Author Topic: Financial Advisers - pros and cons  (Read 8640 times)

Jenie

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Financial Advisers - pros and cons
« on: July 27, 2015, 12:12:13 AM »
Hello, not too close to FIRE but trying step by step... Wondering do you use financial advisers or do everything on your own?
I would like to consult one or two about whether I am close to the right decisions, compare and decide what the best route will be.
What do you do? How do you make most of your decisions? TIA

PS. I am in Chicago, if you have anyone to refer me to, pls pm me.
« Last Edit: July 27, 2015, 12:21:43 AM by Jenie »

MDM

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Re: Financial Advisers - pros and cons
« Reply #1 on: July 27, 2015, 12:22:42 AM »
Jenie, welcome to the forum.  Try the search shown below, and you should get a good sense of the opinions here.



Spoiler:
Spoiler: show
You can do at least most, and probably all, on your own.
  Good luck!

Bikeguy

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Re: Financial Advisers - pros and cons
« Reply #2 on: July 27, 2015, 04:27:45 AM »
As my CFP friend said when I asked the same question, "It's not rocket science."

Sent from my SCH-I545 using Tapatalk


money_bunny

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Re: Financial Advisers - pros and cons
« Reply #3 on: July 27, 2015, 05:22:29 AM »
Agreed it's not rocket science. Have you been to Bogleheads yet?

grantmeaname

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Re: Financial Advisers - pros and cons
« Reply #4 on: July 27, 2015, 06:30:21 AM »
The key thing is that even if you do get a financial advisor, you still need to educate yourself thoroughly on everything they're doing anyway! So if you're going to be building all that knowledge, why not just DIY and save literal boatloads of money?

forummm

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Re: Financial Advisers - pros and cons
« Reply #5 on: July 27, 2015, 06:48:27 AM »
If you do get an advisor, you will want one that you pay per session. Not one that invests your money for you. When they invest your money for you, their fees are so astronomical that it can literally cost you hundreds of thousands of dollars over your lifetime--and for no improvement in performance vs what you could do on your own.

wenchsenior

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Re: Financial Advisers - pros and cons
« Reply #6 on: July 27, 2015, 07:38:28 AM »
If you do get an advisor, you will want one that you pay per session. Not one that invests your money for you. When they invest your money for you, their fees are so astronomical that it can literally cost you hundreds of thousands of dollars over your lifetime--and for no improvement in performance vs what you could do on your own.

To clarify a little more, in case it isn't clear. You want a fee-only advisor who will typically charge by the hour. That's assuming you don't want them to manage your money (which there is usually no need for). If by some chance you DO want them to manage your portfolio, then you should most appropriately be charged a percentage of assets under management, so that their incentive is not to screw up and lose money for you.

What you want to avoid is people who offer 'free' advice, because that usually means they are going to be paid by a third party kickback from a particular fund or insurance company, in exchange for selling particular funds or annuities.

So do what forummm says: Get someone who pays for advice by the hour, and not someone paid by commission or third-party.

patrickza

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Re: Financial Advisers - pros and cons
« Reply #7 on: July 27, 2015, 07:40:03 AM »
i think a lot of the pro's are cons :)

grantmeaname

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Re: Financial Advisers - pros and cons
« Reply #8 on: July 27, 2015, 07:54:08 AM »
I see what you did there, and I liked it.

Koogie

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Re: Financial Advisers - pros and cons
« Reply #9 on: July 27, 2015, 07:56:15 AM »
I use a fee only advisor.  A valid second opinion is always worth paying for.  When you have a portfolio in the low-mid seven figures, making mistakes on your own can be very costly and harder to live with than when you were starting out.

She also helps me avoid paralysis by analysis.  A very strong affliction of mine.
 

forummm

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Re: Financial Advisers - pros and cons
« Reply #10 on: July 27, 2015, 08:29:54 AM »
If you do get an advisor, you will want one that you pay per session. Not one that invests your money for you. When they invest your money for you, their fees are so astronomical that it can literally cost you hundreds of thousands of dollars over your lifetime--and for no improvement in performance vs what you could do on your own.

To clarify a little more, in case it isn't clear. You want a fee-only advisor who will typically charge by the hour. That's assuming you don't want them to manage your money (which there is usually no need for). If by some chance you DO want them to manage your portfolio, then you should most appropriately be charged a percentage of assets under management, so that their incentive is not to screw up and lose money for you.

What you want to avoid is people who offer 'free' advice, because that usually means they are going to be paid by a third party kickback from a particular fund or insurance company, in exchange for selling particular funds or annuities.

So do what forummm says: Get someone who pays for advice by the hour, and not someone paid by commission or third-party.

I would actually say that there is almost no scenario where I recommend someone pay an advisor a percentage of their funds to invest money for them. Those people are almost always getting screwed. If you do want to pay an advisor to manage your funds, the only one I could recommend would be Vanguard, with their 0.3% fee. And even then I would suggest just using Vanguard's free online advisor tool instead.

Info on cost of fees:
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost
https://investor.vanguard.com/mutual-funds/low-cost

Free online advisor:
https://personal.vanguard.com/us/funds/tools/recommendation

wenchsenior

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Re: Financial Advisers - pros and cons
« Reply #11 on: July 27, 2015, 08:37:52 AM »
If you do get an advisor, you will want one that you pay per session. Not one that invests your money for you. When they invest your money for you, their fees are so astronomical that it can literally cost you hundreds of thousands of dollars over your lifetime--and for no improvement in performance vs what you could do on your own.

To clarify a little more, in case it isn't clear. You want a fee-only advisor who will typically charge by the hour. That's assuming you don't want them to manage your money (which there is usually no need for). If by some chance you DO want them to manage your portfolio, then you should most appropriately be charged a percentage of assets under management, so that their incentive is not to screw up and lose money for you.

What you want to avoid is people who offer 'free' advice, because that usually means they are going to be paid by a third party kickback from a particular fund or insurance company, in exchange for selling particular funds or annuities.

So do what forummm says: Get someone who pays for advice by the hour, and not someone paid by commission or third-party.

I would actually say that there is almost no scenario where I recommend someone pay an advisor a percentage of their funds to invest money for them. Those people are almost always getting screwed. If you do want to pay an advisor to manage your funds, the only one I could recommend would be Vanguard, with their 0.3% fee. And even then I would suggest just using Vanguard's free online advisor tool instead.

Info on cost of fees:
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost
https://investor.vanguard.com/mutual-funds/low-cost

Free online advisor:
https://personal.vanguard.com/us/funds/tools/recommendation

Agree. Hence the "which there is usually no need for". 


forummm

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Re: Financial Advisers - pros and cons
« Reply #12 on: July 27, 2015, 09:38:50 AM »
Agree. Hence the "which there is usually no need for". 

I read it a little differently and thought I would clarify. Sorry if I misunderstood.

deborah

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Re: Financial Advisers - pros and cons
« Reply #13 on: July 27, 2015, 04:28:55 PM »
It is good to get a second opinion.
It is good to have someone go through your stuff, ask questions about it, and make suggestions.
It is good to have someone who gives you their opinion on what is happening and how to take advantage of it.

I use an adviser, and I know that they have saved me much more than they have cost.

mrpercentage

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Re: Financial Advisers - pros and cons
« Reply #14 on: July 27, 2015, 07:10:26 PM »
It is good to get a second opinion.
It is good to have someone go through your stuff, ask questions about it, and make suggestions.
It is good to have someone who gives you their opinion on what is happening and how to take advantage of it.

I use an adviser, and I know that they have saved me much more than they have cost.
+1

It doesn't hurt to have a pro tell you how they catch big fish. You can try to fumble through it yourself. Sometimes the pro can save you a lot of time by pointing you in the right direction so you don't waste time looking for golden nuggets in piles of crap, or become paralyzed by information overload.

MDM

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Re: Financial Advisers - pros and cons
« Reply #15 on: July 27, 2015, 07:29:11 PM »
It doesn't hurt to have a pro tell you how they catch big fish.
Great idea, especially if one can find a pro who actually has caught and continues to catch big fish (aka has and continues to make millions investing his/her own money).  Beware of advice from someone who makes more money from clients than his/her own investments (aka someone who stands on the shore and tells fish stories).

Indexer

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Re: Financial Advisers - pros and cons
« Reply #16 on: July 27, 2015, 07:49:49 PM »
Simple answer:  If you are willing to do the work and learn everything yourself then don't pay an advisor.  If you would rather pay someone then do that.  If you are already pretty experienced or you enjoy investing then the learn everything part is easy.  If you don't then the learn everything part will likely be the part you find taxing.  If you find it taxing you might not dedicate as much time as you really need to. 

So IMO the big determining factor is cost.  Using a very low cost advisor like Vanguard or certain independent advisors will likely cost less than 0.5%(0.3% for Vanguard) which is pretty darn cheap when you consider most active funds cost way more than that without a personal manager.  On the other hand paying 1%+ for management plus 1% ERs(so 2% total) is insane.  Or even worse using loaded funds with 4 & 5% front end loads PLUS close to 1% annual ERs.  I think you treat it like any other purchase.  Cost VS value.

Doing it yourself= bicycle
Vanguard or other low cost provider= a 5 year old Honda Fit or Toyota Prius for your 5 minute commute.
Expensive options like Edward Jones, Morgan Stanley, etc. = using a brand new Escalade with the premium package for a 2 hour commute.

I didn't include Betterment or Wealthfront because IMO that is not an advisor.  Its just a set of online convenience tools.  If you want to do it yourself it makes it a bit easier.  Personally I'm not going to pay Betterment to auto rebalance my account.  I have a calendar....

Quote
And even then I would suggest just using Vanguard's free online advisor tool instead.

That is not an advisor.  Thats a fund recommendation tool.  It will take care of the asset allocation and mutual fund selection, but you are still doing the rest.  I'm fine with that, but the type of person who feels they need an advisor needs more than 'use these 4 funds... the end.'  I include it with those online convenience tools.

I don't use an advisor, but I know why some people are better off using one.
« Last Edit: July 27, 2015, 07:51:56 PM by Indexer »

NorCal

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Re: Financial Advisers - pros and cons
« Reply #17 on: July 27, 2015, 09:33:11 PM »
I agree with most that it isn't rocket science, and anyone can figure it out if they have the inclination, I would still absolutely recommend a financial adviser in the following situations:

1.  The person involved doesn't care to learn about investing themselves.
2.  The person involved has a history of making rash financial decisions or "gambling" type investing habits.
3.  There are complicated tax management issues involved (foreign businesses, multi-state income, complex small business issues).
4.  There are complex estate planning or inheritance issues involved.

While not for me, I do have a number of family members that fit the categories above, and are absolutely better off by having an adviser than not.

deborah

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Re: Financial Advisers - pros and cons
« Reply #18 on: July 27, 2015, 11:08:56 PM »
It depends.

I think I am familiar with a lot of the ramifications of the Australian investing scene. I have many years of investing in the stock market, and have studied the ins and outs of the Australian superannuation requirements and seem to have as good an understanding of these as other Australians on the forum. I suspect that the 401k... and other US investing has a similar level of complexity to Australian superannuation and investing.

I have never made rash financial decisions (gosh, I'm retired). Perhaps I have complicated issues, but I suspect that my investments are less complex than most mustashians with my level of stash, and with no kids, I don't have any complex estate planning or inheritance issues.


As I stated in my earlier post, even with this knowledge and lack of complexity, I know that my financial adviser has saved me more than he has cost.

I have learnt a lot over the past few years from my financial adviser. He has always been willing to answer any financial question I asked. He was the one who convinced me I could retire early. Our dialogue has taught me a lot, as well as encouraging me to learn more on my own. I think it has also taught him a few things, and we sometimes have a discussion about other things before things come up. For instance, because we are frugal our needs from our stash are different to those of his other clients, so we need unusual investment strategies. This may not be immediately obvious to either of us.

We do have one problem in Australia that US mustashians may not have. The superannuation rules (401k...) and old aged pension (sort of SS) are being tinkered with just about every year (in the budget), and parts of those rule changes that effect me and probably other early retirees are often not reported in the press. For instance, recently Australia changed how you can take a pension when you are living overseas, and the qualification rules for people who have lived overseas during their working lives. It is difficult for someone to keep up with these changes, especially when they aren't reported.

dungoofed

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Re: Financial Advisers - pros and cons
« Reply #19 on: July 28, 2015, 04:18:12 AM »
Hi deborah - just wondering, if there was a forum like this around when you were first starting out, would you have considered doing it without an adviser?

chesebert

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Re: Financial Advisers - pros and cons
« Reply #20 on: July 28, 2015, 04:27:13 AM »
I use FA to invest in public securities and I pay a percentage of the fund as fee. I work with public companies so having an FA that manages my money alleviate potential insider trading issues. Otherwise, on every single purchase/disposition, I have to report and get clearance before I can execute a trade.

I am also outside the US, so the FA is really helpful on other stuff like taking care of international banking needs and other related matters.

I think once I am out of the current industry or back to the US, I will reassess whether I still need the FA (I am thinking not).

The price one has to pay to work in a particular industry and as an expat.

forummm

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Re: Financial Advisers - pros and cons
« Reply #21 on: July 28, 2015, 06:28:04 AM »
I use FA to invest in public securities and I pay a percentage of the fund as fee. I work with public companies so having an FA that manages my money alleviate potential insider trading issues. Otherwise, on every single purchase/disposition, I have to report and get clearance before I can execute a trade.

I am also outside the US, so the FA is really helpful on other stuff like taking care of international banking needs and other related matters.

I think once I am out of the current industry or back to the US, I will reassess whether I still need the FA (I am thinking not).

The price one has to pay to work in a particular industry and as an expat.

Why not just by VT? Who can possibly accuse you of insider trading if you're buying the whole globe? It's probably what you should be buying anyway.

dungoofed

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Re: Financial Advisers - pros and cons
« Reply #22 on: July 28, 2015, 04:32:29 PM »
I use FA to invest in public securities and I pay a percentage of the fund as fee. I work with public companies so having an FA that manages my money alleviate potential insider trading issues. Otherwise, on every single purchase/disposition, I have to report and get clearance before I can execute a trade.

I am also outside the US, so the FA is really helpful on other stuff like taking care of international banking needs and other related matters.

I think once I am out of the current industry or back to the US, I will reassess whether I still need the FA (I am thinking not).

The price one has to pay to work in a particular industry and as an expat.

I hope you're not in one of those ILAS/life insurance wraps.

Frugancial Advisor

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Re: Financial Advisers - pros and cons
« Reply #23 on: July 28, 2015, 06:30:14 PM »
This is a lot like visiting a plumber forum and asking "Should I pay someone I don't know to fix my toilet?".

The majority of posters on this board don't require a Financial Planner. It's that simple. They have an interest in finance and specifically index investing, which is great! There are obviously many other alternative to index investing but the reality is it's a proven strategy that will be successful for those who commit to it. But that's the difference between this forum and the real world. Not everyone has an interest in finance. In fact, some are so disinterested that they allow $2M to sit in a chequing account at 0% interest for 5 years (trust me, I've seen it.)

There are many more components to financial planning than simply 'investments'. Planning your taxes, estate, insurance, debt repayment, education funding, etc. When to take your pension, how to sell your small business, where to put your non-registered investments, etc. These are all very common concerns for clients who are busy enjoying their retirement.

If your 'Financial Advisor' simply recommends investment solutions for you, than that is a different story. They are useless and overpaid. But if your Advisor is charging a justifiable and appropriate fee to give you specific and knowledgeable advice that will improve your financial situation in the long haul; than that is worth considering. Not everyone is willing or wanting to learn about personal finance and investing, just as many are not willing to learn how to fix their own cars. Some mechanics may try and take advantage of you, but that doesn't mean their whole profession is a scam.

deborah

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Re: Financial Advisers - pros and cons
« Reply #24 on: July 28, 2015, 08:43:54 PM »
Hi deborah - just wondering, if there was a forum like this around when you were first starting out, would you have considered doing it without an adviser?
When I was "starting out" I didn't have an adviser, nor for many years afterwards.

I wasn't looking for an adviser when I found this one (I had really gone off them - they only sold funds and didn't offer advice). I had more than enough money for anything I wanted. I had investments, savings, and was doing quite well financially - I had actually been FI for years without knowing it.

I went to a superannuation seminar - not to find out when (or whether) I could retire, but to work out what the ins and outs were of the scheme I was in. He was there as an independent adviser, and several people discussed their situations with him after the seminar. It was really interesting hearing their situations. I was intimidated by all of them. They were all leading much more expensive lifestyles than me - so obviously had more money than me (yes, lifestyle = wealth doesn't it) - but as he talked to each of them, I realised that every single one of them actually had a lot less money/investments than I did, even though each of them was actually earning more than me.

I talked to him last (I didn't want anyone else listening to me, and I got my gumption up hearing the other stories). I had been impressed that he wasn't selling a product, and was actually listening to people and asking questions that made them think about what they were doing.

If I hadn't found him, I wouldn't be retired today. I wouldn't have found blogs like MMM because I wasn't looking. In talking to me, he realised I should have some money - more than 10 years of his fees - that I would not now have without his questions and his persistence. So I KNOW (as I have said before) that I he has saved me more than he has cost - even without any other benefits I have had from having a financial adviser.

dungoofed

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Re: Financial Advisers - pros and cons
« Reply #25 on: July 28, 2015, 11:09:11 PM »
Wow there you go - thanks!

wombat

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Re: Financial Advisers - pros and cons
« Reply #26 on: July 29, 2015, 04:18:43 AM »
I never had a financial advisor. I have seen three (usually on the urging of well-meaning family and friends). The first offered nothing I was not already doing myself. The second knew less then me and by the end of the meeting I felt I should of charged him - he laughingly agreed. The third was an expert in Australian Property and true to my suspicions had a very property-centred approach for us (When all you have is a hammer...).

I don't want to come off as arrogant  - these advisors just never offered anything that really seemed better than my 'keep costs low, diversify, rebalance, ignore the noise' plan. However, Deborah's comments above resonate with me. I've done well investing and following my pretty simple plan - but that may not be enough in the next few years.  I'll be repatriating to Australia next year to FIRE and after 14 years out of the country I think a good advisor (or accountant?) could help me navigate the pretty dense financial jungle that faces me.

deborah

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Re: Financial Advisers - pros and cons
« Reply #27 on: July 29, 2015, 07:24:30 AM »
Accountants are often (usually) better advisers than the used car salesmen dressed up as "financial advisers". However, the question was about the pros and cons of financial advisers (in which I include accountants), and pretty much everyone had been giving cons.

I have dealt with several accountants over the years, and each has been OK at giving financial advice.

I have dealt with more financial advisers over the years, and some (like the people last year who gave my parents advice) actually should be reported and drummed out of business. My parents asked for advice to achieve certain goals, and the advice they were given would have achieved NONE of the goals, would have put them in a worse position, and cost them more. And these people had been recommended to them!

In Australia, there have been some huge cases which have implicated just about every major group of "financial advisers" - including the financial arm of every major bank. There have been changes to laws, which have been dictated by the banks, so the changes are actually making the situation worse.

Mustashians don't really need "financial managers" - people to manage their money. Rather, they need "financial advisers" - people who they can bounce ideas off, who will give them options, and who will listen and ask relevant questions, especially since ER does mean the rules are a bit different. Unfortunately, most "financial managers" are titled Financial Adviser, and most "financial advisers" are titled "Accountant".

wombat

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Re: Financial Advisers - pros and cons
« Reply #28 on: July 29, 2015, 02:03:14 PM »
Deborah, I'd agree with that. My accountants have helped me - even then I have not always agreed with what they say - but do welcome the 'devils advocate' approach they sometimes take as accountants to my economist approach.


Cpa Cat

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Re: Financial Advisers - pros and cons
« Reply #29 on: July 29, 2015, 02:28:39 PM »
Often when spouses don't see eye to eye on financial topics, finances can be fraught with emotion. I think a financial advisor can often be a helpful tool to help a couple reconcile their financial goals, risk tolerances, set realistic expectations, and generally just take the emotions out of the discussion.

Also, I know a couple of people who are prone to doing crazy, knee-jerk things with their money. Those people need their financial advisor. They need to have someone who will talk them down from "OMG SELL EVERYTHING" or "Invest my entire portfolio in this hot stock!" or "Cash everything out to buy a one million dollar home!"

zinethstache

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Re: Financial Advisers - pros and cons
« Reply #30 on: July 29, 2015, 02:31:22 PM »
Perhaps you have access to these "professionals" already. Yes they might try to sell you something and likely get some sort of kick back. But it is good to have many sets of eyes looking through your finances, for the good and the bad.

First before we became property investors I made an appointment with my insurance agent. Mainly to discuss the type of insurance I would be getting, umbrella policies etc. but lo and behold he actually has some financial products so it ended up being a thorough review of our finances as well. We were in great shape and the conclusion was that I needed to drop a $7/6 months auto coverage on our work truck that is not necessary. Now this guy is a personal friend of my dad's and he's known me since I was a kid so I felt very comfortable revealing all these details to him.

Second, through my work we have a great 401k plan/provider and I've had them go through my finances 2x now. These have been done more recently after acquiring our properties. In both cases ( phone interview) I was given the green light on my FIRE plans.

I have done alot of my own research and have a very specific plan so even if I paid a consultant I believe they have the same message in the end as the other folks I've conferred with.

I have also engaged a CPA for the first time ever for the last 2 tax years. I suspect I will user her one more year and will go back to doing the taxes myself. She has set up our depreciation schedules etc, those were the most intimidating. I have called her for input on occasion, but more to confirm my thoughts and math on a transaction, in my case all property purchases.

It is a great idea to have your "team" as I like to think of these people, ready to assist as needed.

good luck!

chesebert

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Re: Financial Advisers - pros and cons
« Reply #31 on: August 29, 2015, 12:33:05 AM »
I use FA to invest in public securities and I pay a percentage of the fund as fee. I work with public companies so having an FA that manages my money alleviate potential insider trading issues. Otherwise, on every single purchase/disposition, I have to report and get clearance before I can execute a trade.

I am also outside the US, so the FA is really helpful on other stuff like taking care of international banking needs and other related matters.

I think once I am out of the current industry or back to the US, I will reassess whether I still need the FA (I am thinking not).

The price one has to pay to work in a particular industry and as an expat.

Why not just by VT? Who can possibly accuse you of insider trading if you're buying the whole globe? It's probably what you should be buying anyway.

Being 100% passive means you will never benefit from a swing delta, i.e., the percentage loss compared to index loss and percentage gain compared to index gain. Need both passive and actively managed funds/account portfolio to achieve positive delta. In other words, when the market goes down 10%, my risk tolerance would be 5% but when market goes back up 10%, I want my portfolio to go up 8%, thereby achieve a postive 3% delta. I am not looking for maximum return but I do want a better risk-adjusted return compared to pure passive appropach.

Not all my money is actively managed, about 30% of are passive investments.

chesebert

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Re: Financial Advisers - pros and cons
« Reply #32 on: August 29, 2015, 12:35:45 AM »
I use FA to invest in public securities and I pay a percentage of the fund as fee. I work with public companies so having an FA that manages my money alleviate potential insider trading issues. Otherwise, on every single purchase/disposition, I have to report and get clearance before I can execute a trade.

I am also outside the US, so the FA is really helpful on other stuff like taking care of international banking needs and other related matters.

I think once I am out of the current industry or back to the US, I will reassess whether I still need the FA (I am thinking not).

The price one has to pay to work in a particular industry and as an expat.

I hope you're not in one of those ILAS/life insurance wraps.

God no.

TomTX

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Re: Financial Advisers - pros and cons
« Reply #33 on: August 29, 2015, 10:08:28 AM »
Hello, not too close to FIRE but trying step by step... Wondering do you use financial advisers or do everything on your own?
I would like to consult one or two about whether I am close to the right decisions, compare and decide what the best route will be.
What do you do? How do you make most of your decisions? TIA

PS. I am in Chicago, if you have anyone to refer me to, pls pm me.

I do it all myself. Most financial advisors don't have a fiduciary duty to you, and they get paid either by skimming a percent from your account and/or kickbacks from the funds they recommend.

IMO, the only FA you should consider is a fee-only* person you pay by the hour for their advice. They don't need access to your accounts or your money. You still do the investing, they just guide you.

Or, ask for advice here for free.

Or pay me for my advice ;)


*NOT "Fee-Based" that's code for "charge you a fee PLUS skim from your account and/or take kickbacks from the funds I put your money in"