Don't shoot me...but can you make a case for using a financial advisor?

[ol1970]

I already know the overwhelming response is going to be, but are there any articulate, fact based, data driven cases where utilizing a fee based financial advisor makes sense.  Let me give some guidelines or clarifications (or rationalizations as some would rightly refer to them as).  Investments/ net worth in excess of 50x annual burn & retired early with 45-50 year time horizon for the money to last.

Ok so say you've done well and saved like a madman (or woman) in your lucrative career...you've got millions in the bank.  Great first world problems to have.

I've read every single blog, every WSJ article, talked to really smart people...and the clear concise moral of the story is "just index it dummy".  Its great because the math is there to back it up, the explanations are easy to understand.  So done, game over just do it...but here is the question that in my mind is sort of glossed over:

What about when your stash is "too big to fail", to use an advisor to develop a diversified portfolio including stocks, bonds, real estate, and alternatives that lags the market by 1-2% but has 1/3 of the volatility.  So there are no 25% down years, but there also aren't the home runs either...you don't need them though.

I 100% understand that you'll come out ahead in every scenario by simply going the index route with say a 50/50 mix, but seeing your net worth go down a couple million bucks is never fun either when the next ultra crazy event happens and drags on for years.  So are there any case studies or models out there that any of you have seen or read that talks about the math and philosophy behind this train of thought?  Are any of you in this boat and doing the something similar?

[tonysemail]

a financial advisor can be a way to keep the peace in a marriage.
Just like with doctors.
Some people trust the advice of a professional more than they trust their own spouse.. even if it's the same advice.

you also might have medical reasons like a family history of Alzheimer's.
so if you were getting old enough to worry, but not yet ready to hand over financial control to the kids.
a financial advisor could help bridge the gap until your kids are ready.

[Financial.Velociraptor]

A fee only advisor is reasonable if having a second opinion keeps you calm and rational.  It makes sense if have little knowledge of market history and/or allocation theory.  A fee only advisor would be a trivial drain on a 50x portfolio.  If it helps you sleep at night, try it for first year.  Write down ahead of time what you want to get out of the experience, talk it over with advisor and check the list a year later.  Did you get what you paid for?  Decide from there whether you want to pay for an annual checkup.

[mxt0133]

It seems like you are getting into wealth management territory where it is more about tax, estate planning, and access to investments reserved only for accredited investors.

However ,it seems like you don't want to see your wealth go down a couple of million dollars a year then put them all in US treasuries or municipal bonds.  You will barely keep up with inflation but you won't see a significant drop.  If you have a 45-50 year time horizon then load up on health and long-term care insurance put everything into 30 year US treasuries that are currently yielding 2.8% which is above your current burn rate of 2% (1/50).  This should last you well beyond your 50 year time frame. Congrats.

[soccerluvof4]

I'm not ashamed to admit I "just didnt get it no matter how hard I tried" so I went with a Vanguard advisor for a year and compared notes with others on here. I need to really see things to learn. The rate was minimal and I felt at least the guy I worked with was excellent.

[triangle]

Yes, one has to emotionally prepare for the fact that markets are volatile and will go up and down and to just accept that if one is going to invest.  Risks can be mitigated if you have a big cash buffer and/or if you can invest in income producing assets as well as in pure growth (non-income) assets so that a multi-year drop can be easily ridden out. Otherwise you are talking about investing in some kind of annuity to get low volatility with more predictable income streams, but I suspect it would be costly to buy much of a long lived income stream in todays environment.

If there are any doubts it is best to talk with financial planner or adviser. Maybe even more than one to get different viewpoints.  I am not recommending this book as I have not seen it, but I hear this guy advertising on the radio sometimes and I think he attempts to address your question:   https://www.amazon.com/Get-Off-Retirement-Roller-Coaster/dp/0692202595

[Mighty-Dollar]

are there any articulate, fact based, data driven cases where utilizing a fee based financial advisor makes sense.

First of all you don't want to go to a fee-based advisor because as long as they can earn commissions (by selling products) then you can never be certain that they are making recommendations because they are best for YOU. So you would want to go to a fee-ONLY advisor AND go to them on an hourly, one-time basis.
Vanguard quantified the value of an advisor. https://pressroom.vanguard.com/press_release/Vanguard_Research_Quantifies_the_Value_of_Advice_3.10.2014.html
1. Act as a behavioral coach by stopping you from making stupid decisions such as selling low (as many panicked investors did in 2008 - 2009).

2. Apply an asset location strategy (diversification). Anyone can easily do this buy investing in ETF's.

3. Buy cost-effective investments. Anyone can easily do this by investing in index funds.

4. Maintain the proper allocation through rebalancing. Anyone can easily do this.

5. Implement a spending strategy. Anyone can calculate / estimate this. Simply account for expected annual returns, while accounting about 3% per year for inflation and while subtracting how ever much you will be withdrawing each year.

[Goldielocks]

A financial planner, such as a CFP provides a lot of benefits beyond fund or stock investing.  Some Financial Advisors are also CFP's.

My comments below are specific for FA that are not CFP's.


There are only two reasons to use one, in my opinion, in today's age

1)  They make investing easy.  They sell you to buy their products, and divert your money away from clothes, travel, restaurants, cars, etc.

2)  They make investing easy.   Lots of people don't want to think about investments, and if they had to rebalance themselves or initiate a buy / sell.   

So, hiring someone else to make the the transactions go through for you does have a lot benefit to some people.   

IMO, this is only worth 1 hr every quarter,  x $200 per hour (max) plus a one time set up fee of $200.   (this pays the business overhead, too).   So $1000 for the year..being generous.  or 1% of a $100k fee, or 0.2% of a $500k account....

[mizzourah2006]

are there any articulate, fact based, data driven cases where utilizing a fee based financial advisor makes sense.

First of all you don't want to go to a fee-based advisor because as long as they can earn commissions (by selling products) then you can never be certain that they are making recommendations because they are best for YOU. So you would want to go to a fee-ONLY advisor AND go to them on an hourly, one-time basis.
Vanguard quantified the value of an advisor. https://pressroom.vanguard.com/press_release/Vanguard_Research_Quantifies_the_Value_of_Advice_3.10.2014.html
1. Act as a behavioral coach by stopping you from making stupid decisions such as selling low (as many panicked investors did in 2008 - 2009).

2. Apply an asset location strategy (diversification). Anyone can easily do this buy investing in ETF's.

3. Buy cost-effective investments. Anyone can easily do this by investing in index funds.

4. Maintain the proper allocation through rebalancing. Anyone can easily do this.

5. Implement a spending strategy. Anyone can calculate / estimate this. Simply account for expected annual returns, while accounting about 3% per year for inflation and while subtracting how ever much you will be withdrawing each year.

The bolded IMO is the biggest value an advisor provides. He/she is completely unattached to your money, so they can remove emotions from the equation. Most people believe they are completely rational beings and that emotions would never impact their decision-making. But the fact is most people are not. Kahneman and Tversky's nobel prize winning paper on Prospect Theory in 1979 showed that you can influence a person's decision by simply framing a question in a certain way even if they probabilistically lead to the exact same outcome.

However, it's hard to sell yourself as a financial advisor by saying, hey I'm essentially here because you can't control yourself when it comes to your own money, lol. So instead they spout all kinds of stuff about being "experts" in an area where expertise  provides almost no value. I think you could argue the same thing for a personal trainer. They are largely there to hold you accountable. They aren't showing you anything you couldn't learn on the internet in a couple hours. You aren't hiring them for their expertise, you are hiring them because you need someone to hold you accountable.

For anyone interested in the paper: https://www.princeton.edu/~kahneman/docs/Publications/prospect_theory.pdf