RIA's/wealth managers - in cohoots with brokers?

[JungYo]

We have a $1.8m portfolio at a large brokerage. Several weeks ago, a wealth advisor from the brokerage reached out and I listened, learned some things, etc. He recommended we engage with a Registered Investment Advisor (RIA), or wealth management firm. Conveniently, they had 4 firms to suggest.

I did follow up with each firm, had some calls/videos, got some feedback; and each is coming back with a plan.

However, I am beginning to suspect this is a means to keep our money invested and growing with the broker. We do not have children, and while we'd like to leave something for some nieces and nephews, leaving nothing is fine too esp since we want to enjoy life. The RIA's charge 1% or just under, so $18k/yr to them from our portfolio; and the portfolio remains with the broker who is presumably making money on it as well, along with their kickback referral fee from the RIA.

Is this a cynical view, or is this truly in our best interest?

[Disclaimer: I'm a novice, learning, asked some dumb questions here, and will be out of work/retired (!) come Mar 29. Wife and I are 59.5 and 58.5.]

[lhamo]

Does it really matter?

Why do you need investment advice? Put it in index funds (or target retirement funds if you want an easy way to diversify) and let the market donutsdo it’s thing.

I’ll take anything between $0-$18,000 for this advice ;)

[maizefolk]

mmm, market donuts.

But yes I completely agree with lhamo, don't way 1% of your portfolio each year for advice on how to invest it. If you're normally able to sustainably withdraw 4% of your portfolio per year, you're losing 1/4th of the potential spending to this hypothetical investment advisor to do things that will likely be functionally equivalent to (or worse) than leaving your investments in a couple of low cost index funds (say one total stock market fund and perhaps a bond fund).

[JungYo]

Does it really matter?

Why do you need investment advice? Put it in index funds (or target retirement funds if you want an easy way to diversify) and let the market donutsdo it’s thing.

I’ll take anything between $0-$18,000 for this advice ;)

Because our portfolio is $192k in Roth, and over $1.5m in IRA/rollover. We have roughly $70k in liquid accounts. Since I will be out of work, I've been doing the ACA/MAGI/subsidy/income dance. This stuff makes my head hurt. I want to ensure we can maintain our standard of living (~$60k/yr), do some things we've been putting off, and not run out of money.

[Sibley]

The answer then is to learn. Lots of resources here, or be pointed to where resources are. Search for old threads on topics you're struggling with, make a post to get more tailored advice.  The answer is NOT to spend $18k a year. Because you want to retire and if you inflate your expenses like that you may not stay retired long.

[lhamo]

Does it really matter?

Why do you need investment advice? Put it in index funds (or target retirement funds if you want an easy way to diversify) and let the market donutsdo it’s thing.

I’ll take anything between $0-$18,000 for this advice ;)

Because our portfolio is $192k in Roth, and over $1.5m in IRA/rollover. We have roughly $70k in liquid accounts. Since I will be out of work, I've been doing the ACA/MAGI/subsidy/income dance. This stuff makes my head hurt. I want to ensure we can maintain our standard of living (~$60k/yr), do some things we've been putting off, and not run out of money.

Of course you can.

That $18k/year in advice is probably the biggest draw on/risk to your portfolio.

Play around with the Bogleheads Retiree Portfolio Model:

https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

Best tool I have found so far for optimizing Roth conversions/reducing lifetime tax loads.  It is a complicated sheet, but once you get all your inputs and assumptions put in the multiple red flags and warnings will decrease and it is actually fun to play around with the Roth conversion section.

Another resource you might look into is PlanVision.  They currently have a wait list, but it should open up as they have hired a new guy.  Something like $250/year for the first year to have them do a simple index-fund based plan for you and be available for any questions.

https://planvisionmn.com/

Disclosure:  I am not currently a PlanVision client, but am planning to sign up with them after my divorce finalizes and I get all the accounts sorted out.  One of my FIRE philosophies is to spend money on small businesses that do work I think adds something to the world, and this is a model I think is well worth supporting. YMMV.

If I save you $18,000/year on advising fees will you donate at least 1/10 that to the charity of your choice?  Consider that my invoice....

Oh, subsidiary question -- which large brokerage?  If it is anyplace other than Fidelity or Schwab, I would roll your accounts out to those, or maybe to Vanguard.  Vanguard's customer service and online platforms suck compared to the other two, though. I personally like Fidelity for their ease of use, nice planning tools (what they used to call their Retirement Income Planner is quite robust and fun to play with), and their $0 fee index funds (I have a big chunk of my stash in FZROX and have been happy with it).

[dandarc]

I sincerely doubt a RIA is going to do anything of value to help you manage taxes appropriately - FIRE folks are the edgiest of edge cases and I'd be surprised if you luck into one who even knows what the hell you're talking about with only $18K per year (and compounding over time) in potential income.

But yeah - signing up for 1% fees is almost certainly going to destroy whatever value even a good advisor might bring to the table. Normal-ish people who actually need money managers are either themselves or a dependent who will inherit for some reason really, truly CANNOT handle the money themselves. Non-financial reasons in other words.

[dandarc]

Wait - I just saw one of you is 59.5 years old already. Just draw the $60K you need from the traditional accounts and pay whatever tax is owed. That's going to cost you far, far less than this service. You could get closer to optimal with taking some from Roth, but if the alternative is paying someone 1% of your portfolio every year, you don't need to be very optimal on withdrawal strategy to beat that at all.

If you're this uncomfortable with managing 1-3 funds, then you need to read the stock series at bare minimum. https://jlcollinsnh.com/stock-series/

[lhamo]

Wait - I just saw one of you is 59.5 years old already. Just draw the $60K you need from the traditional accounts and pay whatever tax is owed. That's going to cost you far, far less than this service. You could get closer to optimal with taking some from Roth, but if the alternative is paying someone 1% of your portfolio every year, you don't need to be very optimal on withdrawal strategy to beat that at all.

If you're this uncomfortable with managing 1-3 funds, then you need to read the stock series at bare minimum. https://jlcollinsnh.com/stock-series/

In their situation I would probably also do at least a BIT of converting from Trad to Roth in order to gradually be moving money out of taxable retirement before RMDs hit.  The Bogleheads spreadsheet will give you a good overview of how that plays out in terms of tax burden over time (and maybe ACA subsidies?  I can't remember if it accounts for ACA stuff or not as I aim to keep my income low enough that I don't have to worry about those things pre-Medicare)

Re: Medicare, do be careful not to generate too much income when you are 62-63-64 so that you don't get hit with the IRMAA penalties and end up paying lots more for Medicare.  I think the Bogleheads sheet has that built in, but you will want to verify.

[dandarc]

Wait - I just saw one of you is 59.5 years old already. Just draw the $60K you need from the traditional accounts and pay whatever tax is owed. That's going to cost you far, far less than this service. You could get closer to optimal with taking some from Roth, but if the alternative is paying someone 1% of your portfolio every year, you don't need to be very optimal on withdrawal strategy to beat that at all.

If you're this uncomfortable with managing 1-3 funds, then you need to read the stock series at bare minimum. https://jlcollinsnh.com/stock-series/

In their situation I would probably also do at least a BIT of converting from Trad to Roth in order to gradually be moving money out of taxable retirement before RMDs hit.  The Bogleheads spreadsheet will give you a good overview of how that plays out in terms of tax burden over time (and maybe ACA subsidies?  I can't remember if it accounts for ACA stuff or not as I aim to keep my income low enough that I don't have to worry about those things pre-Medicare)

Re: Medicare, do be careful not to generate too much income when you are 62-63-64 so that you don't get hit with the IRMAA penalties and end up paying lots more for Medicare.  I think the Bogleheads sheet has that built in, but you will want to verify.

I mean, yeah but you don't even have to do that level of optimizing to beat what this advisor costs.

[oldmannickels]

We have a $1.8m portfolio at a large brokerage. Several weeks ago, a wealth advisor from the brokerage reached out and I listened, learned some things, etc. He recommended we engage with a Registered Investment Advisor (RIA), or wealth management firm. Conveniently, they had 4 firms to suggest.

I did follow up with each firm, had some calls/videos, got some feedback; and each is coming back with a plan.

However, I am beginning to suspect this is a means to keep our money invested and growing with the broker. We do not have children, and while we'd like to leave something for some nieces and nephews, leaving nothing is fine too esp since we want to enjoy life. The RIA's charge 1% or just under, so $18k/yr to them from our portfolio; and the portfolio remains with the broker who is presumably making money on it as well, along with their kickback referral fee from the RIA.

Is this a cynical view, or is this truly in our best interest?

[Disclaimer: I'm a novice, learning, asked some dumb questions here, and will be out of work/retired (!) come Mar 29. Wife and I are 59.5 and 58.5.]

I don't think the kickback is going to be anything material. Thinking it's Schwab or Fidelity based on what you've already said. If you don't like what they present just keep shopping around. 1% is a lot on 1.8M. Look at sites like NAPFA.org and filter by fixed fee or hourly. It might turn out to be a similar cost idk seems like a fairly simple case to me.

[JungYo]

Really appreciate the comments and advice! Getting back to my original question, this all just seems rigged to keep my balance up there so the RIA and brokerage can both skim off me.

The brokerage is Fidelity. I've been mostly quite happy with them since I opened an account ~20 yrs ago.

I'll skeptically listen to their "plans" over the next several days as a learning exercise, but just plan on doing my own thing (which I had been on the path toward anyway). Guess the biggest thing I need to research now is the large sum in a taxable account, but thankfully we have many months or even years before we need to dip into that. The Bogleheads worksheet will be a huge help.

This unexpected, impending retirement is exhilirating - and scaring me!

[Rob_bob]

Really appreciate the comments and advice! Getting back to my original question, this all just seems rigged to keep my balance up there so the RIA and brokerage can both skim off me.

The brokerage is Fidelity. I've been mostly quite happy with them since I opened an account ~20 yrs ago.

Of course Fidelity wants you to stay with them but I wouldn't be concerned about them "skimming" off you, they are not Raymond James or other similar firms.  Any advisory firm is going to charge a fee, usually on assets under management and it's up to you to decide if they are worth the cost.  Personally I don't use one and I don't think you do either, just spend some time educating yourself, ask questions here or Bogleheads, listen to the Jill on Money podcasts.

[dandarc]

Yeah - stick to low-cost index funds and Fidelity is a fine place to have your money.

[slappy]

How is the brokerage skimming off you in this scenario?

[dandarc]

How is the brokerage skimming off you in this scenario?

I'd think that there's a reason these 4 companies that charge 1% on AUM for their services are the ones on the list. And that reason is money - they've likely paid or will pay out of that fee later to be Fidelity's recommendation. But even if that aspect is 100% on the level, the 1% fee itself puts this in "hard no" territory regardless.

[JungYo]

How is the brokerage skimming off you in this scenario?

They have each told me they pay part of the fee back to Fidelity, which is not in itself skimming; but I am pretty sure Fidelity wants my balance to stay elevated as they make money via the fund's management fees. Perhaps saying they are skimming was wrong on my part, but I suspect they want to keep making money off me (and their other customers).

[lhamo]

Of course they want to make money -- that is what businesses do!  If they want to stay afloat.

You are not me, but I'm just going to throw out there that my life in FIRE has become MUCH more pleasant/less anxiety ridden since I have made the choice to focus on supporting businesses that align with my values and worldview.  That way if I have to spend a bit more at least I know that the money I spend is going toward something I support.  So maybe Vanguard (which is owned by the shareholders) is a better place for you to be putting your assets than Fidelity (which is still a privately-owned company).  Maybe PlanVision at $250/year would be a better fit for your long-term planning needs than a RIA taking 1% AUM/year.  If you really can't tell, try the old Suze Orman trick of putting half your money in one and half in the other and see how the results compare after a year or two or three.

[travel2020]

Another resource you might look into is PlanVision.  They currently have a wait list, but it should open up as they have hired a new guy.  Something like $250/year for the first year to have them do a simple index-fund based plan for you and be available for any questions.

https://planvisionmn.com/

Another vote for PlanVision. I recently signed up and am happy overall with the process and guidance. Conversation with them was helpful in validating a few details, addressing some concerns I had, and identifying changes to meet specific needs.

[Alternatepriorities]

If you're willing to put the time in, this forum can walk you through everything you need to know to take care of this yourself. I've noticed that even Vanguard founded by Jack Bogle father of low cost indexing wants me talk to an advisor now... I got here mostly by managing my own money with the help of this blog and forum so they have a hard sell to me. Since joining the forum here, I've grown detest the idea of percent based fees.  As if there is really $8K more work in managing 1.8 million than say 1 million... For 18k I'll personally fly to NC and walk you through everything I've learned. Or if you want to spend the 18k on a vacation to Alaska I'd be happy to sit down with you here. Spend a weekend talking finance and the rest of the time seeing Alaska.

[JungYo]

If you're willing to put the time in, this forum can walk you through everything you need to know to take care of this yourself. I've noticed that even Vanguard founded by Jack Bogle father of low cost indexing wants me talk to an advisor now... I got here mostly by managing my own money with the help of this blog and forum so they have a hard sell to me. Since joining the forum here, I've grown detest the idea of percent based fees.  As if there is really $8K more work in managing 1.8 million than say 1 million... For 18k I'll personally fly to NC and walk you through everything I've learned. Or if you want to spend the 18k on a vacation to Alaska I'd be happy to sit down with you here. Spend a weekend talking finance and the rest of the time seeing Alaska.

You've made my day! :) We're not going to go with one of the RIA's, but it has been reassuring that they're all basically presenting a similar plan and saying we are good to go. I have learned a few things as well, so this process has been worthwhile for us. DW has finally accepted that we're good after hearing it from a few professionals instead of just from me lol.

Adding my name to the PlanVision waitlist. Funnily enough, the founder Mark has his address posted, and I can ride my bike over to his house he's so close by. Figure a $299 fee is acceptable to fine tune our plan and get a bit more advice.

[Alternatepriorities]

Glad I could help!

I haven’t heard of plan vision, but a flat $300 annual fee seems way more legit to me. I’ve help a bunch of friends with their planning the past few years. I enjoy it enough to make a side business out of it if I could figure out a fee structure I’m comfortable with. The only thing I’ve come up with is the lessor of 1% or an hourly rate. Given my credential is “dirt floor poor to retired at 40” it seems wrong to charge someone who is opening the first Roth 100/hr. On the other hand it seems just as wrong to charge the friend who just had a windfall year $3k to tell them to invest it in index funds… :) I mean sure there’s some nuance for them but that’s essentially the answer in the end.

[reeshau]

Yeah, I've gone back and forth on formally getting a CFP and getting into the biz.  I just haven't found a balance between caring enough for strangers (where the first contact is a business appointment) vs. adding a culturally taboo angle to an existing relationship, and risking having that go sour for some reason, and losing that relationship.  (Exception made for my Mom, who is of modest means.  Dad and the in-laws are just fine, and have their helpers)

I have a neighbor and emerging good friend, who was a late immigrant from India; so despite a lot of success he does not have a lifetime of dealing with the IRS and US system.  We have spent enough time talking that he was feeling abashed, and flat-out asked me what he could pay me for my time and insights.  Having the question asked directly prompted me to finally put my feelings into a sentence.

"I am teaching you things about the US system; what you do with that is your business.  As soon as you pay me for that, I am responsible for what happens."

I do volunteer for a nonprofit financial education org.  I have ramped that up quite a bit since FIRE.  Maybe that more-intense experience has helped my subconscious wring that thought out of me, too.