Author Topic: Financial Advisor's- Are they worth it?  (Read 6547 times)

Platypuses

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Financial Advisor's- Are they worth it?
« on: November 09, 2015, 11:31:25 AM »
So I had a meeting with our financial advisor last week, and basically told him I do not think we need his service anymore. He has been our financial advisor for the past several years (prior to reading MMM), and thought of him as no ill consequence to us as we did not have much money to invest and only advice to gain. Stepping forward our income and saving % has increased dramatically, and I have become increasingly more concerned with the cost involved with someone else managing our money.

For the short term I do not believe I need a financial advisor as I plan to continue to sock away money into VTSAX and maxing out our 401k's. However I get concerned about the long term, when it comes to tax planning strategies such as using different investment vehicles to keep us in a lower tax bracket as opposed to when our required minimum distribution from our 401k forces us to be in a higher bracket.

Also I have been second guessing my decision as our financial advisor provided us with some benefits that I did not think much about:
- Rediversifying our portfolio (currently just leave it all in VTSAX, but this will change as we get older)
- If something were to happen to me, our FA would be able to help my DW out (who is the exact opposite of me when it comes to finances- she would be happy to never look at the bank account).
- We really trust this FA- he goes to our church and has paid a lot of attention to us when we didn't make much money (however I don't exactly like his technique, he reminds a lot of an insurance salesman). I feel like it might be difficult in the future to find a FA we trust when we come to the point where we really need someone to help minimize our tax burden.

I guess my main question is do many of you use FA's and do you feel like the benefits they can provide are worth the extra 1 to 1.5%/ yr?

ShoulderThingThatGoesUp

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Re: Financial Advisor's- Are they worth it?
« Reply #1 on: November 09, 2015, 11:33:03 AM »
Putting everything in VTSAX is just fine. If you get hit by a bus and your wife continue to do that she will be just fine. 1% to 1.5% is absolutely bonkers.

Argyle

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Re: Financial Advisor's- Are they worth it?
« Reply #2 on: November 09, 2015, 11:40:58 AM »
And if you get hit by a bus and your wife continues to ignore financial matters, she is in the perfect position to be taken advantage of by an advisor.  Instead, set it and forget it and maybe write out your rationale so she can see why she should keep it set and forgotten if the worst should happen.

Frizhand

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Re: Financial Advisor's- Are they worth it?
« Reply #3 on: November 09, 2015, 11:51:07 AM »
I stopped working with our FA after realizing (like you) that I didn't really need him.   I know how you feel but once I realized that I was paying all that money for nothing it was easier to say goodbye.  The 'benefits' you list are no reason to spend the money now...If you need help in the future, you can find help in the future.   You don't have a lawyer on retainer in case you need them, do you? 

Tyson

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Re: Financial Advisor's- Are they worth it?
« Reply #4 on: November 09, 2015, 11:58:45 AM »
If you know to max out your 401k, your IRA's, HSAs, and put the rest into a VTSAX, what else is there to do, really?

Plus, for a long time, solid advice and knowledge did not exist online, but now it DOES, and it's not going away. 

Does that mean there's no room for an advisor, ever?  No, I don't think so.  The approach I am taking is to map out my strategy based on my own research (such as here on MMM), and then "spot check" it with a good advisor as a one time consultation.  If I am on the right path, I am happy for the re-informement.  If I am missing something, I am happy for them to have the opportunity to point it out. 

But, long term continuous employment of a Financial Advisor?  Uhm, no.  What for?

rubybeth

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Re: Financial Advisor's- Are they worth it?
« Reply #5 on: November 09, 2015, 12:10:25 PM »
I did not find them very helpful when we had them; I've learned on my own and explained my investment and savings rationale to my DH (he's like your wife--he'll think about it when he needs to, but trusts me to make the decisions).

If something happens to you, your wife can go and get advice from an hourly rate advisor instead of one who takes percentage fee. Or she could talk to a tax advisor for those kinds of things. I wouldn't pay 1-1.5% when it's not really needed.

Ishmael

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Re: Financial Advisor's- Are they worth it?
« Reply #6 on: November 09, 2015, 12:55:55 PM »
1% (or more) is simply being ripped off. This industry depends on people's ignorance to make money. They simply don't offer 1% worth of value.

Do it yourself, and maybe every 5 years spend on a consultation with a fee-only FP to investigate tax strategies? (There isn't much to investigate that way in Canada, so it's not something I need to do - ours really just comes down to "doing the math", for the most part.)

RWD

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Re: Financial Advisor's- Are they worth it?
« Reply #7 on: November 10, 2015, 06:24:51 AM »
Dilbert on financial advisers:
Quote
Dilbert creator Scott Adams is not a fan of investment advisors.

In a new post titled "How to make more money in stocks" Adams, who also holds a degree in economics, argues that the financial industry is the world's biggest scam and that investment advisors make stocks risky.






Tyler

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Re: Financial Advisor's- Are they worth it?
« Reply #8 on: November 10, 2015, 10:13:09 AM »
The way I see it, the good financial advisers provide a valuable service for those that truly need help with investments.  That could include the person who has absolutely no clue how investments work and needs guidance, or even the billionaire whose estate is far more complex than you can imagine.  But with the information freely available today not every person needs help with investments, so it doesn't make sense for everybody.  Considering the unusually high representation of engineers on this forum (fully capable of researching math and finance on their own) it's no surprise that there's little desire for outside help.  But I wouldn't assume the world as a whole has the same strengths and weaknesses as the population here. 

Physicsteacher

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Re: Financial Advisor's- Are they worth it?
« Reply #9 on: November 10, 2015, 10:50:14 AM »
If you are worried about your wife's ability to manage the finances in the event of your untimely demise, you might instruct her to go with Vanguard's personal advisor service if something happens to you. They'd charge 0.3% of assets under management instead of 1-1.5%, are unlikely to do anything stupid with her portfolio, and would relieve her of the stress of figuring out investing while dealing with major, emotionally fraught life changes. It might not be quite as cheap as DIY investing, but it could keep her from falling prey to an unscrupulous advisor and provide peace of mind.

Platypuses

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Re: Financial Advisor's- Are they worth it?
« Reply #10 on: November 10, 2015, 01:29:45 PM »
Thanks for the advice everyone. I knew it was the right decision not to have him anymore, thanks for the reassurance.

mschaus

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Re: Financial Advisor's- Are they worth it?
« Reply #11 on: November 11, 2015, 11:25:16 AM »
I'm a little surprised at the attitude in general (on this forum) that advisers are bad. I'd say they have their place. Probably the people who say "it's just VTSAX and 401k, right?" are the people who need one the most because they don't know what they don't know. If your family situation is very simple, perhaps. But everyone can benefit from skilled advice.

Professional athletes never use coaches or trainers, right? They're pros and obviously do everything themselves. /s

Indeed, some of us here are highly logical and aren't at risk of selling investments during downturns. Or being too exuberant in the good times and not being prepared for a layoff. If people actually follow MMM/Bogleheads investment advice, they would probably end up ok, but most people aren't that disciplined. And of course there are lots of types of investment advisers -- I would probably only use one of the 1% annual fee guys if I was highly emotional and at risk of blowing it.

Things that a CFP, for example, could help you with:
http://www.cfp.net/become-a-cfp-professional/cfp-certification-requirements/education-requirement/principal-topics

There are a lot of tools in the box. How to apply them depends on your personal goals. There are many paths to FI and life besides "nose to the grindstone at the same old job, dump everything into paper assets, one ultimate FI to let real life begin". People need to think these paths and options through.

So maybe that doesn't help the OP explicitly, but I am a little worried in general that so many people seem to be here chasing FI simply because they hate their current jobs.

Kitsune

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Re: Financial Advisor's- Are they worth it?
« Reply #12 on: November 11, 2015, 11:58:46 AM »
I'm a little surprised at the attitude in general (on this forum) that advisers are bad.

Depends entirely on what you need and on the financial advisor you have.

The one who came to our office this morning, for example, told us that putting 2% of our salary into a retirement account would make a BIG difference. Sooooo... in this case, I feel entirely comfortable saying I don't need him at all.

Easye418

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Re: Financial Advisor's- Are they worth it?
« Reply #13 on: November 11, 2015, 12:21:31 PM »
@RWD

Fantastic comic strips.  I should send it to my BIL but he might get upset because he makes a living off of it.

RWD

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Re: Financial Advisor's- Are they worth it?
« Reply #14 on: November 11, 2015, 01:22:46 PM »
@RWD

Fantastic comic strips.  I should send it to my BIL but he might get upset because he makes a living off of it.
I glad you liked them. Hopefully your brother in law would take it lightheartedly.

I'm a little surprised at the attitude in general (on this forum) that advisers are bad. I'd say they have their place.
Certainly there are people that need assistance but this forum is largely about taking control over your own life. In addition, I feel the bigger issue is charging a percentage instead of flat fee. Is it really 50 times harder to manage a $1 million portfolio compared to a $20k one? I would have no problem with a financial adviser that just charges a flat fee of a few hundred bucks a year, assuming they aren't getting kick backs from whatever funds they are choosing.

Playing with Fire UK

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Re: Financial Advisor's- Are they worth it?
« Reply #15 on: November 12, 2015, 05:24:58 AM »
I think that if you have a FA then you need to understand almost as much to make sure that they aren't screwing you compared to how much you need to do to DIY.

This isn't to say that all FA's are bad, just that the bad ones look exactly like the good ones.

I think they can be useful in certain circumstances (managing money for children, hand holding when the markets get shakey), but for most people who can make it to the forum, they don't need an ongoing service, and certainly don't need to pay 1+% per year.

I had (free) initial meetings with FAs when I was getting started. The only one that I liked told me that I didn't need him to manage anything for me, that I'd taught him something, and that I should call him for paid advice (over the phone and charged in 15 minute slots), if I had questions that I couldn't answer myself. The others wanted 4% upfront plus annual fees to make worse decisions, and I caught out their calculator maths with my mental maths. The worst thing is that the best advisor is probably making the least money.

Stillwantluxuries

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Re: Financial Advisor's- Are they worth it?
« Reply #16 on: November 12, 2015, 08:58:34 AM »
I consider myself to be pretty financially savvy, yet have a financial advisor. He is a fiduciary, and not associated with any brokers, earn commissions, etc. 

We have an annual meeting where we review status, rebalance accounts, discuss life changes, changes in goals, tax implications, etc.  I pay him about $700 regardless of our investments (which is waaaayyy less than 1%).

I also reach out periodically if something is needed...guidance on what funds to invest in 401(k) in a new job, for example. The general advice is what you will read here...max out tax advantaged accounts, invest in low fee index funds from vanguard, some emergency savings, etc., but there are more personal (probably not uncommon, but not so generic as above things we discuss)

The very small fee I pay for essentially guidance on asset allocation (I feel like I have a great mix of domestic/international, large/mid/small cap, bonds, tips, reits, etc.) is worth the piece of mind to me.
 
« Last Edit: November 12, 2015, 09:01:53 AM by Stillwantluxuries »

mschaus

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Re: Financial Advisor's- Are they worth it?
« Reply #17 on: November 12, 2015, 10:05:10 AM »
I think that if you have a FA then you need to understand almost as much to make sure that they aren't screwing you compared to how much you need to do to DIY.

This isn't to say that all FA's are bad, just that the bad ones look exactly like the good ones.

I think they can be useful in certain circumstances (managing money for children, hand holding when the markets get shakey), but for most people who can make it to the forum, they don't need an ongoing service, and certainly don't need to pay 1+% per year.

I had (free) initial meetings with FAs when I was getting started. The only one that I liked told me that I didn't need him to manage anything for me, that I'd taught him something, and that I should call him for paid advice (over the phone and charged in 15 minute slots), if I had questions that I couldn't answer myself. The others wanted 4% upfront plus annual fees to make worse decisions, and I caught out their calculator maths with my mental maths. The worst thing is that the best advisor is probably making the least money.

Agree!

@Stillwantluxuries, that sounds like a great system.

Psychstache

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Re: Financial Advisor's- Are they worth it?
« Reply #18 on: November 12, 2015, 10:07:31 AM »
I'm a little surprised at the attitude in general (on this forum) that advisers are bad. I'd say they have their place. Probably the people who say "it's just VTSAX and 401k, right?" are the people who need one the most because they don't know what they don't know. If your family situation is very simple, perhaps. But everyone can benefit from skilled advice.

Professional athletes never use coaches or trainers, right? They're pros and obviously do everything themselves. /s


Athletes and coaches have an aligned goal: providing skills and advice to the athlete so they perform better in sports. The athlete  trades money for knowledge, everyone wins.

With an adviser, there is often a misalignment of goals. Both the client and the adviser goal is to make money for themselves. The adviser can be times that the adviser's best move for themselves is not the best move for the client. You can certainly mitigate this with fee-only advisers and fiduciaries, but the industry in general is plagued with conflict of interest.

Also, Pro Athletes are trying to become the most elite in their field and need to seek out every possible advantage regardless of the cost. No one on this forum is trying to lead the Forbes 400 list.

If your goal is to stay active, healthy, and social by playing pick up basketball at the YMCA, you don't need a coach ;)

FrugalFan

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Re: Financial Advisor's- Are they worth it?
« Reply #19 on: November 12, 2015, 12:01:09 PM »
We are just moving away from using an advisor now, as he was costing us 1.5% in fees, and had our investments 90% in mutual funds with MERs of >2.5% and deferred sales charges starting at 6%. Yikes! You can get fee-based financial advisors though. You would pay a flat fee per meeting (or per planning session if you are going through a major life change) and you could develop a relationship with someone like that so your wife could have someone to turn to IF she needed the help.

GuitarStv

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Re: Financial Advisor's- Are they worth it?
« Reply #20 on: November 12, 2015, 01:43:55 PM »
If the financial adviser was really some kind of investing genius, he or she would have already made a fortune and retired.  That means that you're paying someone who is average to below average to manage your money.  Why not just stick it in an index linked mutual fund?
« Last Edit: November 12, 2015, 02:40:59 PM by GuitarStv »

TheAnonOne

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Re: Financial Advisor's- Are they worth it?
« Reply #21 on: November 12, 2015, 02:15:52 PM »
I'm a little surprised at the attitude in general (on this forum) that advisers are bad. I'd say they have their place. Probably the people who say "it's just VTSAX and 401k, right?" are the people who need one the most because they don't know what they don't know. If your family situation is very simple, perhaps. But everyone can benefit from skilled advice.

Professional athletes never use coaches or trainers, right? They're pros and obviously do everything themselves. /s


Athletes and coaches have an aligned goal: providing skills and advice to the athlete so they perform better in sports. The athlete  trades money for knowledge, everyone wins.

With an adviser, there is often a misalignment of goals. Both the client and the adviser goal is to make money for themselves. The adviser can be times that the adviser's best move for themselves is not the best move for the client. You can certainly mitigate this with fee-only advisers and fiduciaries, but the industry in general is plagued with conflict of interest.

Also, Pro Athletes are trying to become the most elite in their field and need to seek out every possible advantage regardless of the cost. No one on this forum is trying to lead the Forbes 400 list.

If your goal is to stay active, healthy, and social by playing pick up basketball at the YMCA, you don't need a coach ;)

Speak for yourself...

Gone Fishing

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Re: Financial Advisor's- Are they worth it?
« Reply #22 on: November 12, 2015, 02:21:55 PM »
Pretty much every FA I have ever met was a pretty face, smooth talker, and wanted to sell the highest fee product they had.

Our local credit union has FA services for .25%/yr, not sure if they get any additional kickbacks from the individual investments, but they did tell me they invest primarily in Vanguard funds, which I assume wouldn't pay much if anything at all.

691175002

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Re: Financial Advisor's- Are they worth it?
« Reply #23 on: November 12, 2015, 03:27:18 PM »
Pretty much every FA I have ever met was a pretty face, smooth talker, and wanted to sell the highest fee product they had.

I worked in retail finance while attending school.  In general this is correct, especially for the most visible/successful advisors.  I will say outright that there is a percentage of the population (~20%?) who simply should not invest for themselves.

We see a fairly sophisticated cross section of people who are interested in personal finance and even managing their own investments.  Others wildly overestimate their risk tolerance, get their stock picking tips from BNN, or or simply hold their savings (if any) in cash out of fear or apathy.

There are good financial advisors, but they can't focus as heavily on marketing.  The underlying problem is that people who need advice the most are not able to evaluate the quality of their advisor.

Bobberth

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Re: Financial Advisor's- Are they worth it?
« Reply #24 on: November 12, 2015, 04:12:24 PM »
I am a CFP and I am an advisor at an RIA firm. I will not and cannot speak for all who call themselves an advisor. My first and biggest piece of advice is to look for a fiduciary relationship if you decide you do want an advisor. Most of the bad experiences listed here and elsewhere can be avoided by taking this step. A fiduciary has the legal requirement to put the needs of their client above their own so you shouldn't have anybody selling high fee or commission products. And if they do, you have the power of the law to go after them. Stock brokers and insurance agents are NOT fiduciaries. In fact, Wall Street is fighting very hard right now in Congress against a proposal to force all financial advisors to adhere to the fiduciary standard. They sure as hell don't want to have to put their clients ahead of their commissions! CFPs are required by the board to adhere to the fiduciary standard. That is a private accrediting board enforcing that so there is a bit of caution in looking for only a CFP. RIAs (Registered Investment Advisors) are required by law to be a fiduciary so if you go to an RIA, you have a lot of legal protection from misdeeds. Most people don't know about these distinctions. And yes, I do think that my credentials and firm's business model is the best :-) But that is because they are.

I agree, not everybody needs an advisor. This is a website focused on early retirement by saving and investing. Most of the users here are do it yourselfers in financial matters and wouldn't go to an advisor. I will also say that for many on here, personal finance is a hobby that they enjoy spending time on and welcome looking into new topics related to the issue. So I will ignore the "some people need advisors" spiel and give some reasons why someone here may want to consider an advisor. Although, again, I will say that not all advisors do all these things so you do need to shop around for an advisor that can do what you need:

Taxes/Tax Loss Harvesting/Tax Planning-Betterment gets some good reviews on here about this. Advisors have been doing the same thing for a long time. Right now we're working our butts off tax planning as there are many funds that are kicking off large capital gain distributions this year (check your midcap, small cap and international funds). People tout 10%-12% annual investment returns. Proper tax planning can save you (some people say "make you") 20%-40%. I think the infatuation with Betterment is because of the lower price than most advisors. That's fine; they are robots and that's all they do so they should be cheaper.

Investment Expertise-I have to say, every time I see "100% VTSAX" posted on this site, I cringe. I like Vanguard and my firm uses some of their funds so it's not the fund choice, it's the asset allocation. Really? No international funds? No alternatives? Zero bonds? If you want to be that aggressive, why not overweight small or mid cap funds instead of having mainly large cap? Emerging Markets? Having a proper asset allocation, and rebalancing back to it, is very worthwhile. Easy doesn't seem like a good asset allocation to me.

Investment Options-We custody at Schwab and our master account is aggregated to meet minimum purchase requirements for lower cost institutional share classes. Some funds we use (we use some active funds) require a minimum of $5million or more. Because our master account has that, I can buy $1k of that lower cost institutional fund for a client. So even if you invested in the same funds we do, we do it in the institutional share class for less and thus offset some of our management fee from that. Also, because of our size, we have access to investments that aren't generally available, or available much cheaper through us, than the public at large.

Size benefits-Because of our size, we have preferential pricing at Schwab for trading fees and margin. We got some of our clients margin loans in the 2%s to purchase real estate. They currently aren't worried about ever paying that off. It's not your account that is negotiating with Schwab, it's our $350 million that is. It's also possible to get discounts with other professionals because of size and quantity of referrals. Some larger firms may even have in-house professionals.

Planning-True, most advisors won't know much about early retirement; we are rare birds here. But most advisors do many types of planning. Including retirement, college for grand/kids and Social Security benefits. Most of those that took advantage of the recently closed 'File and Suspend' Social Security benefit had advisors guiding them through it as most didn't know about it. Advisors can also weigh in on estate planning, insurance needs, business planning etc. Just make sure they are qualified to give advice or can find qualified people who can give that advice.

These are some reasons why someone on here may want to consult an advisor. Many on here won't or don't need to. Maybe a flat fee advisor for a certain topic is better than a management fee for you. It all depends on you, your needs and the value the advisor can add.

Definitely look for the fiduciary standard. That's way more important than goes to the same church/club/school/buddy knows....