Am I crazy to consider paying advisor fees?

[RonBoyd]

Only about $120k -

Yeah, chump change.

 

[Bimmerbill]

My finance professor, one of the best and most entertaining profs I've ever had, said hire an advisor if you need someone to hold your hand.

 

[saluki9]

I think we of the forum tend to forget that there is a large swath of the populace that is positively phobic about money and investments. They view it as mysterious and/or scary and therefore best left to experts (the way I feel about plumbing and electric wiring). They will never feel comfy managing their money and most won't dream of it.

I think most of these people either get fleeced, leave a lot of money on the table, or blow themselves up, which is a shame. I toy with the idea of a financial planning business when I ESR, but I am not sure I want to market against the flash b@stards and liars. What would be a reasonable flat annual fee? A thousand bucks a year regardless of portfolio size sound reasonable?

Brewer is correct. There is a large part of the population (including many wealthy people) that just are afraid or unwilling to learn about investments. While it might be nice for people here to talk about not having to pay people for investing help, the fact is that a lot of individuals make very poor decisions. It doesn't matter if you're saving 100bps a year if you panicked and sold all your equities in Feb of 2010.

In theory then an hourly fee only advisor would be a perfect solution for those who are slightly more comfortable. The problem here is that it's a near impossible business to make profitable. The overhead of being a registered investment advisor (fee based) is significant on the order of $50,000 a year for filings, registration, record retention, and liability insurance. I can't see how you could make it on $1K per client unless you had a lot of money to burn. In addition, as you mentioned most of the effective marketing takes place on the golf course, church, etc where it is a bloodsport. Especially when a large part of this population still wants to believe in the role of the advisor as somebody to beat the market. What a good advisor brings is perspective from having seen hundreds or thousands of situations. They keep people (or try) from making stupid mistakes.

 

[FinanceDude]

I suspect I know the response I am going to get, but need some advice. I just met with a Financial Advisor at Chase who would charge fees to advise and actively manage my portfolio with the following rates:
first $250k 1.6% fee
next $250k 1.35% fee
next $500k 1.1% fee
over $1M .85% fee

By paying these rates I pay no additional fees to purchase any individual investments and they are not incented to sell me any particular funds or make me want to trade often just to make commissions.

I am about to sell a second house which will bring in $575k lump sum cash. Plus I have other investments currently with Fidelity at around $425. So, we are talking about $1M to manage for now. Probably add another $1M over the next few years.

Per advise from this site, I am starting to read some books - Asset Allocation and Boglehead. Part of me says I should just do what the book says and diversify, purchasing no load funds (such as Vanguard) where I can and rebalance myself every 6 months. But part of me says that I really do not know what I am doing and I should pay the fee for a little while and learn. According to the financial advisor, of course, the fee would pay for itself since my portfolio would earn more than the 1+% fee.

OK ... let me have it ...

Chase is way overpriced and has limited options to invest in. Ask the advisor if he can sell ETF's and charge you 40 bp on the $1 million......I would be interested in what he says.............

 

[FinanceDude]

I think we of the forum tend to forget that there is a large swath of the populace that is positively phobic about money and investments. They view it as mysterious and/or scary and therefore best left to experts (the way I feel about plumbing and electric wiring). They will never feel comfy managing their money and most won't dream of it.

I think most of these people either get fleeced, leave a lot of money on the table, or blow themselves up, which is a shame. I toy with the idea of a financial planning business when I ESR, but I am not sure I want to market against the flash b@stards and liars. What would be a reasonable flat annual fee? A thousand bucks a year regardless of portfolio size sound reasonable?

Good luck with that.between E&O insurance, licenses on all the state you sell in, etc, etc...........you are looking a bare bones cost of probably $12-$15,000 a year. based on what I read here, likely NONE of your clients would be like the folks on here, who think a free plan from a Vanguard CFP or "advisor" is unbiased and meaningful..........

 

[FinanceDude]

NM.........

 

[clifp]

Good luck with that.between E&O insurance, licenses on all the state you sell in, etc, etc...........you are looking a bare bones cost of probably $12-$15,000 a year. based on what I read here, likely NONE of your clients would be like the folks on here, who think a free plan from a Vanguard CFP or "advisor" is unbiased and meaningful..........

When I first joined this forum, I had signed up for on-line Certified Financial Planner course, with the thought of doing exactly what Brewer was discussing charging $1,000 for the initial fee and than $500/year. After discussing it with FD, Sarah, as well as former boss who is a CFP, I realized that it isn't economically viable.

In truth helping somebody set up a Couch Potato portfolio, nagging them every year to rebalance, running numbers on FIRECalc and teaching them how to use it, will save 90% of upper-middle income folks way more than $1,000.

Convincing them that investing can be that simple and getting someone to pay you a $1,000 for that advice is much much harder.

 

[LOL!]

DW is one of those that is not suited to managing money. She heard about a Morgan Stanley advisor at work and he met with us last week. DW thinks he is the greatest, so I gave in and we rolled over our IRA's to him. Only about $120k - so we'll see how he does with that. Morgan Stanley charges 1% of assets as 0.25% per quarter. He said he uses mostly index funds. Heck I can do that. I'm going with Vanguard for my 4001k rollover and other stuff.

Here's a recent thread about a Morgan Stanley client that perhaps your wife might not mind reading: Bogleheads :: View topic - Help me save mother-in-law from Morgan Stanley

 

[clifp]

Here's a recent thread about a Morgan Stanley client that perhaps your wife might not mind reading: Bogleheads :: View topic - Help me save mother-in-law from Morgan Stanley

If my ethics were lower, I think I could be much wealthier.

 

[Ronstar]

Here's a recent thread about a Morgan Stanley client that perhaps your wife might not mind reading: Bogleheads :: View topic - Help me save mother-in-law from Morgan Stanley

Thanks! - I need some ammo like this to persuade DW that Morgan Stanley isn't the best route. I found it interesting that the person in the thread is questioning loads as the source of "discretionary fees for the quarter". I asked our Morgan Stanley guy and he said the only fees were the 1% of assets fee - with no fees for trades.

I'm setting up an account through Vanguard that I'll use to compare results to Morgan Stanley's results in our IRA's.

 

[saluki9]

Thanks! - I need some ammo like this to persuade DW that Morgan Stanley isn't the best route. I found it interesting that the person in the thread is questioning loads as the source of "discretionary fees for the quarter". I asked our Morgan Stanley guy and he said the only fees were the 1% of assets fee - with no fees for trades.

I'm setting up an account through Vanguard that I'll use to compare results to Morgan Stanley's results in our IRA's.

Wow, talk about some drama queens in that thread!

You're MS rep is correct. you can't charge a fee AND charge commissions (loads). Many large brokerage firms use load funds with the fees waived.

 

[FinanceDude]

If my ethics were lower, I think I could be much wealthier.

Getting back to the OP and ChaseBank. let's say he invests the $1,000,000 at 85bp, or $8500. Forget about the advisor for a minute, what does the BANK make? 65% of that $8500 or $5525 of that fee that year and every year. So the rep gets W-2 income of $2975 that he gets to pay taxes on. A bank rep doesn't make a 90% payout.............

I realize noone here would pay a rep even $2975 to manage their $1 million portfolio, but based on the MS post on Bogleheads, it shows most folks don't know how reps are compensated. I doubt that bank rep is driving a Ferrari and stealing $50 billion like Bernie Madoff did.........

 

[kumquat]

I suspect I know the response I am going to get, but need some advice. I just met with a Financial Advisor at Chase who would charge fees to advise and actively manage my portfolio with the following rates:
first $250k 1.6% fee
next $250k 1.35% fee
next $500k 1.1% fee
over $1M .85% fee

Getting back to the OP and ChaseBank. let's say he invests the $1,000,000 at 85bp, or $8500. Forget about the advisor for a minute, what does the BANK make? 65% of that $8500 or $5525 of that fee that year and every year. So the rep gets W-2 income of $2975 that he gets to pay taxes on. A bank rep doesn't make a 90% payout.............

I realize noone here would pay a rep even $2975 to manage their $1 million portfolio, but based on the MS post on Bogleheads, it shows most folks don't know how reps are compensated. I doubt that bank rep is driving a Ferrari and stealing $50 billion like Bernie Madoff did.........

Methinks you miscalculated a bit.

1.60% of $250K = $4,000
1.35% of $250K = $3,375
1.10% of $500K = $5,500

Total $12,875 or about 50% more than $8500.

 

[haha]

I think we of the forum tend to forget that there is a large swath of the populace that is positively phobic about money and investments. They view it as mysterious and/or scary and therefore best left to experts (the way I feel about plumbing and electric wiring). They will never feel comfy managing their money and most won't dream of it.

I think most of these people either get fleeced, leave a lot of money on the table, or blow themselves up, which is a shame. I toy with the idea of a financial planning business when I ESR, but I am not sure I want to market against the flash b@stards and liars. What would be a reasonable flat annual fee? A thousand bucks a year regardless of portfolio size sound reasonable?

From the POV of the client, yes. From your POV no.

 

[audreyh1]

livesoft wrote:

Hmmm, churning. Did she give permission to make the trades? If so, she should rescind permission now. I do not know how to bring a case for churning.

She said that sometimes he [Morgan Stanley FA] calls and she gives him permission to "move things around" but she doesn't think she gives permission as often as it seems like it happens.

Watch out for this! Red flag!

Audrey

 

[audreyh1]

I think we of the forum tend to forget that there is a large swath of the populace that is positively phobic about money and investments. They view it as mysterious and/or scary and therefore best left to experts (the way I feel about plumbing and electric wiring). They will never feel comfy managing their money and most won't dream of it.

I think most of these people either get fleeced, leave a lot of money on the table, or blow themselves up, which is a shame. I toy with the idea of a financial planning business when I ESR, but I am not sure I want to market against the flash b@stards and liars. What would be a reasonable flat annual fee? A thousand bucks a year regardless of portfolio size sound reasonable?

What is so sad about this is that there are so many reasonably good "one fund" solutions out there with fairly low ERs. Balanced, target retirement, or whatever. You just put you money in and not worry about asset allocation or anything.

But I guess it's not that easy for the nervous novice to find these solutions and to know that they are a "good deal" for their circumstance.

To me the main issue with FAs seems to be the cost. The conventional percentages paid seem way out of proportion to the service rendered. If the conventional % fees (at least for >$1M accounts) were much lower, it wouldn't be such an issue.

Um - that is if the issue of fiduciary responsibility is also addressed. And the tendency to put clients in funds with high ERs due to conflict of interest. And the temptation to "churn" accounts.

Audrey

 

[FinanceDude]

Methinks you miscalculated a bit.

1.60% of $250K = $4,000
1.35% of $250K = $3,375
1.10% of $500K = $5,500

Total $12,875 or about 50% more than $8500.

Uh no......I am familiar with how Chase Bank charges clients...........

It should have been posted as:

$0 - $249,999 = 1.60%

$250,000 - $499,999 = 1.35%

$500,00- $999,999 = 1.10%

$1 million = .85%

This is how fees are charged, it is not divided out into pieces of a pie like you stated. Perhaps the OP was confused on the fee structure........

No comment on how much the rep makes versus the bank? Interesting..........

 

[FinanceDude]

Watch out for this! Red flag!

Audrey

We don't know the nature of the case so it is difficult to call this churning. There are two types of accounts, discretionary and non-discretionary. Assuming that churning is going on without material facts is just speculating.........

It is not hard to get on the FINRA website and download a complaint form and fill it out and submit it...........

 

[FinanceDude]

Um - that is if the issue of fiduciary responsibility is also addressed. And the tendency to put clients in funds with high ERs due to conflict of interest. And the temptation to "churn" accounts. Audrey

A lot of clients are put into high ESR's because that's what the investment platform of approved funds has on it. A bank rep can't just sell any fund he wants, neither can an Ameriprise rep. Not using a rep is fine, but misinformation is another matter..........

 

[audreyh1]

We don't know the nature of the case so it is difficult to call this churning. There are two types of accounts, discretionary and non-discretionary. Assuming that churning is going on without material facts is just speculating.........

It is not hard to get on the FINRA website and download a complaint form and fill it out and submit it...........

This woman was getting frequent calls to recommend "move something around" and apparently there were several moves a month and she didn't think she had agreed to that much. Red flag to me! - a red flag to look more carefully and why the FA is doing it.

Audrey

 

[audreyh1]

A lot of clients are put into high ESR's because that's what the investment platform of approved funds has on it. A bank rep can't just sell any fund he wants, neither can an Ameriprise rep. Not using a rep is fine, but misinformation is another matter..........

Same difference in my mind - whether the motivation is coming from the FA himself, or the brokerage is immaterial. There is a reason it is a platform of "approved funds".

Audrey

 

[Earl E Retyre]

Originally Posted by kumquat
Methinks you miscalculated a bit.

1.60% of $250K = $4,000
1.35% of $250K = $3,375
1.10% of $500K = $5,500

Total $12,875 or about 50% more than $8500.


Uh no......I am familiar with how Chase Bank charges clients...........

It should have been posted as:

$0 - $249,999 = 1.60%

$250,000 - $499,999 = 1.35%

$500,00- $999,999 = 1.10%

$1 million = .85%

This is how fees are charged, it is not divided out into pieces of a pie like you stated. Perhaps the OP was confused on the fee structure........

I believe kumquat is correct. I initially interpreted it as ... if my total invested assets were over $1M then it would only cost .85% for the entire investment ... but the Chase FA corrected me and said that it was cumulative and I would pay 1.6% for the first quarter million, 1.35% next quarter, etc. So, I believe Kumquat is correct in what the fees would be. For whatever that is worth.

 

[FinanceDude]

Same difference in my mind - whether the motivation is coming from the FA himself, or the brokerage is immaterial. There is a reason it is a platform of "approved funds".Audrey

Really? Blame the rep when he can't sell Vanguard or Fidelity? The platform comes from the Investment Policy Comittee, senior management types that don't ask the rep what he/she thinks........

You are entitled to your opinion, of course, but there tends to be a lot of emotional content in these threads and the facts get left behind in a lot of ways.....of course that is MY opinion........

 

[FinanceDude]

I believe kumquat is correct. I initially interpreted it as ... if my total invested assets were over $1M then it would only cost .85% for the entire investment ... but the Chase FA corrected me and said that it was cumulative and I would pay 1.6% for the first quarter million, 1.35% next quarter, etc. So, I believe Kumquat is correct in what the fees would be. For whatever that is worth.

Well, that is interesting.........I know several higher level folks at Chase and they have done it the way I laid out for 7-8 years........

Best advice? Stay far away........

 

[clifp]

Well, that is interesting.........I know several higher level folks at Chase and they have done it the way I laid out for 7-8 years........

Best advice? Stay far away........

I don't know FD your way seems odd. If I have $999,999 I pay $11,000/year if I have $1,000,001 I pay $8500. That isn't how most fee structures work I've seen in the financial world.