Thanks all, this is really helpful!
So this is a financial expert who advises where to put money and only charges one time fee or basically whenever you need them? I just checked our statements for the managed account and looks like we are paying about $480/quarter in "advisor fees" to manage our $100k. How does that compare to CFP fees? I know this is part of the sales pitch, but the argument for the manager has always been that while they don't seem necessary in prosperous times, they can save you from losing everything in a huge downfall. While we weren't with our advisor in 2008, I did see their stats showing that they made some pretty smart moves for clients before things got really bad. Truth or fear tactics at play?
You're paying $1920/year to service $100K, which works out to an advisor's annual fee of 1.92%. (This is in addition to the other fund expenses you're already paying, so your annual expenses are higher than 2% of your $100k assets.) I believe that the high fees you're paying qualify as what MMM refers to as a "hair on fire emergency". It's less than some people pay for a daily latté (if they do it
every day) but as a percentage it's insanely high. It's legal but (in my opinion) it's unethical.
The advisor offers sleep-at-night comfort and hand-holding during a recession. That is valuable, especially if you don't (or won't) find the time to learn enough to develop your own self-confidence. However someday you'll have a much larger portfolio, and when you retire you'll want to withdraw about 4%/year from that portfolio. When you do that, even if your advisor gives you a "volume discount" you'll still be paying over 1% in annual fees.
In other words you'll be forking over at least a quarter of your annual portfolio withdrawal to... your financial advisor. Three dollars for you, a dollar for them.
One of America's most experienced rock-star financial managers, Rick Ferri (who's also a Boglehead), will do the same with index funds and a 0.37% annual fee. (
http://portfoliosolutions.com/home/low-fees) Or, in your case, you could have Team Ferri for about $92.50 per quarter. You can even read most of Rick's 14 books at the library for free and follow his advice without paying him a cent. E-mail your current financial manager, ask him how many books he's written, and why he's more than 5x better than Rick. Better still, invite your financial advisor to attend FinCon with me and explain his extraordinary client value to Rick in person. We'll ask Michael Kitces to moderate the discussion. I'll split the ticket sales with you.
Did I mention that Rick is a retired Marine aviator, and his son is also in uniform? He understands military financial management.
Every financial advisor saves you from losing everything in a huge downfall. They do that in one of two ways, which range from simple to horribly complicated:
1. Cash out. (Hopefully they figure out when to buy back in.) Many, many credible peer-reviewed reproducible studies show that you lose more money in this market-timing manner than if you'd just ridden the entire recession from peak to pit and back and done nothing. However you'll still pay your advisor at least $1920/year for this help.
2. Rebalance. You told them what you wanted for an asset-allocation plan and when you wanted to rebalance. They did what you told them to do.
Here's a typical conversation:
You: The market's way down, and this sucks.
Advisor: Stay the course! We'll take care of you.
You: Really? Thanks! (Sleeps comfortably at night.)
Three months later:
You: The market still sucks. I hate this.
Advisor: Stay the course! We just sold more of your overpriced X and bought some of value-priced Y. We'll rebalance every day and steer you through these troubled times. We're on it!
You: Really? Thanks! (Sleeps comfortably at night. Mostly.)
Two or three rounds later:
You: I really hate this.
Advisor: Well, we're just doing what you agreed we should do. But if you don't want to do that anymore then we have a have a new product which may help ease the pain of risk of loss and market volatility. You won't get as much when the market goes up, but you'll lose less when the market goes down.
You: Why didn't you tell me about this months ago?
Advisor: Well, when you signed on with us, we agreed that you could handle a more aggressive risk profile. Our new product also costs a little more in fees. But if you reeeeally can't handle this market right now, then let's put you into a different asset allocation.
You: Really? Thanks!
Advisor: We'll send you an invoice and deduct it from your account. You won't have to do a thing!
They were perfectly truthful, and they played on your fears like a fiddle.
We rode our asset allocation all the way from the 2007 peak down to the 2009 pit... and all the way back up through the recovery to today. We sold and bought as part of that rebalancing, and some of those sales lost money, but overall we saved more in taxes than we lost in capital gains. The key was that we stayed fully invested in our asset allocation, we didn't "miss out" or have to time the market, and when the recovery came it left us much better off than when the recession started. We've gone from "enough" to "more than enough" and now it's bordering on "ridiculously luxurious travel for half the year".
Your choice is to pay the fees or to learn enough to handle your own finances, but the key is to do so in a manner that you believe in (your investment policy statement from the Bogleheads Wiki, your asset allocation) and in which you don't have to make a bunch of frequent willpower-depleting decisions (auto-deductions from your paycheck, rebalancing).
You can also choose to let someone handle your money for you, but you don't have to pay such high fees for it.
I think you have the potential to learn how to handle your own assets, and you'll develop the self-confidence. You'll certainly have the time.
If you want to ask individual questions and pay one-time fees, then I'd recommend CFP Rob Aeschbach:
http://militaryfinancialplanner.com/services/He can advise you on a monthly fee, but he'd rather do it during the one or two times per year when you have a gnarly question or need to do some spreadsheet analysis.
And if you want to ask a bunch of other questions before paying for Rick's or Rob's certified knowledge and experience, we'll do that here for free.