Author Topic: Use of financial advisor  (Read 6032 times)

plherrin

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Use of financial advisor
« on: February 10, 2015, 07:24:45 AM »
I wondered how many people here utilize a financial advisor themselves. This community (FI-ers) seem pretty much DIY investors that generally enjoy it. I found one thread asking about any of the members being financial advisors, but I wonder how many (if any people) actually utilize a financial advisor at all. I started with one after college because I felt uncomfortable and I actually approached him after turning down advances from a couple of over-bearing salespeople-type advisors. He's someone I actually had a friendship with before asking him to serve as an advisor and I trust his ability to bring value via passing on our financial goals/behaviors/habits to my kids (something their guardians wouldn't be able to do) if my wife and I were to die...or giving some stability if I were to die so my wife wouldn't have to worry about the investing portion. He is however a typical financial advisor in terms of how he views budgeting, using non-indexed investing (or leaning that way), and having never heard any about FI/Early Retirement. I get flustered and indecisive when I calculate out what his rate of pay will be in a few years when we hit FI (0.25%-0.5%), however there could be value in terms of allowing me to have more hands off concerning investing...though I'm beginning to enjoy it....I just don't feel confident to go into it alone yet. So my question again is does anyone use an FI an receive value in a way that they feel like it's worth tossing so much money toward the use of one? Or even if you don't, I see plenty of harsh comments towards financial advisors, are there any of you out there who see utility in one and why? And specifically does anyone think this utility can be gained via better investing (apart from avoidance of selling trying to time market), because that was my main reason for seeking one out and I'm thinking that in a few years I'll be past that fear of inability to invest well (hopefully)?
« Last Edit: February 10, 2015, 07:30:34 AM by plherrin »

capitalninja

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Re: Use of financial advisor
« Reply #1 on: February 10, 2015, 07:54:06 AM »
I don't use a financial advisor. I research and plan my own investments. I wouldn't say  that there's anything wrong with using a fee-based financial planner. In my mind, making use of a financial advisor in much the same way you use an attorney (fee-based) makes more sense. Most just don't provide enough value to justify the 25 - 100 basis point cost for AUM.

With all of the information available in the form of books, videos, and investment forums, it's never been easier to be build a diversified investment portfolio that does well over time. If you don't want to take the "headache" of managing your investments yourself, then it might be worth it to you to give up a small portion of your future gains to an investment professional.

To each his own.

rmendpara

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Re: Use of financial advisor
« Reply #2 on: February 10, 2015, 09:31:02 AM »
Do you mow your lawn? Mos tpeople could buy a lawnmower and do it themselves, but many prefer to pay someone else $20+/hr to do it. For that matter, do you grow your own food, sew your own clothes...

Managing finances is no different.

Today, I'd rather do it myself because I really don't need help managing investments, since most of it is on autopilot (direct debits for 401k, Roth). The advisor that would want my business is likely someone with no more knowledge than myself.

Once I quit working, get busier in my personal life, have more complex financial needs (estate planning type stuff), or have enough in assets that I don't care about paying 50-100bps in additional fees, then I may even go the advisor route. Not because I can't do it myself, but a willingness to pay someone else to do it for me.

Fortunately, I am well versed in my finances so I could tell if someone was bullsh*tting me and selling me crap or if they actually know their business and can execute simple maintenance for me.

My biggest warning: Don't hire someone else to do something you don't remotely understand. There is a big risk they can take advantage of you. It's cheaper to get a second and third opinion than follow the first person blindly. Doesn't matter if it's a financial adviser, home contractor, doctor, or dentist...

Cookie78

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Re: Use of financial advisor
« Reply #3 on: February 10, 2015, 09:37:32 AM »
I used to. I started using one 10+ years ago because I knew I needed to start investing, but I had no idea how. I chose someone without the high pressure sales pitch, but it turns out I chose wrong. That company never did much with my money, but I didn't even know at that time what sort of results to expect. I switched to a different company almost 2 years ago and they got me more results, but they felt smarmy. The last time I met with an advisor there I realized he didn't have a clue.

Then I discovered MMM and within 2 months learned how to start investing myself. I'm still learning, but I feel far better about my abilities now than I did 10 years ago, or even 2 years.

mxt0133

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Re: Use of financial advisor
« Reply #4 on: February 10, 2015, 09:50:11 AM »
I'm a financial DIY myself and was very comfortable with managing my money and financial matters myself.  However when I started a family and started to worry about insurance, estate planning, retirement, and educational funding it was a lot to take in.  I'm stubborn and thought I could do it myself.  I then started seeking professional advice but in a piece meal matter.  Still being stubborn I decided to enroll in a CFP course and learn financial planning myself.  As i'm going through the course, I am learning that I could have saved thousands and have been FI by now if I had the help of a financial advisor that would educate me and not just be a salesman.  I could have saved so much in health insurance, car insurance, budgeting and goal setting.  Learning about the tax code and how to minimize taxes is worth the fees you would pay to a CFP and a CPA combined.  I also wouldn't have made so many dumb investment mistakes chasing hot money, ect.  I think the exercise of goal setting and prioritizing your financial goals with your values will really simplify a lot of financial decisions.

As I go through my course I am in search of a financial advisor so that I can ensure that I am making appropriate decisions based on my goals and values but also to help my wife in the event I pass.  It give me comfort knowing she will have someone that I know and trust.

Is it for everyone definitely not, but as you financial situation get more complicated it's tough to keep up with everything.

Scandium

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Re: Use of financial advisor
« Reply #5 on: February 10, 2015, 10:14:22 AM »
Never had an advisor, but I feel most people could set 50/50 total US market/bond market forever and probably be better off. If you find one that uses index funds (I obviously wouldn't want one who didn't) what else do they add?

I have debated finding a fee-based one I like I case I die and my wife would have to deal with our investments. But it sounds like a painful process.
« Last Edit: February 10, 2015, 12:27:44 PM by Scandium »

Frankies Girl

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Re: Use of financial advisor
« Reply #6 on: February 10, 2015, 12:11:11 PM »
Up until about two years ago, I was pretty sure I'd always use a financial adviser. I had no idea what I was doing and the whole investing thing seemed crazy intimidating to me.

I had zero knowledge and was pretty much scared of doing anything myself.

I've read some stuff since then (here, Jim Collins, Bogleheads... it was entertaining and educational). Once I felt confident enough to take over, I stopped paying somebody else to manage my funds and shifted everything over to self-managed. I still can call in and ask questions for free, but I do make all of the decisions myself now, and I'm very, very happy with the arrangement.

If you go with simple index investing, there is really zero reason to pay someone to do it for you. It is literally under an hour's worth of time a year to make sure you're AA is still pretty much what you want it to be, and figure out if you need to make any adjustments or dump anything in/take something out. You could even check it monthly and still not spend hardly any time on it. Index investing is very "hands-off" unless you want to jump in there all the time.

Investing really, really does not have to be complicated. Anyone that says that it is, has an ulterior motive for saying that - and usually it's to make you feel like you can't do it without their "expertise."

Financial advisers are not your friend. I don't care if they are super friendly and even if you were friends before you started investing with them... it is a business arrangement whereby they get paid to put you into things that pay them (and their company). While some may be a little less greedy than others, they all still have themselves and their company as their number one and two priority - your financial wellbeing is a distant third. Unless they are acting as a fiduciary on your behalf, then they are out to make money off of you. And one of the ways they try to show that their job is super complicated or requires some special knowledge (that you could never have) is to stick you in lots of different funds (because it really doesn't take a dozen funds to cover the market).

I guess if you've got stuff going on in your life and money and investing is stuff you are horribly bored/annoyed with thinking about, it would make sense to offload that job to an FA. It is the same thing as paying someone to wash your car or mow you lawn. Some people hate that stuff, and they don't mind paying the premium to get someone else to do it... but that still doesn't mean you couldn't do the job yourself, much better and much cheaper.


pdxvandal

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Re: Use of financial advisor
« Reply #7 on: February 10, 2015, 11:05:56 PM »
I'm just a lowly liberal arts major and even I could figure out self-managed investments.

I agree there may be a time with estate planning, etc., down the road. But for "regular" investing, take the reins.

shuellmi

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Re: Use of financial advisor
« Reply #8 on: February 11, 2015, 07:10:00 PM »
Been reading of and on for a long time, first post though... if you are looking for a stock  picker a financial advisor isn't likely to be better than a monkey our an index fund.  Advisors are for devising an overall retirement strategy, including your income streams, tax avoidance,  wealth transfer strategies, and age/risk level.  The bar is low to call yourself a financial advisor so there are a lot of bad ones, but if you dont have the time or interest they are very valuable.  I'm guessing that most hear have the interest but I personally feel more comfortable having someone with a wealth of experience to talk things over with.  Fortunately my dad is a CFP, but I'm sure if you look anyone can find a good one.

madamwitty

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Re: Use of financial advisor
« Reply #9 on: February 11, 2015, 07:21:02 PM »
Still being stubborn I decided to enroll in a CFP course and learn financial planning myself.
@mxt0133: This sounds like the sort of thing I would do. Could even translate into part time work after FIRE. How much does it cost?

plherrin

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Re: Use of financial advisor
« Reply #10 on: February 11, 2015, 07:31:15 PM »
Just to add a bit to the mix. He is a CFP and certified, rather than the typical salesman without a fiduciary responsibility. However as I've read more at MMM and other financial blogs over the past year or so, my interest in finances has be re-awakened and I feel that it's likely something I could enjoy doing more. At present we've got quite a bit going on. So my plan is to get educated, get more educated, have a bit of a talk with him about my likely future direction. I'm thinking the role will work well to have someone to bounce ideas off of and use his expetise in advisement. However I'll likely take over the investment role in a year or two after I've had a bit of time to feel more assured about my direction. Many of my funds are in index funds weighted in certain ways that frankly I don't fully understand or low expense actively managed funds....thus the education aspect. Some of the funds are actively managed with slightly larger expenses which I've voiced my discomfort with. However I trust my advisor and do plan on easing into this. I should be FI within 3 years and by then I'll be managing my funds fully. For now it seems to make sense to wade into the role a bit slowly while I decide between options like sticking with fidelity, going to Vanguard, using Betterment, etc. I appreciate the responses. I do see a role for a good CFP for those less savy, confident, or just less willing to figure it out. But I also agree that living in ignorance is no good idea either. Thanks for the thoughtful replies so far...and Please keep them coming.

mxt0133

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Re: Use of financial advisor
« Reply #11 on: February 12, 2015, 02:55:56 AM »
Still being stubborn I decided to enroll in a CFP course and learn financial planning myself.
@mxt0133: This sounds like the sort of thing I would do. Could even translate into part time work after FIRE. How much does it cost?

The course i'm taking is a live course over 9 months.  The course itself was $5300 (facepunch!) plus another $400 or so in books.  The course is heavily focused on passing the CFP exam.  Most people that take the course are already in the "industry" and are getting reimbursed for the course.  I was but one of two to take it for self edification or career transition.

I still find a lot of value in the class as it introduced me to a few topics in greater detail.  I enjoy structure for the more mundane topics, helpful but mind numbing nonetheless.  Having people in the industry is also very helpful as they have a wealth of personal experience and I get to pick their brains.

The negative again it is primarily focused on passing the test, but I can still steer the focus on certain topics to handle real use cases.  Another negative is that because generally only people with complicated financial situations or those with significant assets use financial advisors there is almost no focus on those that really need financial help.

UnleashHell

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Re: Use of financial advisor
« Reply #12 on: February 12, 2015, 05:10:48 AM »
the megacorp I work for lets us use the services of in house financial advisors for free. I started to talk to one at the end of last year and ran figures past him. He just didn't get the ER idea or have any advise as to how to get there. provided a nice booklet that was customized for me based on earnings, savings, the impact of SS etc. very pretty but absolutely nothing about rule 72(t) , tax advantages and disadvantages of different investments now - plus he keep failing to respond to my emails or talk to me...

I decided that the amount I paid for his services (zero) was way too much and fired him.

I am now talking to another FA and he does actually get it... even to the point where he was discussing if I should be maxing out the 401k based on my target retirement date. Lets see how he does with firm recommendations.... I like the price I pay for this one.. lets see if he can come up with some more concrete ideas.

Travis

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Re: Use of financial advisor
« Reply #13 on: February 12, 2015, 01:01:02 PM »
Quote
My biggest warning: Don't hire someone else to do something you don't remotely understand. There is a big risk they can take advantage of you. It's cheaper to get a second and third opinion than follow the first person blindly. Doesn't matter if it's a financial adviser, home contractor, doctor, or dentist...

A series of funny commercials came out during the Super Bowl or thereabouts with children asking their fathers very plain questions about their financial adviser and their portfolios that the father simply couldn't answer because he simply signed over the check and had no idea what happened next.

Koogie

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Re: Use of financial advisor
« Reply #14 on: February 12, 2015, 02:49:43 PM »
We use a fee only financial planner.   I am comfortable with DIY investing, AA and all that.  But our situation is very complicated (personal accounts, tax deferred, OpCo and HoldCo) so I wanted to have a second opinion. 
I feel it has been worth it and have valued her input.  We're nearing the end of our second year with her and it is mostly maintenance fees now (very low).
I think it is worth it for people who don't feel completely comfortable or who have complex situations.   Just go low cost (fee only) and remember it isn't forever either.

plherrin

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Re: Use of financial advisor
« Reply #15 on: February 12, 2015, 08:10:42 PM »
@ Koogie, why type of fees do you pay? If you don't mind elaborating I'm fully satisfied with the fee for service that's used ($250/yearly checkin, etc), but I'm less warm to the long term fee for being over account management.

Koogie

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Re: Use of financial advisor
« Reply #16 on: February 13, 2015, 12:38:36 PM »
@ Koogie, why type of fees do you pay? If you don't mind elaborating I'm fully satisfied with the fee for service that's used ($250/yearly checkin, etc), but I'm less warm to the long term fee for being over account management.

Not at all.  As with most things in life, you get what you pay for so this isn't a thing you should necessarily go with the lowest bidder on !    We pay 500$ every six months.   That gives us pretty much unlimited emails for whatever stupid questions spring to mind and a phone call every month or two to go over things.   

It should be noted that we have an accountant (because of the companies).  I would not feel comfortable relying solely on the advise of a FP when it comes to taxes because of our situation.   That being said, if it involves just the tax issues that an ordinary individual would encounter, you would probably generally be okay following their recommendations tax wise (subject to your own reading and clarification).

ChrisEE

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Re: Use of financial advisor
« Reply #17 on: February 14, 2015, 01:39:41 PM »
Just to add a bit to the mix. He is a CFP and certified, rather than the typical salesman without a fiduciary responsibility. However as I've read more at MMM and other financial blogs over the past year or so, my interest in finances has be re-awakened and I feel that it's likely something I could enjoy doing more. At present we've got quite a bit going on. So my plan is to get educated, get more educated, have a bit of a talk with him about my likely future direction. I'm thinking the role will work well to have someone to bounce ideas off of and use his expetise in advisement. However I'll likely take over the investment role in a year or two after I've had a bit of time to feel more assured about my direction. Many of my funds are in index funds weighted in certain ways that frankly I don't fully understand or low expense actively managed funds....thus the education aspect. Some of the funds are actively managed with slightly larger expenses which I've voiced my discomfort with. However I trust my advisor and do plan on easing into this. I should be FI within 3 years and by then I'll be managing my funds fully. For now it seems to make sense to wade into the role a bit slowly while I decide between options like sticking with fidelity, going to Vanguard, using Betterment, etc. I appreciate the responses. I do see a role for a good CFP for those less savy, confident, or just less willing to figure it out. But I also agree that living in ignorance is no good idea either. Thanks for the thoughtful replies so far...and Please keep them coming.


You sound like you're about where we were two years ago when we started to take control of our investing/early retirement planning.  In my opinion, a financial advisor could bring you value in one of two ways.  1.)  You know what to do but are "too busy" to make the time to do things like setting up automatic deposits to accounts, rebalance every one or two years, etc. and you need someone to do it for you.  It is quite an expense for this as it is pretty simple.  2.)  You simply can't control your emotions and you panic in bad times or get greedy in good times and you need someone to talk you down and provide accountability to hold you to a plan.  IMO it is a lot simpler to develop a plan you fully understand and believe in, but you also have to know yourself and be honest, b/c these are mistakes that can kill you.

We like you allowed fear to stop us from managing our own investing for years.  Knowing what I know now, I can't imagine someone aside from in the 2 above scenarios to do better with an advisor than doing it alone.  Just my $.02 though.

ChrisEE

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Re: Use of financial advisor
« Reply #18 on: February 14, 2015, 01:45:35 PM »
Been reading of and on for a long time, first post though... if you are looking for a stock  picker a financial advisor isn't likely to be better than a monkey our an index fund.  Advisors are for devising an overall retirement strategy, including your income streams, tax avoidance,  wealth transfer strategies, and age/risk level.  The bar is low to call yourself a financial advisor so there are a lot of bad ones, but if you dont have the time or interest they are very valuable.  I'm guessing that most hear have the interest but I personally feel more comfortable having someone with a wealth of experience to talk things over with.  Fortunately my dad is a CFP, but I'm sure if you look anyone can find a good one.

Mostly agree with this comment except the part about not better than a monkey or an index fund.  In fact, an advisor is highly likely to be much worse.  It is extremely unlikely that any advisor has any skill at picking investments any better than you could on your own.  Even if one could, how would you know if you picked that one.  They usually have conflicts of interest to place you in higher expense, less tax-efficient funds.  You will be guaranteed to pay a fee for this "service".