Author Topic: Financial Advisor necessary?  (Read 1985 times)

Washington DC

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Financial Advisor necessary?
« on: September 01, 2013, 03:50:59 PM »
I think my question mark in the topic answers the question, but my stash is currently invested with a "financial advisor" who charges 1.25% interest to manage the stash.  Problem is, he doesn't really seem to be doing much but the fees keep coming out.  I'm feeling like the fees are a huge waste of money.   Does anyone go to a fee-only advisor?  How much does a good one charge? 

matchewed

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Re: Financial Advisor necessary?
« Reply #1 on: September 01, 2013, 03:57:16 PM »
If you feel it's necessary to use one just go to this website to shop around - http://www.napfa.org/.

I personally don't feel the need for one, my investments are not complicated enough and I do plenty of my own research. You probably can too.

AlanStache

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Re: Financial Advisor necessary?
« Reply #2 on: September 01, 2013, 04:05:35 PM »
You could probably do a lot better with simple mix of ETF's.  BUT the FA might be earning that 1.25% if they are keeping you from making stupid investments and the FA is putting your money into proper allocations.  If you would otherwise be trying to time the gold market and losing 20% then that 1.25% is worth it.  If you are able to stick to a basic proven strategy then you might want to handle your own investments but if you think you would be chasing the hot stock of the week the FA may be the best route. 

Some one else may have pointed it out too but if your FA is investing in mutual funds they could have 1-2% fees on top of the FA; taking your total up over 3% and that is getting stupid.
« Last Edit: September 02, 2013, 11:02:50 AM by AlanStache »
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cats

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Re: Financial Advisor necessary?
« Reply #3 on: September 01, 2013, 04:48:31 PM »
BUT the FA might be earning that 1.25% if they are keeping you from making stupid investments and the FA is putting your money into proper allocations. 

I am guessing that my anecdote here might not apply to you yet but I thought I'd share it in case anyone else out there is wondering the same thing and in the situation that I'm about to share.  My parents decided to start using a financial advisor a few years ago.  At first I was REALLY skeptical.  Then my dad pointed out that both he and my mother are getting on in years, and while they are both 100% mentally sound now, there's no guaranteeing that he won't lose his marbles in another few years (his words) and then do something like sell his entire portfolio without understanding the implications.  I know enough people who have had parents/grandparents do stupid stuff like this as a result of alzheimer's, dementia, etc. that it's certainly a real possibility.  In their case, the guy has been in business for a long time, and when I asked my parents about what he was investing in, it sounded pretty similar to how I'm investing my money, so I don't think the guy is a total fraud.  His fee is also reasonably low and for now he seems to be getting them decent returns.

So, conclusion: if you think there is a good chance you will do something more stupid than average, an advisor might be worth looking into.

brewer12345

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Re: Financial Advisor necessary?
« Reply #4 on: September 01, 2013, 05:24:34 PM »
I don't understand why anyone with a bachelor's degree would need an advisor.  None of this is terribly hard to fathom and in the US you can largely automate everything on the investing side if you want to keep things simple and not deal with the minutiae.  Most tax issues are actually quite easily researched at the IRS' website.  Why on earth would you pay someone for this, especially when the potential for them to harm you is very high?

I serve as advisor to my parents, in-laws, sister, etc.  Most of what I end up doing is hand-holding.  They are all intelligent people and none of this is beyond them.
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ioseftavi

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Re: Financial Advisor necessary?
« Reply #5 on: September 01, 2013, 08:08:25 PM »
I think my question mark in the topic answers the question, but my stash is currently invested with a "financial advisor" who charges 1.25% interest to manage the stash.  Problem is, he doesn't really seem to be doing much but the fees keep coming out.  I'm feeling like the fees are a huge waste of money.   Does anyone go to a fee-only advisor?  How much does a good one charge?

A good fee only advisor will charge either a %age of assets under management (commonly ranging from 0.2% to maybe 1.5%), a yearly retainer, or an hourly rate.  The %age of assets under management is most common.  In general, the more money you have with them, the lower your fee.  If you have $100,000-$250,000, you will probably be looking at their most expensive management fee (1%+).  If you have $250,000-$1,000,000, you will probably pay middle of the road fees (maybe 0.7%-1%).  If you have 1mm or more, you will probably pay less than 0.7%, and if you have many millions (particularly if you have $5mm or more), you will pay rock bottom - whatever the lowest amount they can charge you is.  It's also not unusual for high net worth clients to negotiate the fee, so their form ADV might say you should be paying 0.25%, but you negotiate 0.20%.

Fee only advisors are, in general, pretty darn awesome:
-Zero conflict of interest (caveat below)
-Likely to not be tied to specific products
-Will do their best to be very honest with you
-Will protect you from yourself
-Are willing to take the time to explain what the hell they're doing and why
-No high pressure to take specific action.  Suggestions are normally well thought out.
-Rarely believe in market timing or chasing 'hot stocks/sectors'
-Don't suggest pointless rebalancing, or certain funds that pay them more
-Are open to considering your whole financial picture: Assets, liabilities, cashflow, expenses, life insurance, etc.
-Likely to be around for the long haul
-Usually way, way better trained than some of the brokers you find at wirehouses

The caveat: If they are charging you a lot to manage your investments on an ongoing basis (let's say, more than 1%), you are taking away many of the advantages of working with a fee-only advisor, especially if they are also using high-cost investments.  You may be paying the advisor 1.25%, and then your various mutual fund managers another 1.5%.  That is a pretty steep 2.75% right off the top of your accounts each year.

The solution:  If you are going to use a fee only advisor, you should either:
-Use an advisor who charges a very low fee on your assets.  Perhaps something like 0.5% or 0.7%.  On top of this, he or she should be using very low-cost underlying investments.  I don't think it's great to give up 0.7% of your returns each year, but if you are absolutely terrible at managing your asset allocation and rebalancing and prone to panics or getting greedy when the market is on a tear...it might be worth it.  Particularly if your fee-only advisor is using low-cost underlying funds (i.e. ETFs or index funds that cost less than 0.3% per year).
OR
-Use an advisor who bills hourly.  Meet with them twice a year for 2-4 hours.  It'll be steep (maybe $75-$300 per hour, depending on services and their experience/specialties) but completely worth it.  Work on rebalancing your accounts first, using very low-cost investments.  Use the remainder of your time to talk about your cashflow, expenses, insurance needs, progress towards your goals, taxes, etc.  In between your meetings, leave your asset allocation the hell alone, unless you're adding to accounts.
« Last Edit: September 01, 2013, 08:11:31 PM by ioseftavi »

Nords

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Re: Financial Advisor necessary?
« Reply #6 on: September 01, 2013, 08:28:06 PM »
I think my question mark in the topic answers the question, but my stash is currently invested with a "financial advisor" who charges 1.25% interest to manage the stash.  Problem is, he doesn't really seem to be doing much but the fees keep coming out.  I'm feeling like the fees are a huge waste of money.   Does anyone go to a fee-only advisor?  How much does a good one charge?
When you retire and start drawing down your portfolio with a 4% "safe withdrawal rate", that means nearly a third of your annual portfolio withdrawal will be going to your financial "advisor". 

CFP Jason Hull will do a fee-only comprehensive financial plan for about $2000:  $150/hour for about 12-16 hours. 
http://www.hullfinancialplanning.com/why-paying-assets-under-management-fees-is-like-getting-a-car-loan-from-a-used-car-dealer/
http://www.hullfinancialplanning.com/how-much-should-a-financial-planner-cost/
http://www.hullfinancialplanning.com/personal-finance-faq-what-are-the-types-of-financial-advisors/

Rick Ferri's company charges about 0.25%/year.
Author of "The Military Guide to Financial Independence and Retirement".   All royalties donated to military charities.
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Random

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Re: Financial Advisor necessary?
« Reply #7 on: September 02, 2013, 06:47:44 AM »
A slightly different dimension on the issue:  we are near or at FI depending on the assumptions used.  My wife is a bit skeptical.  I am planning to use conservative estimates, which will likely require another 2 years of employment (depending on market returns on the stash).  I have asked my wife what she needs to build her confidence in our situation.  She said that she would want to run our assumptions by a financial advisor.  Based on MMM writings and others (especially Todd Tressider), i now have a lowered confidence is what most financial advisors can provide in terms of retirement planning (that can't be achieved easily with on line calculators).  It might just be a face-punch worthy expenditure that I will have to make.   .....unless I can get my wife to dig in and read a few carefully selected pieces.

RedMustache

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Re: Financial Advisor necessary?
« Reply #8 on: September 02, 2013, 09:20:33 AM »
Go to the Boglehead forum.  Outstanding advice, free.

sleepyguy

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Re: Financial Advisor necessary?
« Reply #9 on: September 02, 2013, 09:33:56 AM »
Go purchase Millionaire Teacher 9 lesson they should teach you in school.

Fantastic book, 99% of fa are just lining their pocket books. Do yourself a favour and just use index investing with annual rebalancing.
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DoubleDown

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Re: Financial Advisor necessary?
« Reply #10 on: September 03, 2013, 10:00:10 AM »
A slightly different dimension on the issue:  we are near or at FI depending on the assumptions used.  My wife is a bit skeptical.  I am planning to use conservative estimates, which will likely require another 2 years of employment (depending on market returns on the stash).  I have asked my wife what she needs to build her confidence in our situation.  She said that she would want to run our assumptions by a financial advisor.  Based on MMM writings and others (especially Todd Tressider), i now have a lowered confidence is what most financial advisors can provide in terms of retirement planning (that can't be achieved easily with on line calculators).  It might just be a face-punch worthy expenditure that I will have to make.   .....unless I can get my wife to dig in and read a few carefully selected pieces.

Perhaps you'll find the rare diamond in the rough, but just about every financial advisor you would meet with will likely have no comprehension of your understanding of FI. They have been trained to understand "traditional" retirement and would laugh off any notion of very early retirement unless you have many millions of dollars saved. To them, "early" retirement means retiring at, say, age 55-60 instead of 65 because you are an exceedingly wealthy executive.

I had to meet with the advisor where some of my funds reside, and mentioned in passing my plans to retire soon (at age 46), and she laughed and said I had better plan on waiting at least another 10 years. Keep in mind she said this having NO idea what assets or pensions I even have, so it was a completely reflexive action for her based strictly on age. They think of retirement readiness as a final "number" where you will be able to live off, say, 85% of your pre-retirement income starting at age 65, with the assets to last maybe 20-30 years. The notion of being ready to retire based on your expenses relative to savings is foreign to them.

So, I would not go with your wife expecting to ease her wariness with the concept of FIRE and getting validation that you are ready; you'll probably get the opposite for completely irrational reasons. If you go, I would at least give the forewarning that you do not expect the FA to back up your plans for all the reasons stated above. But I think your plan of gently sharing more informed articles/info is probably a better one. The math speaks for itself if one is open to understanding it.

cynthia1848

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Re: Financial Advisor necessary?
« Reply #11 on: September 03, 2013, 10:16:53 AM »
The fees that you're paying are pretty high.  Most of the big asset managers charge 1% on the first million (or so, I am generalizing).  If you are not super confident about doing the investing yourself, I would go to a fee-only planner and have them suggest a mixture of index funds to you.  Then go and invest at Vanguard or Schwab, both of which have really low fees.

andrea-stache

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Re: Financial Advisor necessary?
« Reply #12 on: September 03, 2013, 10:39:13 AM »
One word....Vanguard!

MrsPete

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Re: Financial Advisor necessary?
« Reply #13 on: September 04, 2013, 07:50:29 PM »
We've been reading and learning about investments all our adult lives, and we've had no trouble managing our own investments.  We have sought professional advice twice:

- My husband had a chance to have our retirement plans reviewed by an FA who visited his office drumming up business.  He looked over our figures and said we are far ahead of others in our age and income brackets, and he really couldn't improve on our work.  We did not hire him.

- I went for a consultation about an inheritance I received.  It had some tricky details, into which I won't delve. 

Washington DC

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Re: Financial Advisor necessary?
« Reply #14 on: September 04, 2013, 08:07:55 PM »
Thanks everyone!  My advisor called today to tell me about some "exciting ideas" he has for my portfolio.  I'll see what he has to say, but I'm thinking that I'll go out on my own soon. 

brewer12345

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Re: Financial Advisor necessary?
« Reply #15 on: September 04, 2013, 08:45:09 PM »
Thanks everyone!  My advisor called today to tell me about some "exciting ideas" he has for my portfolio.  I'll see what he has to say, but I'm thinking that I'll go out on my own soon.

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