Author Topic: Considering an advisor  (Read 2089 times)

sanjay1

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Considering an advisor
« on: March 08, 2018, 12:13:06 PM »
Hi All,

I've been learning a lot poking around this forum. I'm trying to get smart about money, investing, and financial advice and am debating the use of an advisor. I'm eager to learn from your collective wisdom.

I know generally MMM folks prefer to avoid advisers to minimize fees. However, I'm wondering at what point might an advisor make sense? How much should I be willing to pay?

If I'd like to get smart advice from a third party on my financial situation and making some big decisions, how can I can determine if that person is trustworthy? On the same note, can I trust financial advice provided by an advisor from an asset management company (e.g Vanguard, Schwab)?

Thanks in advance!






PBandJelli

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Re: Considering an advisor
« Reply #1 on: March 08, 2018, 02:18:41 PM »
Hi- I've posted on this before, but no real concrete advice at this point.  Just wanted to point out there are two types of advisors (maybe more) and that you'll want to be more specific to get the best advice from other smart folks on this forum.  I think you're asking about the first:

1) investment advisor -- helps manage your money invested in stocks/bonds/mutual funds.
2) financial planner -- looks at your assets/liabilities/age/goals and helps you come up with a plan to get there.

Finally -- parting words but not really advice:  You say you are new to the forums.  I'd poke around here and other sites for a while before committing to hire outside help. You'd be surprised what you can learn once this becomes a passion!

Good luck!

caracarn

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Re: Considering an advisor
« Reply #2 on: March 08, 2018, 02:41:57 PM »
Sanjay,

It's not just to minimize fees, it's also because most of us view them as totally unnecessary.  You can do everything you need on your own with just a little learning.

So with that in mind, I feel the only point an advisor makes sense is when you have money lying round that you want to give to someone that provides no additional value than you could get on your own.  You should be willing to be as little as possible to get that valueless advice.

What might make sense for you given what you'd like to get is a fee only financial coach who will answer questions you need and only charge you for the time you use.  Determining if the person is trustworthy in the case when they are not doing any investing for you, which any coach would not be licensed to do, just involves the same process you determine if you trust anyone.  In the end a coach provides advice and answers questions but them you go do what you want.  You can find trustworthy advice at asset management companies but just like insurance salesman, they are unlikely to tell you to go buy a competitors product when it comes time to invest in something, i.e. Vanguard will not say "go buy a Fidelity index".  That said, neither will a coach.  They'll help you understand how to select a fund, go over management fees and how to find the number and tell you to look for the lowest one you can find.  You'll see most advice here, mine included, is go with Vanguard or Fidelity for lowest cost.

The first response you got was excellent, to spend time here for a while before you go hiring anyone.  You may be surprised how quickly you come to realize that this stuff is not that hard.  I've been debating myself for years on becoming a coach but always stop because I feel it is so easy to impart that knowledge that there would be no repeat clients.  Others pointed out that due to lack of follow through or laziness that would not be true because people always need refreshers or more hand holding and accountability partners, but I'd not be teaching them a whole lot more just repeating the same lessons over and over until they stuck and did not need me anymore. 




CowboyAndIndian

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Re: Considering an advisor
« Reply #3 on: March 08, 2018, 05:13:12 PM »
Sanjay,

I strongly dislike financial advisor. The majority of them do not have a fiduciary duty to you. They end up making decisions which enrich the advisor instead of you.
Some of the ways they screw you over
  • Put you investments in a  front-end or back-end funds, where a majority of the fees goes to the advisor
  • Put your investments in a high-fee fund
  • They try to bet on individual stocks (as opposed to index funds). Lots of trading fees (which are kicked back to advisor)
  • Some of them charge a 2% of you investments to "run your money"

The only kind of advisor that I would recommend is a fee-only financial planner.  This person does not get a cut from your investments and they have a fiduciary duty to you.

GOFU

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Re: Considering an advisor
« Reply #4 on: March 08, 2018, 06:25:34 PM »
Poking around the forum is good. Reading books is better. I would recommend starting with John Bogle's Little Book. I am sure others have good recommendations. This stuff is not really that complicated unless you make it so. The resources for learning are almost endless.

Here is a thread I started which has some good comments and links. https://forum.mrmoneymustache.com/investor-alley/so-i-fired-northwestern-mutual-and-merrill-lynch-today/msg1878845/#msg1878845

I got rid of my Merrill Lynch advisor at the beginning of this year. 1.5% of total assets per year they charged, just to have me in expensive mutual funds. So about 2.5 - 3 percent in expenses to have Merrill Lynch doing what I am completely capable of doing myself. There is an article linked in that thread which discusses what expense ratios like that will do to your returns and your financial future. Spoiler alert: they ruin it all. Another spoiler alert: I don't think much of investment "advisors". I now have my overall expense ratios at .09% in Vanguard index funds and am fully in charge.

Pay someone for a couple of hours to give you some direction if you need it, but if you do a little homework you don't need it. It's your money and nobody will care for it like you and there are many "advisors" who will greedily fleece you of it if you give them half a chance. 

And I concur fully in the opinion of @CowboyAndIndian.

UPDATE: I wanted to give you one more link that is a good starter piece, in fact they call it the starter kit. Even if you choose to consult an advisor you have to have about as much knowledge as he does in order to not get ripped off or led down a stupid path. So regardless of whether you have an advisor you have to get educated. https://www.bogleheads.org/wiki/Getting_started
« Last Edit: March 08, 2018, 07:46:25 PM by GOFU »

CorpRaider

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Re: Considering an advisor
« Reply #5 on: March 09, 2018, 06:30:37 AM »
If you decide you want one, Vanguard has an advisor service for .30 basis points.  But I don't think they do other like non investing personal financial planning or tax stuff.  I think you need 50K minimum, but until then you could just use a target date fund, if you don't want to implement the Bogleheads stuff.

sanjay1

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Re: Considering an advisor
« Reply #6 on: March 09, 2018, 09:39:44 AM »
Hi,

THANK YOU all the great replies.  I do have a few follow up questions

You mention that Financial Planners have fidicuary duties. I thought fee advisors often do too?
Are there advisors who offer both invstment and financial planning? How do I find one that I can trust?
How should I think about fee for AUM vs fee per hour? Are there other incentinve models that might be more aligned?

If I do go with an advisor - how important is it that they are 'open' to products outside their own?


Sanjay,

I strongly dislike financial advisor. The majority of them do not have a fiduciary duty to you. They end up making decisions which enrich the advisor instead of you.
Some of the ways they screw you over
  • Put you investments in a  front-end or back-end funds, where a majority of the fees goes to the advisor
  • Put your investments in a high-fee fund
  • They try to bet on individual stocks (as opposed to index funds). Lots of trading fees (which are kicked back to advisor)
  • Some of them charge a 2% of you investments to "run your money"

The only kind of advisor that I would recommend is a fee-only financial planner.  This person does not get a cut from your investments and they have a fiduciary duty to you.

Is the other stuff important in a planner?  Is there anyone I can trust to help me translate the plan into a portfolio?  Any tips on how to find someone good?


?
If you decide you want one, Vanguard has an advisor service for .30 basis points.  But I don't think they do other like non investing personal financial planning or tax stuff.  I think you need 50K minimum, but until then you could just use a target date fund, if you don't want to implement the Bogleheads stuff.

Thanks for the reference to the Vanguard service. Sounds like it's less expensive - but maybe not the cheapest. Any other reason to go with Vanguard? Should I be looking for seperate planning and tax as well? I know you're all passionate about this stuff - but I'd be more comfortable with a trustworthy professional's help

CowboyAndIndian

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Re: Considering an advisor
« Reply #7 on: March 09, 2018, 09:46:58 AM »
Sanjay, Why do you need a financial planner? I have done all of my investing myself and have beaten the SP500 about 75% of the time.

This is the free book which I have used as the core of my investing policy.

https://seekingalpha.com/article/15134-the-seeking-alpha-etf-investing-guide

At least read the one-page summary. https://seekingalpha.com/article/15136-etf-investing-guide-one-page-summary-of-the-entire-guide

Since it was written quite some time back, the ETF selections are a little dated/complex, but the idea is quite relevant.

I would do the following two if I was starting out now. Very simple portfolio which needs almost no work
VTSAX (Total Stock Market) : 80%
VTBLX (Total Bond Market): 20%

An updated portfolio which includes India and others would be (Including India because it should be growing at 7+% rates for the next 10 or 20 years)
VTSAX (Total Stock Market) : 55%
VTBLX (Total Bond Market): 15%
EPI (India ETF) : 10%
VEA (International Developed) : 10%
VWO (International developing): 10%
I have not included REIT's in this as I have quite a bit of real estate, but when I sell the present house, I may add REITS or buy a rental property.

Hope this helps

Telecaster

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Re: Considering an advisor
« Reply #8 on: March 09, 2018, 10:17:49 AM »

Thanks for the reference to the Vanguard service. Sounds like it's less expensive - but maybe not the cheapest. Any other reason to go with Vanguard? Should I be looking for seperate planning and tax as well? I know you're all passionate about this stuff - but I'd be more comfortable with a trustworthy professional's help

It depends on what type of advice you are seeking out.   If you need tax help, you need a CPA.  By "planning" do you mean estate planning?  In that case you want an attorney.  It would be helpful if your questions were more specific. 

One word of caution:  You should never, ever, under any circumstance pay a fee for assets under management.  That is a terrible financial mistake that will significantly reduce your portfolio value in retirement.  If the con artist advisor is charging you say a 1% fee, and the underlying funds have another fee of say, 0.5% then your final portfolio value could be cut in half.  Even very small fees like the 0.3 that Vanguard charges will wind up costing you the price of a car or a small house over your investing horizon.

 


ooeei

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Re: Considering an advisor
« Reply #9 on: March 09, 2018, 01:46:36 PM »
http://jlcollinsnh.com/stock-series/

That is a wonderful resource that is totally free. It's simple, to the point, and very open about the risks involved.

The trouble with picking a financial advisor is that in order to know if they're a good advisor, you have to know what advice is good and what is bad. If you know what advice is good and what is bad, you have no need for the advisor in the first place.  It's a catch 22.

http://jlcollinsnh.com/2012/05/12/stocks-part-vi-portfolio-ideas-to-build-and-keep-your-wealth/ is the one about actual portfolio building. It's basically the "simple" version CowboyandIndian posted above (note the addendum at the end of the article that he doesn't use REITs anymore). No need to get any more complicated than that.  I can't guarantee it will outperform a particular advisor you choose, but on the flip side the advisor can't guarantee they will outperform it (and will charge you 1-5% for the privilege), and most of the time they will underperform it.

With that being said, I highly suggest reading the other jlcollinsnh articles in the series I linked. What to invest in isn't really the hard part, it's knowing WHY you are investing there, and WHY you shouldn't bail out when there is a crash someday. If you don't know the WHY, you'll be more likely to second guess yourself and lose money in an investment that is almost always going up, as many people do.

If you read that series and decide it's just too much, go out in search of an advisor. If they aren't able to explain things simply and back it up with good reasoning, turn and run away. Investing does not have to be complex. If you have specific questions about a potential advisor's strategies, post them here and you'll get some feedback on it. For the love of all that is holy, do not go to Edward Jones.
« Last Edit: March 09, 2018, 01:50:43 PM by ooeei »

Indexer

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Re: Considering an advisor
« Reply #10 on: March 09, 2018, 06:07:36 PM »

1) investment advisor -- helps manage your money invested in stocks/bonds/mutual funds.
2) financial planner -- looks at your assets/liabilities/age/goals and helps you come up with a plan to get there.


That's a confusing distinction. Investment advisor is a legal definition defining the type of advisor who is a fiduciary and charges a fee instead of commissions. Financial planners do help you come up with a plan, but most of them are investment advisors.

One extra distinction: Brokers are salesmen who get paid commissions. They will often call themselves Financial Advisors. They are salesmen, not fiduciaries, and are best avoided.


If you decide you want one, Vanguard has an advisor service for .30 basis points.  But I don't think they do other like non investing personal financial planning or tax stuff.  I think you need 50K minimum, but until then you could just use a target date fund, if you don't want to implement the Bogleheads stuff.

This^. If you are going to hire an advisor this is probably the safest low cost option. I say safe because they are fiduciaries paid a salary by Vanguard. They aren't paid commissions. The only bias you will likely see in their advice is a preference for Vanguard index funds, which is what many people on here would recommend anyway.

They do financial planning. Many of the people on this forum and on Bogleheads have used them to get Financial Plans. If you have enough assets, 500k, they will give you a free plan even if you don't have them manage the account. At 500k they also guarantee you talk to a CFP.


What you could do, talk to the Vanguard advisor, have them build a plan, and then consider how hard it would be to manage that plan yourself. If you can handle it, do that, if you can't, have them do it.