executive compensation from Vanguard's fund filings later in the 1990s, and called him a ''hypocrite."

''It's amazing Jack Bogle is so vehement on this topic," Wiener said, even though he supports more disclosure himself. He said a more likely motive is that Bogle wants to tweak the current Vanguard chairman, John J. Brennan.

Bogle dismisses that notion, and said the data disappeared from Vanguard's filings in the 1990s because of new SEC reporting guidelines. Since other companies weren't required to report pay, he said, ''I didn't see any reason to disclose."

Bogle called Wiener's charge of hypocrisy ''fair enough to say" and acknowledged he didn't like it when Wiener reviewed documents filed by all Vanguard funds for 1991 and calculated Bogle's compensation at $2.6 million, a widely quoted figure in the business press.

''I didn't like having it in the public eye," Bogle said. ''It looked like I was making a lot of money relative to others in the business, and I was really tail-end Charlie."

You can read more about Bogle's change of heart in the Globe article.

Now, I wonder how much Fidelity's top execs are making? I very much doubt we'll ever find out, barring a court case that brings salary records into the public eye.

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What's up with Fidelity Magellan?

2006-05-08T08:07:00.000-04:00

Fidelity Observer just received this message from a reader, regarding Fidelity Magellan (FMAGX):

I’ve been watching Fidelity Magellan. It went from 115 to 94 yesterday. Does anyone know what happened? Was it a distribution or something?

Yes, there was indeed a drop of 21.25, or 18.33%, late last week. And it was indeed a distribution. But that didn't stop some people from nearly having heart attacks after logging onto Fidelity.com, judging by the thread on the Investment Banter message board:

Last night my account only showed the NAV drop with no updates to shares held and overall value.

Another poster has a message for the programmers of the Fidelity.com website:

Last night it was showing only the negatives : lower price per unit, lower total money in Magellan, lower number of units !!! Just like a stock plunge.

I guess the cheap programmers in Bangalore now have another glitch ("enhancement", I think they call it) they can fix. But only if someone lets them know. We may be the only folks who noticed!

Not anymore! I know that some Fidelity employees read Fidelity Observer, perhaps they can pass along a message to the Fidelity website people that:

A) share holdings should be updated earlier or

B) unusual NAV changes in Fidelity Funds should automatically trigger a red text message in the "My Accounts" area, notifying people of the reason (distribution, etc.) and that it may take an additional day for individuals' share holdings to be updated.

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A corporate partnership that's useless for consumers

2006-05-05T00:28:00.000-04:00

Fidelity Observer just got a fat mailer from USAA Federal Savings Bank, promising great things. Quickly I discovered that its contents were useless.

Fidelity Observer already banks through USAA. The benefits of the USAA Federal Savngs Bank account are generally quite good. I have free bill pay, I have not been nickel and dimed with fees (like BOA) and most ATM fees are refunded. However, there are no physical branches, which means all transactions take place through the Internet or through the mail, with preprinted and first-class prepaid desposit envelopes. This also means cash deposits are not possible. So when I got the fat mailer promising "a new way" to mail in my deposits, I was excited. Could this mean a safe way to mail in cash, or some other great improvement?

Not quite. Here are the details of the "new way" to send in deposits:

Dear --

USAA has teamed up with the UPS Store to bring you QuickPost. Now simply drop off your USAA desposits at the UPS Store nearest you, using a QuickPost envelope and your USAA deposit slip. It's one more way USAA is making banking more convenient for you.

Huh? So instead of dropping my deposit slip in a mailbox (i.e., the "old way"), now FO has the option of dropping the deposit slip off at a UPS store (the "new way"). What's the benefit? For consumers, there is no benefit -- unless you believe the USPS are incompetent, and UPS Store employees are totally trustworthy.

On the other hand, there is a benefit for at least one of the corporations involved. The UPS Store will get more new customers coming into its stores and perhaps doing additional business beyond dropping off USAA deposit envelopes.

But Fidelity Observer has no idea of the benefit to USAA, as any USAA customer with two brain cells to rub together will see that the new partnership doesn't add up to much.

Related Posts:

What The USAA Ad Didn't Mention

USAA responds to Fidelity Observer with a playground insult

Bait and Switch: USAA Federal Savings Bank

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No, really: Standing-room airline tickets!

2006-04-25T04:42:00.000-04:00

I sometimes refer to airline coach seating as "cattle class", but Airbus is taking the concept to a new low. This excerpt is from an April 25 article by Christopher Elliott of the New York Times:

Airbus has been quietly pitching the standing-room-only option to Asian carriers, though none have agreed to it yet. Passengers in the standing section would be propped against a padded backboard, held in place with a harness, according to experts who have seen a proposal.

While this seating plan may not "fly" in this country, the airlines are finding new ways to cram more seats into coach class, as evidenced by American Airline's "density modification program," says the New York Times article. Not surprisingly, the motivation is money:

... American said its "density modification program" had added five more seats to the economy-class section of its MD-80 narrow-body aircraft and brought the total seat count to 120 in the back of the plane. A document on an internal American Airlines Web site, which was briefly accessible to the public last week, estimated that the program would generate an additional $60 million a year for its MD-80 fleet.

Maybe American's new motto should be "sticking it to the little guy."

Caveat emptor!

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Unlocking the value of an expensive camera

2006-04-24T01:37:00.000-04:00

Two Christmases ago, I received a very nice digital camera as a gift. I specifically requested the model, a Fuji Finepix S7000, for its features that approached that of an SLR (manual focus, shutter speed, and apeture settings, etc.) but wasn't too expensive. It was also a brand that I trusted -- my first digital camera that I bought back in 2000 was manufactured by Fuji, it takes pretty good snapshots, and has an excellent interface.

Anyway, back to the new camera. I have not used it that much. Part of the reason has to do with its bulkiness, but there were two other issues that held me back: its extreme sensitivity to motion when shooting indoors and low-light conditions (I don't like to use flash) and its limited memory (the camera came with just a 16MB xD card).

Both of these issues have easy remedies -- tripods and bigger memory cards -- but I refused to get them. I felt that such a nice camera ought to be fine out of the box without additional expenditures.

I put up with settling for mostly outdoors shots for over a year, but I finally gave in three days ago and decided to drop some more money on the camera. There was a straw-breaking-the-camel's-back moment that precipitated my change of heart: I attempted to take a picture of my sleeping son at naptime, but the pictures ended up blurry, even with multiple shots, holding my elbow against my chest to steady my hand, adjusting shutter speed and ISO settings, etc. That night I was passing my a photo store, and stopped in to price tripods. I was surprised at how inexpensive the small collapsable ones were. I ended up getting a cheap Giotto, and the very next day started using it. The results: Totally excellent. I've shot outside with the tripod fully extended and in restaurants with the tripod in its smallest form sitting on the table, and the results are superb. I've finally unlocked the value of my $400 camera, and all it took was an additional investment of about $20.

Next, I'll upgrade the memory, which will let me use an even higher quality setting, save the images as RAW instead of JPEG, and get more pictures in the camera before the "Card Full" message appears. Unfortunately, it won't be a $20 investment (xD memory cards with 256MB of memory start at $25) but I really think it will help me unlock even more value from the camera. I'll keep you posted ...

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Customer disservice: Burned by Cingular

2006-04-15T00:26:00.000-04:00

Fidelity Observer is a reluctant mobile phone user. I have talked about it before, but it needs to be discussed again. I put off getting a mobile phone as long as I could -- I didn't talk much on the phone, the plans seemed like an expensive commitment, and I didn't want my life to be dominated by the phone the way my friends' lives were. I eventually caved when my wife was pregnant with our first child, and wanted the reassurance of being able to instantly communicate in case of an emergency. But I still got only the bare essentials -- a pay-as-you-go plan with AT&T Wireless' cheapest and bulkiest phone. We bought two phones, one for me, and one for my wife.

We have kept the 1990s-era phone (and a slightly smaller 2002 model that my wife uses) through all of these years, along with the pay-as-you-go plan. I still don't talk much with friends, but on several occasions the phone has been great to have for car emergencies and shopping coordination. But recently I've noticed a change in the service I'm getting from Cingular, which acquired AT&T Wireless a few years back. First there was some monkeying around with the pre-paid programs' pricing. Then there was the experience I had today, which brought to light three major problems with Cingular's service

1) An inability to buy over the phone more minutes just before my current minutes expired -- the automated system hung up on me when I attempted to buy time on either phone
2) An inability to register online to manage my Cingular account, or use my old logon information from AT&T Wireless.
3) An inability to get anyone on the phone to discuss these problems, or buy more minutes

A little background: I usually buy $25 dollars worth of minutes (I think about 100 minutes) which last for 90 days, unless you renew before the time is up, in which case they'll last another 90 days. That's expensive, I'm sure, compared to the plans most people use, but I'm only paying about $100 a year for connectivity (plus another $100 for my wife). we have a few hundred minutes stored up on each phone, which we want to keep. That's why it was so important to get through to buy more minutes.

But the phone tree just dumped me at the instant I pressed "2" to indicate that I wanted to make a purchase with a major credit card. No reason was given -- the system said "Thank you for using Cingular!" and hung up.

Hmm. Let's try online. I went to the Cingular site, indicated I was a former AT&T customer, entered our phone numbers, but no dice: They couldn't register this type of account. My old AT&T logon info didn't work either.

OK, so let's talk with a human. Dial the 866 number. Navigate through the tree, then press 0 to speak with a human. Listen to some not-bad jazz, and the repeated messages about how important I am, and apologies for keeping me waiting.

But no human ever came on. I got on before 1 pm, and hung up at 1:20 pm, angry at my inability to conduct two simple transactions or speak with someone who can help.

Keep in mind that I am not a nuisance customer for Cingular. I am a loyal customer. I use old equipment, pay high per-minute fees, don't receive any paper mailings, almost never bother their human reps, and in this case, only wanted to pay them more money. But I wasn't able to get through.

And I am not the only one having problems. Seattle Duck, another AT&T orphan, has also had a trying experience with Cingular. Here are some more blog posts about Cingular.

Is it time for me to ditch the 1990s brick and get a new phone and new service provider? Any companies I should steer clear of?

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American Cars III: What about the dealers?

2006-04-10T00:54:00.000-04:00

Mac Tonite left an interesting comment on an earlier post about American Cars, and brings up shady dealer practices. He uses the example of Saab, pre- and post-GM, and finds the need for repairs increased once Saab repairs were moved over to the local Cadillac service center.

His suggestion seems to be that dealers representing the Big Three are snakes, while foreign car dealers have more integrity.

I am wondering if this negative perception of dealers ties into the quality perception of American cars discussed earlier -- that is, quality rankings for American cars are affected by excessive bogus repairs authorized by greedy dealers. The cars may not need the repairs, and the quality is actually good, but the dealers for the Big Three recommend them anyway to boost their profits.

Meanwhile, foreign car dealers restrain themselves, either because they have more integrity/less greed, or because customers are extremely sensitive to high priced foreign-made parts and the dealers don't want to scare them away.

Does this sound plausible? Any dealer stories that support/contradict this?

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If Hackers Empty Your Online Mutual Fund Accounts, Too Bad! (Unless ...)

2006-04-08T14:46:00.000-04:00

If you're the victim of a "phishing" incident (you respond to a bogus email, and hand over social security numbers, account numbers, and passwords) or someone uses other illegal methods to steal your logon info for your mutual fund accounts, do you think you're protected, and you'll get reimbursed?

Think again, says Kimberly Lankford's column in the May Kiplinger's: (Page 97, link not yet available, subscribe here):

Question: "... What if someone hacks into my account and empties it? Would I have any legal recourse to require the mutual fund company to reimburse me for the loss?"

Lankford's answer: "To put it bluntly, no. 'Customes have no recourse unless they can prove that the institution was negligent in the theft,' says Matt Bienfang, senior analyst with TowerGroup, a financial services consulting firm" (please read the rest of the article when it comes online, there are a few other caveats as well)

That's not the worst of it. If you're like most people, you are probably at great risk for this type of loss, by virtue of your computing habits. Ask yourself these questions:

1) Do you use a Windows PC at home?
2) Do you write down passwords, and leave them near the computer?
3) Do you use the same password at multiple websites?
4) Do you share account information, including passwords, with other people?

If you answered yes to any of these questions, it's time to take some steps to minimize the risk of getting hacked. These aren't hard things to do, and may save you a lot of money and grief. Here's Fidelity Observer's five-step program to safe computing with an eye to protecting your assets:

1) Get a Mac. Home computers using Windows operating systems are terrible security threats, even if you have security software installed. There are just too many vulnerabilities, many of them are unknown or poorly understood, and there are thousands of exploits that take advantage of them and people's trust. Spyware or malware can be installed onto your computer without your knowledge -- often by clicking on a popup ad or downloading a plugin -- and from there can steal your passwords and other information. Almost all of these hacker tools are aimed at computers running Windows, not only because the operating system is junk, but also because that's what most people use. That doesn't mean Macs are immune, but to date I have never heard of this type of software aimed at the Macintosh OS X operating system. The Mac OS X is also a pleasure to use, is great for Web surfing, can run identical or even better applications that your home Windows machine can use (with the exception of games), and never crashes for most people. Fidelity Observer uses an iMac. My sister uses an eMac, which is aimed at students. But I just bought a Mac Mini for my parents, which is a great choice because it's cheap ($600, plus $200 for the Applecare 3-year warranty) and they can use their old PC monitor. Mac laptops include the lower-end iBook and high-performance MacBook Pro.

2) If you can't get rid of your PC, then at least get a decent security software package. Fidelity Observer doesn't use a PC, so I can't recommend a particular package, but here's a selection of current security software.

3) After you get a Mac or upgrade your security software, change your passwords on the most critical Websites and applications that you use -- financial, email, tax, etc. Use a robust password that can't be guessed. Not your birthday, kids names, pet's name, your own name spelled backwards, or something from the dictionary. It should ideally be a combination of lower and upper-case letters and at least one number. I often do this -- make up a sentence, and then use the first letter of each word. Here's an example:

GCI06WSd (Go Cleveland Indians '06 World Series dream)

Wh3ka1cnR (We have 3 kids and 1 cat named Rufus)

4) Don't use the same password for different sites. If one of those sites gets hacked, they could conceivably get into your accounts on other sites. Also, consider changing the password every 12-18 months.

5) Once you have reset your password, don't share it with anyone else unless you have to. My spouse doesn't even know mine. Don't leave it lying around on a slip of paper next to the computer, where someone else can find it.

Anyone else want to share their safe computing habits, or horror stories?

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American Cars, part II: Laying blame

2006-04-07T08:21:00.000-04:00

Earlier this week I talked about American cars ("American cars: What's wrong?") People had some interesting comments, not only talking about their own vehicles, but also what they think is wrong with the way American cars are created. Phil noted this aspect of American car buyers:

" ... A large segment of the car-buying public make their choice based on a non-economic critera. Ford, GM, and Chrysler never had to have better quality control because people didn't use quality as the main decision-making criterion. This creates an inefficient car economy, the result being lower-quality American cars."

He also pointed out the use of advanced automated technology in Japan.

These views would suggest that American car makers and consumers are to blame. I certainly don't dispute that people make buying decisions for the wrong reasons -- status, advertising cues, self-perception -- and American carmakers are shirking on quality, but there's some other factors at work, too:

1) GM, Ford and Chrysler are getting hammered on health care costs. Countries with national health care and healthier populations have a competitive advantage, and it forces the American companies to save money in other areas -- getting cheaper parts, or processes to make the cars.

2) The Big Three automakers and the unions have made some ridiculous pacts that waste billions of dollars and lead to lowered productivity.

Case in point: GM and Ford's programs which pay employees not to work. GM's version is called "Jobs Bank", and if the company doesn't need it's workers, it is forced to pay them to do something else -- many volunteer or take classes on GM's dime, but thousands of others sit in rooms reading magazines all day, and they've been doing it for years. GM now has 7500 employees in the program, which will cost it up to $900 million this year, based on current wage levels, according to the Wall Street Journal story, "Detroit's Symbol of Dysfunction: Paying Employees Not to Work," by Jeffrey McCracken, page A1 (sorry, don't have the date, but it's within the past few weeks).

How can American car makers be competitive in an environment like this?

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American cars: What's the problem?

2006-04-05T08:23:00.000-04:00

I think practically everyone has heard about the latest auto quality rankings, which put Japanese cars at the top of the list. This is a trend that's been going for decades. The American press, public, and politicians complain, Detroit comes up with new models and a pledge to improve things (remember "Quality is Job 1"?) but not much changes.

Or does it?

I own two American cars, and I have to say I am quite satisfied with the overall quality of the vehicles. One is a Ford Escort station wagon. I bought it used after my '88 Toyota Corrolla gave up the ghost. The Escort has been a dependable vehicle for commuting and hauling stuff around, and to date has only required minor repairs. It gets between 25 mpg and 30 mpg, depending on various conditions. The other is a Nissan van built by a Ford factory in the midwest (that's what the sticker in the door says, at least). We also bought it used. I am not too happy with the gas mileage (15 mpg by my calculations) but it's a safe vehicle for my family, and can be used to haul around big items.

Are these cars exceptions? Maybe. The Escort was made in the late 90s, when it had been in the manufacturing cycle for 15 years or more and presumably most of the bugs had been ironed out. The van is Japanese engineered. The Consumer Reports ratings partially depend on user-submitted data, and the current crop of American models just couldn't measure up to Japanese cars.

However, I wonder if stereotypes come into play. Owners of American cars are more sensitive to problems, because they confirm the bad things people have heard about them, while owners of Japanese cars are more willing to overlook defects or won't admit them.

Do you own an American car? Has it been reliable? What about your Japanese car?

Read the other posts in this series:

American Cars, part II: Laying blame

American Cars III: What about the dealers?

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