Should we forgo a financial advisor? Advice welcome!

[Speedgoats]

Hello community, we are looking for some advice!

Context:

Situation - financially comfortable, each of us happy in current careers and career path. Husband works for nonprofit making ~70K year (4 days a week, lots of time off). Wife self-employed business owner of S-Corp. Business gross about 130-150K / year, she is on salary as CEO at 50K / year + 25K owner draw / yearly. We are each 44 years old and child free. Own our home (valued at $900k, no mortgage) and debt-free.

Savings yearly:

wife solo 401K: 22,500 / year
wife as employer match: 12,500 / year
husband simple IRA: 15,500 / year
husband employer match: 2,010 / year
wife roth IRA: 6,500 / year
husband roth IRA: 6,500 / year

Current retirement balances across all accounts:
135K - traditional IRA
132K - traditional IRA
135K - Roth IRA
64K - Roth IRA
23K - Simple IRA
90K - 401K
10K - Mutual Fund
25K - Money Market Account
5K - Other savings accounts

Deferred compensation agreement - 20K payable April 2024 plus 40K at 8.5 interest amortized monthly over 20 years

Approximate net worth: $1.6M

Yearly spending: We like to spend between 70-80K / year - this is our comfortable level with fun trips etc. Our “essentials” are about 50-60K / year.
The rest goes to taxes, savings.

Our question. Currently, our traditional IRAs, Roth IRAs, 401K, Mutual Fund, Money Market - are all managed by Merrill Lynch. Our financial advisor is a local acquaintance. Our community is on the smaller side, he’s an intelligent guy and we like him, but we basically meet 1x a year and that’s about it. We aren’t looking for aggressive management, just a good mix to stay ahead of index returns (and we're not sure this is happening). Fee is 1% a year. Through them we also enjoy “perks” such as free checking, free ATM, free unlimited savings accounts, etc. all with Bank of America. All of our banking is streamlined and easy to manage. We don’t have to think about things a whole lot.

We are considering moving all of our IRAs, retirement savings etc to VTSAX (or whatever you help us decide on) funds. We follow the FI community and understand that the 1% fee we currently pay can play out to 200K+ lost from the nest egg over the course of our lifetime. It seems like we should go ahead and do it, but we’d love advice, wonder if anyone in the community thinks the 1% fee is worth it to have things basically on auto-pilot, not have to switch everything around, etc etc. If we do go this route, how should we go about it? Can all of our accounts be easily moved to Vanguard? Should/Could we keep one or two accounts to maintain banking perks?

We really appreciate your thoughts and advice! Thank you

[MustacheAndaHalf]

Adding up those accounts, I get over $600k in accounts with a 1% fee.  Your "free" ATM and checking are costing $6,000 per year.

I began DIY passive investing after reading "A Random Walk Down Wall Street" decades ago.  It has over a dozen editions, the first of which was 50 years ago... and it's still true today.  Every library I've visited has a copy of some edition of it.
https://www.amazon.com/Random-Walk-Down-Wall-Street-dp-1324051132/dp/1324051132

I recommend this for two main reasons:
(1) it provides the evidence for passive investing over decades.  It's even more impressive that it was published 50 years ago, has added data for those 50 years, and still holds true.
(2) seeing the data can make crashes feel more normal.  They have happened before, and they will happen again.  You can see how they start and how they turn out.  In my view, people who have that background are less likely to panic.

[nereo]

Agree with everything Mustachandahalf said above.

I “inherited” a ML advisor through my parents and while the service was very good, the actual cost was considerable and resulted in much worse performance over a self-managed indexing strategy. Remember that YOU, as the client, are how they make most of their money.

One thing I learned was how frequently my accounts bought and sold assets. Take a close look at those length statements ML sends and not how many times transactions there are in each account over a 12 month period. In my case (which seems to be the norm at ML and most full-service brokerages) there would be several transactions per month in each account beyond contributions. This is a big red flag, and was despite an explicit “buy-and-hold, very long term investing strategy profile”. Too often I’d be trading out of something only to buy it (or something remarkably similar) a month or two later - the very opposite of a buy and hold, long term strategy. My advisor was also not a fiduciary ( most aren’t).

When I moved to extract myself from being his client I was first told a bunch of financial mumbojumbo laced with technical terms that I now realize was intended to instill fear and doubt in me about managing my own money. Then his “service” stopped being warm and open and I’d have to request documents multiple times and was frequently told they would be mailed “at the close of the month” when previously I could get them that day and often electronically.

Worse, when I did a “deep accounting” I learned I had underperformed the broader market for over several years at slightly more than 2% per year vs a simple target date fund or whole market index. That wound up costing me over $14k in gains with a much more modest portfolio size.  It ultimately was difficult to determine what my actual asset allocation (the mixture of stocks and bonds) was on average over a calendar year from their provided statements, which might be intensional.

Ultimately self managing has been very simple. I went with Vanguard (many here now prefer Fidelity) and they handled the transfers. I rolled over my retirement accounts to Vanguard (including my 403b once I left that job) and now I hold just three accounts (taxable brokerage, tIRA and Roth IRA). Each account holds one or two low cost index funds, and collectively they make up my portfolio. About the only difference between the three is I keep bonds in my Roth for favorable taxation. We have autocontributions set up and we only look at it once or twice per year, which is probably more than enough.  While the front-facing service hasn’t been as full service as with ML, we’ve realized the once-a-year meetings weren’t worth the thousands we were paying, and we still have access to free checking, no/low cost trades and other perks by holding our money at VG.

[muskrat]

I have used a couple of financial advisors and neither have been a positive experience.  They both put my money in bad mutual funds that had high fees on top of the 1%.  The good ones will protect you from making bad decisions (selling at the bottom)  and help to make sure your are tax efficient.  However, I would highly recommend doing it yourself.  If you don't want to construct a portfolio robo advisors (Wealth front, Betterment) are good and make sure your are tax efficient.  However they do carry a fee (much less than an advisor.)

[MDM]

We aren’t looking for aggressive management, just a good mix to stay ahead of index returns (and we're not sure this is happening). Fee is 1% a year.

Even without the fee, it is very difficult to beat index returns over a long time.  With that fee it is practically impossible.

We are considering moving all of our IRAs, retirement savings etc to VTSAX (or whatever you help us decide on) funds. We follow the FI community and understand that the 1% fee we currently pay can play out to 200K+ lost from the nest egg over the course of our lifetime. It seems like we should go ahead and do it, but we’d love advice

Start with Getting started - Bogleheads.  Any of Fidelity, Schwab, or Vanguard can be reasonable brokerages.  See Three-fund portfolio - Bogleheads for reasonable fund choices at any of those.

Good luck!

[seattlecyclone]

Someone who you pay by the hour to understand your full financial situation and give advice on how to proceed through various life events can be a worthwhile expenditure. Someone who takes 1% of your money every year irrespective of how much work they do on your behalf is much less justifiable.

[reeshau]

Someone who you pay by the hour to understand your full financial situation and give advice on how to proceed through various life events can be a worthwhile expenditure. Someone who takes 1% of your money every year irrespective of how much work they do on your behalf is much less justifiable.

+1

Look for a fee-only, Certified Financial Planner (CFP) who will either quote you a flat dollar cost, or an estimate based on hours.

The Garrett Financial Network is a place to start.  The XY Planning Network also closely fits, but bills on a "retainer" periodic basis--because they want to keep up a conversation with you.

[Josiecat22222]

Agree with everything Mustachandahalf said above.

I “inherited” a ML advisor through my parents and while the service was very good, the actual cost was considerable and resulted in much worse performance over a self-managed indexing strategy. Remember that YOU, as the client, are how they make most of their money.

One thing I learned was how frequently my accounts bought and sold assets. Take a close look at those length statements ML sends and not how many times transactions there are in each account over a 12 month period. In my case (which seems to be the norm at ML and most full-service brokerages) there would be several transactions per month in each account beyond contributions. This is a big red flag, and was despite an explicit “buy-and-hold, very long term investing strategy profile”. Too often I’d be trading out of something only to buy it (or something remarkably similar) a month or two later - the very opposite of a buy and hold, long term strategy. My advisor was also not a fiduciary ( most aren’t).

When I moved to extract myself from being his client I was first told a bunch of financial mumbojumbo laced with technical terms that I now realize was intended to instill fear and doubt in me about managing my own money. Then his “service” stopped being warm and open and I’d have to request documents multiple times and was frequently told they would be mailed “at the close of the month” when previously I could get them that day and often electronically.

Worse, when I did a “deep accounting” I learned I had underperformed the broader market for over several years at slightly more than 2% per year vs a simple target date fund or whole market index. That wound up costing me over $14k in gains with a much more modest portfolio size.  It ultimately was difficult to determine what my actual asset allocation (the mixture of stocks and bonds) was on average over a calendar year from their provided statements, which might be intensional.

Ultimately self managing has been very simple. I went with Vanguard (many here now prefer Fidelity) and they handled the transfers. I rolled over my retirement accounts to Vanguard (including my 403b once I left that job) and now I hold just three accounts (taxable brokerage, tIRA and Roth IRA). Each account holds one or two low cost index funds, and collectively they make up my portfolio. About the only difference between the three is I keep bonds in my Roth for favorable taxation. We have autocontributions set up and we only look at it once or twice per year, which is probably more than enough.  While the front-facing service hasn’t been as full service as with ML, we’ve realized the once-a-year meetings weren’t worth the thousands we were paying, and we still have access to free checking, no/low cost trades and other perks by holding our money at VG.

Agree with all of the above--- we have left a series of FP early in our professional life after reading YMOYL, MMM, Simple Path to Wealth, Etc.  FIRE'd in our mid 40s and could not have done it with the 1-2% drag they create.  It is much much easier than you think.

Off topic a bit..@nereo-- did you say that you get free checking through VG?  Would love to hear more about that!

[AnotherEngineer]

Someone who you pay by the hour to understand your full financial situation and give advice on how to proceed through various life events can be a worthwhile expenditure. Someone who takes 1% of your money every year irrespective of how much work they do on your behalf is much less justifiable.

+1

Look for a fee-only, Certified Financial Planner (CFP) who will either quote you a flat dollar cost, or an estimate based on hours.

The Garrett Financial Network is a place to start.  The XY Planning Network also closely fits, but bills on a "retainer" periodic basis--because they want to keep up a conversation with you.

Steps to consider:
1. Watch this excellent PBS documentary where big brokerage firms are speechless when trying to justify their fees and inability to beat the market: https://www.youtube.com/watch?v=lkOQNPIsO-Q
2. Ask you brokerage to total up all your the fees you are paying, including fund expense ratios. Compare this to what you would spend on 1) by the hour advice plus those funds and 2) self directed index funds.
3. ask your advisor to sign a fiduciary agreement (see PBS documentary). If they balk for an instant at this or #2, RUN. This is a low bar, but a necessary one. If they refuse, they are refusing to give up their commissions and kickbacks from expensive funds and are not serving your interests. The default advisor situation is very bad for the consumer.

Most folks don't need an advisor for optimal returns. Hourly fee, fiduciary advisors can be valuable for complex situations, high value, if you need to be talked down from selling during downturns, etc. The typical brokerage advisor under the reasonable standard is a great way to pay a high costs for front loaded fee underperforming funds. Ask me about my Edward Jones experience ;).

[AJDZee]

I will echo what most have already input here, I don't think it's worth for someone to 'manage your investments' odds are they won't do better than market, and will slowly siphon your hard earned savings into their pockets.

However a financial advisor is an extremely value service. I'm talking about someone you pay by the hour, or usually they charge 1-time payment for a 'plan'.
They will look at your situation and build a withdrawal strategy that will optimize your taxes/estate, the plan will make sure you hit your goals and that you're building the right balances in various taxable/registered accounts that support your withdrawal strategy.
For a few thousand dollars (less than 1 year cost of your current AUM), you'll save tens- or hundreds- of thousands in taxes in your lifetime/estate, very worthwhile investment in my mind.

And as for investing and managing, just bite the bullet and put it in a low cost index that meets your needs/risk, and go on auto-pilot. (all VTSAX or 3-fund portfolio, etc.)
The few hours it will take to set up the accounts, transfer, etc. is well worth the 6-figure of savings you will pay over time in your current set-up.

[ATtiny85]

1% is not worth it. Not remotely worth it for almost anyone. The one exception might be the widow(er) who is old and was never involved in finances. Putting their assets under an AUM for their remaining years might be a decent idea. Might.

I always frame it this way. Assume you plan to live on a 4% withdrawal rate in retirement. Paying 1% fee is really the same as handing over 25% of your yearly salary. 25%! Madness, just madness. (Of course, you would have to pull 5% to have the 4% to spend, which opens another problem)

[Sandi_k]

Costs matter.

[Michael in ABQ]

For all the talk of how much poor people pay in various fees, it probably pales to the amount of money extracted from people that actually have some money by financial advisors taking a fee for "managing" their assets.


It's basically a scam to pay someone 1% to manage your money unless you are just completely incapable of not doing something dumb like selling all your stocks because a recession is right around the corner (and has been for at least 5 years).

Paying a fee only fiduciary some flat amount (hundreds to low thousands) to get things set up may make sense, especially if you have a complex situation to deal with like suddenly coming into a large amount of money, stock options, setting up trusts for kids, etc.


A colleague of mine in the National Guard is a financial advisor and seems to do pretty well. His dad has a much larger practice with over $100 million AUM and is looking to retire soon. So the son was saying he's going to retire from the Guard at that point because his income will be over $1 million a year (about right if he inherits all those clients who are paying 1% AUM fee every year).

[Speedgoats]

Everybody: Thank you so much! Of course I think by asking we knew the answer in our gut but we have definitely been dragging our feet as just "another thing on the list."
We will check out the books and resources re: Vanguard vs. Fidelity.
And ... we actually went down to the office today and "broke up" - it was important for us to do it in person given our small town + community but the conversation went really well and he understood and all was fine.
The callout on the 6k per year for the free checking is a good jolt. Helps put in perspective. 10K for 1M ... 20K for 2M. Losing out on re-investing that each year ... Yikes. It's not just the 1% you lose, but the potential compound gains on that 1%.
Onward and upward!

Speedgoats

[ATtiny85]

Excellent, congrats. A lot of folks seem to fear the conversation, glad you were up front and just did it.

Be sure to keep asking questions, maybe repost as a case study when you are ready for more tips.

Your future selves are going to say thank you.