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Old 10-20-2010, 01:48 PM   #41
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It is a financial advisory company.
Well, I guess they have high overhead to cover or something.
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Old 10-20-2010, 02:44 PM   #42
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I should probably expand on a few more details. The advisor fee is 0.9% and there is another "adminstrative fee" of 35 basis points for a total of 1.25% of the assets. The recommended funds are no loads and don't appear to have any particulary high expense ratios. I am thinking of retiring soon and the FA fees would be almost as much as we spend each month.
Make sure all of the investments are mutual funds and one of them is not a variable annuity.

Even .9% is high.
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Old 10-20-2010, 07:10 PM   #43
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In my humble opinion 1% of $3mm sounds too high for an advisor fee just for setting up an asset allocation of mutual funds, which I think the general wisdom of this board advocates. I thought I would provide 2c worth of thoughts as to how I personally am getting value from an advisor.

At the beginning of this year, I felt my education could benefit from a professional financial advisor mainly because I needed to learn quite a lot: I had a no bonds, v.aggressive almost 100% small stock w some gearing and REIT mutual fund allocation and they would be focussed on our specific situation (current net worth allocation, priorities, goals, real estate and other biases) and be able to help me optimize return/risk and prevent me from making big mistakes. Unfortunately, I felt none of my friends or family (husband so totally not interested) were appropriate, so I yelped for a fee only advisor $700 per year... but I later find out he charges 1% total for funds he actively manages.

It is too soon to tell yet - I have not suddenly been transformed into an investment guru (despite my avid reading of this and other forums), but so far I feel I have received a lot of value meeting almost monthly for 1 to 1.5 hours. As previously mentioned - a good financial advisor checklist (not necessarily performed by them) includes many life aspects e.g. advanced health care directive, wills, tax, refinance of line of credit. However, the main benefit for me is it helps me work out how to make decisions - he addresses (ongoing) my thinking errors. I am a spreadsheet/numbers driven person, but find a lot of investment decisions involve crystal ball guestimates that cannot be answered by a simple spreadsheet e.g. will beach front property or cashflowing property or mortgage payoff or stock allocation return more over the next decade? I definitely treat him as one advisor (also accountant, forums) and have said no and deliberately delayed acting on some of his advice, but was quite happy to see how he handled $100k kinda like one portion of my as yet informal asset allocation - I expect him to come out better than some of my other choices, but not as well as my best returners.

On his side - he has $700 plus $100k under management since Mar. It has single stocks as well as funds I would never have purchased. I intend to watch and compare for a while - years (he was down until recently but so were/are some of my other investment choices).

In summary, I think I get value from my financial advisor because he fills in some of my many financial management gaps... your mileage may vary.... especially if you are like the top posters on this board who have no obvious gaps.
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Old 10-20-2010, 07:10 PM   #44
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Check out the Boglehead forum. Most forum members prefer rolling their own without the aid of a FA. However, one of the forum members is a FA by the name of Rick Ferri who is a big proponent of Vanguard Funds and I think he charges about .25 over and above the the expense ratio of the funds themselves. He has written a number of investment books - All About Asset Allocation - might his most famous book. I read it and it is easy to follow and quite informative.His company goes by the name -Portfolio Solutions, if interested google it. He also has been interviewed by Morningstar.

If you choose to go without a FA, you can check out the Boglehead's recommended investment books.

For the record, I am rolling my own.

Good Luck!
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Old 10-20-2010, 10:41 PM   #45
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However, one of the forum members is a FA by the name of Rick Ferri who is a big proponent of Vanguard Funds and I think he charges about .25 over and above the the expense ratio of the funds themselves.
So, WHY would anyone PAY Rick Ferri .25% a year to manage a DIY portfolio? ......
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Old 10-20-2010, 11:15 PM   #46
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So, WHY would anyone PAY Rick Ferri .25% a year to manage a DIY portfolio? ......
Maybe so he can hold their hands and talk them out of stupid decisions from listening to too much CNBC. For many that would be money very well spent.

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Old 10-21-2010, 06:50 AM   #47
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Maybe so he can hold their hands and talk them out of stupid decisions from listening to too much CNBC. For many that would be money very well spent.DD
I think a lot of FAs do that..........
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Old 10-21-2010, 08:25 AM   #48
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I think a lot of FAs do that..........
YES.
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Old 10-21-2010, 09:30 AM   #49
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Some just do it cheaper than others.
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Old 10-21-2010, 09:33 AM   #50
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Some just do it cheaper than others.
So, because Rick Ferri "only" charges .25% and uses only Vanguard Funds, he's "ok"?? You crack me up!
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Old 10-21-2010, 09:36 AM   #51
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I'm here to entertain you.

Nope, I don't pay or use Rick. But as one poster said, some people want their hands held and isn't it better to pay .25 of your 4% than 2% of your 4% SWR. I don't think anyone needs a 50% partner in their money, well maybe in your case it would be worth it. (heh)
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Old 10-21-2010, 09:44 AM   #52
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So, WHY would anyone PAY Rick Ferri .25% a year to manage a DIY portfolio? ......
Financial decisions take time to research. Could be selling a house, refinancing a house, college savings strategies, tax credits for college, estate planning, tax planning, divorce settlements (and this list is longer than what I typed).

Two choices, research it yourself, or hire someone which knows the ins and outs of each of above, and has done it before.
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Old 10-21-2010, 09:48 AM   #53
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Financial decisions take time to research. Could be selling a house, refinancing a house, college savings strategies, tax credits for college, estate planning, tax planning, divorce settlements (and this list is longer than what I typed).

Two choices, research it yourself, or hire someone which knows the ins and outs of each of above, and has done it before.
Not arguing with you, I see it that way too. I used to share true anonymous stories of what happens in the field, and I don't think most people believed them, so I stopped doing that........
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Old 10-21-2010, 10:45 AM   #54
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Does anyone here use/recommend Dan Wiener's Vanguard Portfolio's?

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Not arguing with you, I see it that way too. I used to share true anonymous stories of what happens in the field, and I don't think most people believed them, so I stopped doing that........
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Old 10-21-2010, 10:45 AM   #55
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Financial decisions take time to research. Could be selling a house, refinancing a house, college savings strategies, tax credits for college, estate planning, tax planning, divorce settlements (and this list is longer than what I typed).

Two choices, research it yourself, or hire someone which knows the ins and outs of each of above, and has done it before.
The chances of getting an FA who is adequate in all these fields is remote, and besides, there are people who specialize in each one of these things. They are called attorneys, and they charge by the hour, not 1 % of your liver.

I do see why FA is a very appealing business for the FA. Almost no research- after all he is buying mutual funds, products that were designed to replace custom portfolio management for the masses. So he is free to spend most of his time on business development and selling. Now if the client hopes to exist on a gross 4% from his mixed portfolio (ambitious goal under current conditions) and he gives up 1% to the FA, that means he can live on 3%, or thinks he can. Say the FA has a 50% net profit margin in his business, but he wants to live a bit better than the client. So his net profit is 1/2% of his clients assets per year. With twelve clients he nets 6% of these clients's assets, or exactly twice what the clients each make. And who bears the risk?

Not too shabby for work that requires moderate formal schooling.
And I say this with absolute respect for the FAs on the board. To make a good living on your own, without taxpayer assistance, or union or guild protection takes ability and drive.

Clients likely are like the OP. They might have had little financial experience in their lives, and they do not trust their own judgment. So it is not like the FA needs to twist their arms. Usually the spouse will do any twisting necessary.

Ha
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Old 10-21-2010, 10:55 AM   #56
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I do see why FA is a very appealing business for the FA. Almost no research- after all he is buying mutual funds, products that were designed to replace custom portfolio management for the masses.
And to add to what Ha is saying, many FAs don't manage mutual fund portfolios but do customized Separate Account Management (SAM) accounts with equities. Most of these are managed by CFAs, not garden variety FAs (even if CFPs). FA encompasses a pretty wide swath of the business, including insurance sales folks, cold callers, etc as well as credentialed professionals with long-term track records. YMMV.
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Old 10-21-2010, 11:01 AM   #57
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Some more numbers. Based on past records, the FA estimated that his recommended portfolio (of which he will charge 1.25% per year as his fee) will deliver 1.5% better performance than my current portfolio. My current portfolio has 15% in cash right now and his recommended portfolio has 2% in cash. Simply moving money out of cash would likely close the 1.5% difference (along with changing the currently skewed asset allocation). It isn't clear to me that he is likely to generate returns that are enough to cover his fee based on what was presented to me (assuming, of course, that I change the asset allocation to something more reasonable).

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The chances of getting an FA who is adequate in all these fields is remote, and besides, there are people who specialize in each one of these things. They are called attorneys, and they charge by the hour, not 1 % of your liver.

I do see why FA is a very appealing business for the FA. Almost no research- after all he is buying mutual funds, products that were designed to replace custom portfolio management for the masses. So he is free to spend most of his time on business development and selling. Now if the client hopes to exist on a gross 4% from his mixed portfolio (ambitious goal under current conditions) and he gives up 1% to the FA, that means he can live on 3%, or thinks he can. Say the FA has a 50% net profit margin in his business, but he wants to live a bit better than the client. So his net profit is 1/2% of his clients assets per year. With twelve clients he nets 6% of these clients's assets, or exactly twice what the clients each make. And who bears the risk?

Not too shabby for work that requires moderate formal schooling.
And I say this with absolute respect for the FAs on the board. To make a good living on your own, without taxpayer assistance, or union or guild protection takes ability and drive.

Clients likely are like the OP. They might have had little financial experience in their lives, and they do not trust their own judgment. So it is not like the FA needs to twist their arms. Usually the spouse will do any twisting necessary.

Ha
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Old 10-21-2010, 11:16 AM   #58
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My current portfolio has 15% in cash right now and his recommended portfolio has 2% in cash. Simply moving money out of cash would likely close the 1.5% difference (along with changing the currently skewed asset allocation). It isn't clear to me that he is likely to generate returns that are enough to cover his fee based on what was presented to me (assuming, of course, that I change the asset allocation to something more reasonable).
You are correct. You have to determine if you want an FA and WHY you want an FA. That decision and some due diligence might give you the answers you are looking for.
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Old 10-21-2010, 11:23 AM   #59
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I do see why FA is a very appealing business for the FA. Almost no research- after all he is buying mutual funds, products that were designed to replace custom portfolio management for the masses.



Quote:
So he is free to spend most of his time on business development and selling. Now if the client hopes to exist on a gross 4% from his mixed portfolio (ambitious goal under current conditions) and he gives up 1% to the FA, that means he can live on 3%, or thinks he can. Say the FA has a 50% net profit margin in his business, but he wants to live a bit better than the client. So his net profit is 1/2% of his clients assets per year. With twelve clients he nets 6% of these clients's assets, or exactly twice what the clients each make. And who bears the risk?
Wow, I never knew my job was SO easy!

Quote:
Not too shabby for work that requires moderate formal schooling.
And I say this with absolute respect for the FAs on the board. To make a good living on your own, without taxpayer assistance, or union or guild protection takes ability and drive.
Up until 1990 or so, a college degree was NOT required to be an advisor.............
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Old 10-21-2010, 11:38 AM   #60
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Some more numbers. Based on past records, the FA estimated that his recommended portfolio (of which he will charge 1.25% per year as his fee) will deliver 1.5% better performance than my current portfolio.
So you pay 1.25% to get an improvement of .25%?

Hell I think I can do better than that for you and I'll only charge you .5%!
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