Certain amount of money where using a financial adviser makes sense

[Davids]

Most of us know not to use financial advisers because of high fees they charge and simply using low fee vanguard funds are better. But is there a certain level of money or networth where using a financial adviser would make sense. Like I feel if I won $1M I could still manage it but if I got more than that then I wonder what I would do...

[Catbert]

I think the difference in investing 1 million and 10 million is just a decimal point issue, e.g., instead of  800K in S&P 500 you put 8 million.

Think of all the suddenly rich athletes who use a "professional" to invest for them.  How many of them invested in gold futures, fancy real estate deal, triple mocha frappuccino commodity trading or similar "sophisticated" investments?  And how many end up broke and suing the "professional". 

[fattest_foot]

I think the difference in investing 1 million and 10 million is just a decimal point issue, e.g., instead of  800K in S&P 500 you put 8 million.

That's how I feel about it too.

I suppose there might be a number high enough that you're too big a player; maybe in the billions? But anything under $500M and I'd probably do the same thing.

My allocation might change to be more conservative (wealth retention vs growth), but I don't need someone skimming off the top to "diversify."

I remember from one of my college classes that it only takes about 15 stocks to properly diversify a portfolio so you're only left with market risk. An index fund accomplishes way more than that. After that, it's just personal preference.

[MayDay]

I might be more inclined to see a flat fee planner, just to get a second set of eyes. At that point paying 1k I'd a drop in the bucket.

Or maybe a really good accountant instead.

[VoteCthulu]

At some point it pays to hire someone to create and manage your own index by buying and selling the individual stocks in order to capture losses and reset cost basis, as well as optimize other tax situations like foreign tax credits, etc.

I don't know what that point is, but it's probably at least $10 million, which is more than I expect to ever have.

[BGordon]

Simple financial advisor investing in the market, probably not.  However, if you have enough money, other investment opportunities can open up (i.e. Venture Capital), so maybe.

[checkedoutat39]

Most of the better private equity managers require initial subscriptions on the order of $1-5 million. For the very best known (eg Sequoia) there's a line and you ain't getting in soon.

Despite all the fees, private equity *is* further out on the efficient frontier, so it does let you capture the liquidity and volatility premia. You're usually locked up for 7-10 years.

Private equity is still equity, though, so will usually follow the stock market with greater volatility and a year or two lag.

With real estate investments above a few million you can buy into commercial buildings, housing developments, apartment complexes etc. That is, different things with different return streams than if you're just buying houses.

So a few million to PE, a few million to RE, each maybe 10-20% of your portfolio gives you an overall portfolio size north of $10 million (your answer). You're dealing with multi-family offices here. Below that just pick your allocation and index.

Hedge funds... most of the larger funds nowadays are primarily vehicles to make the managers rich. Source: used to work in the business.

[MDM]

See Are Bogleheads in the minority on the use of investment advisors? - Bogleheads.org for related discussion.

[boarder42]

i may end up putting my money with one as part of a will after I die if my wife doesnt care to learn how my systems work.  Would be easier for her to manage if someone else managed it.

b/c lets be honest the systems and tax knowledge we utilize and gain around here almost have to be part time hobby and arent exactly the easiest of things. 

[triangle]

A robo-advisor may be a good option for someone needing help investing a large nest egg. As they are targeted for the so-called mass affluent investor.

[bogart]

I think I'll be inclined to start to work with a CFP when I'm between 50 & 60, because I'm clear that if I live long enough (and/or experience mental decline, but that's more likely as I get older), it's possible that I'll need professional help managing my money.  And by then, I also hope to have enough stashed that an hourly fee will be a drop in the bucket of the total value of my investments.  I figure starting early-ish (relative to what we typically think of as "old age") will help me find someone I am comfortable working with and mean our professional relationship will endure long enough that they'll have some clue about who I am and what I value.  I may also involve family in this, but the members of my family I trust most in terms of "who I am and what I value" are not the members of my family who understand investing well.  Having a fiduciary CFP in the mix seems worthwhile to me.   

[aceyou]

I think it makes a difference how you define the question. 

Is there a point where it makes sense to pay a financial advisor based on assets under management?  In my opinion, probably not.  If anything, the more assets you have, the less sense this makes.

Is there a point where it makes sense to pay a fee only financial advisor to look over your finances and make recommendations?  Yes, probably.  However, I don't think I'd primarily base that decision on wealth level, but rather on your life situation. 

A few Hypothetical Examples:
- You're a year out from retirement.
- Your kids are entering the college years.
- You are going through a divorce. 
- You receive a large windfall, perhaps through an inheritance. 

There are lots of times when I could see a fee-based financial advisor being worth the fees they charge. 

[use2betrix]

Some people would rather spend their time growing their incomes than learning about investments. Similar to why some people hire accountants or lawyers.

No, CFP's aren't for everyone, but they certainly add value to some. For some, when you start hitting certain income/net worth values, your time becomes more valuable.

Heck - I get full blood panels done a couple times a year. I set them up online, go in myself, and get the results. I can interpret them pretty well through research I prefer to do on my own. That doesn't mean people who need a doctor to interpret the results are foolish or incapable.

[dbm]

I think you hit the nail on the head, use2betrix. It's not how much money you need, but how much time you have.

I'm guessing most people have the time to research where to invest and what structures to use. People who don't or don't find it fun,a good fp will be worth it, a good example is someone who is saving or has investments, but doesn't understand they could save much more than the adviser's fee by using retirement accounts, or setting up trusts, etc.

I know people who think the stock market is just the same as betting at the casino and leaves all their savings in cash. They probably won't change unless someone with a nice necktie and a piece of paper mounted on the wall explains it to them.

[Goldielocks]

I think when you can pay $40k or more for a financial planner / tax / investment advisor per year, you can really make it work for you.  e.g., $2 Millio plus in assets.

At this level, there is time for a professional team to advise you, CPA, TAX, Estate planning, Investment Advising, and you are looking for tax shelters and business investments beyond stock markets, and your investments are more than various retirement and education savings accounts..   This is the point where a tax advisor may start to save you more than you pay annually.

[retired?]

I think it makes sense to pay for advice 'piecemeal' rather than a % of assets.  If you need to understand something that is unfamiliar...new investment class to you, etc.  Certainly tax advice like someone mentioned.

But, I'll never pay an 'active manager' to invest my money.  Worked in investment management and, while there are a lot of smart people, they don't really know what's going to happen next anymore than you....well, maybe a little.

[Villanelle]

I don't think I'd pay someone to invest for me at any level of wealth.  But I'd certainly hire someone to advice me on taxes and related issues.