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Do You Use A Financial Advisor?
Old 04-21-2013, 04:37 PM   #1
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Do You Use A Financial Advisor?

Greetings all,

I am new here and would like to get the forums general consensus on the use of financial advisors.

I have one now, he charges 0.5% of my portfolio value annually. In terms of performance, I have been pleased with the results. I am wondering if I would be better off working with a company like Vanguard or Fidelity directly?

What are the approaches that you folks are most comfortable with?

Thanks in advance.
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Old 04-21-2013, 05:15 PM   #2
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I did a one-time consultation with an advisor when I started seriously investing. It was a nice confirnation and gave me some credibility with DW, but I wouldn't recommend it for everyone.

0.5% is not terrible if you are happy with what you are getting. Hopefully that is individual stocks for the most part, and not a collection of fee-charging mutual funds. If it's a buy-and-hold portfolio of funds I'd do it yourself.
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Old 04-21-2013, 05:20 PM   #3
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Welcome to ER.org. Here's a recent poll that may provide some insight into your question, the poll and the replies. However, members here are unlikely representative of the general population at all. Poll: Do You Use A Financial Advisor? Definitions in post #1.
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Old 04-21-2013, 05:28 PM   #4
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It depends on a host of variables.
It sounds like you use a fee based planner. Is this because you are uncomfortable with financial matters?
Does he/she have you in no load, low cost funds such as Vanguard index funds or some of the Fidelity index funds?
Does he/ she have you widely diversified across stock categories, bonds, and possibly REITs or other alternative investments?
If so a planner could be worth the cost. The rate you are being charged is probably fair if you have a good advisor.
If not...you are almost certainly getting fleeced or could simply do better on your own following simple investment strategies espoused by John Bogle, Paul Merriman and others.
All in all your question is a difficult one to answer since there are so many variables and people's financial needs and interests are so different.
Best wishes!
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Old 04-21-2013, 05:42 PM   #5
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I am wondering if I would be better off working with a company like Vanguard or Fidelity directly?
Yes, you probably would. Assure your advisor doesn't have your money in high-fee investments, read up a bit (here, at Bogleheads, etc) and then take over doing this yourself after you're comfortable. .5% isn't as bad as it might be, but the $$ you give the advisor should be working for you instead. Per your intro post, you'll be retiring this year. If you plan to get your spending money by withdrawing about 4% of your portfolio each year, then instead you'd only be able to take out 3.5% after paying him. That's a 12% reduction in you available cash, quite a hit when you'll be able to do as well on your own.

Welcome to the board. As Midpack suggested, see the recent poll that addressed your question.
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Old 04-21-2013, 05:43 PM   #6
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You will find a variety of opinions but it all depends on what you are getting for your money. Charging by percent of assets under management is a model developed for those who are getting ACTIVE management, seeking out the best stocks, knowing when to holder sell them, etc. THose are time consuming endeavors,that do indeed grow along with the size of a portfolio. I do not believe any manger can CONSISTENTLY provide returns using ACTIVE management so I would be skeptical,that on the long run, such a fee is worth paying. As PASSIVE investing is much less work intensive and essentially independent of portfolio size it makes ZERO-repeat ZERO sense to pay someone to manage your portfolio in passive investments by a percentage of assets fee. It takes the same amount of work to divide up $1million dollars among index funds according to an asset allocation as it does to do $5 million...but at 0.5% fee that will be an extra $20,000! Every year.
HOW much MORE does the advisor gain for you? Most stock funds over the long run of,history can get you a 5% real gain. (above inflation). SO what is the advisor doing for you? Is the advisor putting you into more expensive or riskier funds to get a higher return than that historical return? HOW MUCH HIGHERare the benefits? if 2% real, that means paying them 25% of the advantage...if the advantage is real...which I seriously doubt. in the long run, it is a very rare individual who can outperform the indices...so,why pay them 10% of your gains that you could get anyway?
I do use an advisor. He charges a flat by the hour fee which currently amounts to 0.09% of my assets under management. As my portfolio grows, that percentage will drop lower. In exchange for the fee I get access to DFA index funds, which I believe are the best and worth the tiny added cost. I also get guidance on tax efficiency in allocating my funds.
Without the advisor I would not be able to get the DFA funds, but I could learn to do the tax thing on my own. If you have a large enough portfolio such advice becomes a paltry sum to pay...smaller portfolios the calculus is less clear.
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Old 04-21-2013, 06:48 PM   #7
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Wow, you folks are great! Thanks for all the great feedback. I am going to start researching some of your recommendations now.
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Old 04-21-2013, 08:55 PM   #8
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Originally Posted by samclem View Post
Yes, you probably would. Assure your advisor doesn't have your money in high-fee investments, read up a bit (here, at Bogleheads, etc) and then take over doing this yourself after you're comfortable. .5% isn't as bad as it might be, but the $$ you give the advisor should be working for you instead. Per your intro post, you'll be retiring this year. If you plan to get your spending money by withdrawing about 4% of your portfolio each year, then instead you'd only be able to take out 3.5% after paying him. That's a 12% reduction in you available cash, quite a hit when you'll be able to do as well on your own.

Welcome to the board. As Midpack suggested, see the recent poll that addressed your question.
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Old 04-22-2013, 04:34 AM   #9
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I did a one-time consultation with an advisor when I started seriously investing. It was a nice confirnation and gave me some credibility with DW, but I wouldn't recommend it for everyone.
We're in the midst of a one year contract with an adviser, for that specific purpose: To confirm and refine my own approach, and assure my spouse that I'm doing a decent-enough job in that regard.

Quote:
Originally Posted by Animorph View Post
0.5% is not terrible if you are happy with what you are getting.
I refused to even consider a percent of assets arrangement; I'm paying a flat fee, $2k, for a year of analysis. (It should be noted that fund-picking is neither included nor anything I would want assistance with.)
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Old 04-22-2013, 08:39 AM   #10
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I used a FA once about 8 years ago. At least I think that's what he can be considered. He was one of Dave Ramsey's recommendations. It was free and I thought worth an hour of my time to see how I was doing. After providing the necessary information he cranked out a very nice hard bound analysis and recommendation book a few days later. Even with my limited understanding of things financial he said I was in great shape with good investments and should have no problem being secure in retirement. That being said he did have suggestions on where I might consider transfering my investments and that he could help me with that. At the time I was invested in no load MFs and the suggested load funds that I was not familiar with didn't appeal to me so I thanked him and went home.

We are retired now and although I still don't understand much of the high level financial speak here I understand enough to only invest based on what I know and the difference between need and want. It just goes to show that even a bear of little brain can find the pot of huney.

Cheers!
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Old 04-22-2013, 08:47 AM   #11
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We have been with Morgan Stanley for sometime and use them. The key is we like the guy and we have enough there to get reasonable fees. Some of our money came from my father and that was with Smith Barney. We did not like that guy at all. So, when they merged it all went to MS. The other money is in work 401.

We just did a review with them of our ER goal. To compare that I did i-orp and also used Fidelity model (the best out there IMHO) and now the FireCalc here.

As we get closer to ER I think we are going to have to get a tax adviser. I have done that myself up until now.
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Old 04-22-2013, 10:13 AM   #12
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The important thing for me is that the adviser send me a birthday card and remember my DW's name. I'm not too concerned with fees.
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Old 04-22-2013, 10:19 AM   #13
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Most of them are dumber than me and all of them care less about my money than I do. Never would use an advisor.
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Old 04-22-2013, 10:24 AM   #14
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Most of them are dumber than me and all of them care less about my money than I do. Never would use an advisor.
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Old 04-22-2013, 12:20 PM   #15
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I like the cost effectiveness of using the financial advisor looking at me in the mirror in the mornings. So far so good.
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Old 04-22-2013, 01:30 PM   #16
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I wanted confirmation that we were doing the right thing when DH's megacorp offered him a lump sum in lieu of his monthly DB pension payments. After asking a similar question on this board, someone suggested finding a fee-only advisor through NAPFA. She was very thorough and had no hidden agendas. She made some asset allocation rebalancing suggestions within our 401(k) plans, and she's very fond of Vanguard's Wellington & Wellesley for $ outside our 401(k). She also does taxes, so I'll probably use again her in a few years because I'm going to need tax strategy help as I get closer to my retirement. I don't need her services every year, but it's good to know she's there.

Her fee was incredibly reasonable for what we got - flat fee, not based on our portfolio.

Good luck, and welcome!
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Old 04-22-2013, 02:49 PM   #17
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..........she's very fond of Vanguard's Wellington & Wellesley for $ outside our 401(k).........
Generally you want bonds held within a 401(k) or IRA. Since Wellington and Wellesley each have a good bit of bonds, wouldn't it make sense to hold them within tax deferred accounts?
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Old 04-22-2013, 03:27 PM   #18
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Fairbanks, just kidding. Welcome to the board. If you'd like to discuss FP's, PM me.
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Old 04-23-2013, 04:05 PM   #19
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As a rule, I don't use a financial planner. The only exception to this is was the year before retirement, I used Vanguard's planning service. They basically verified the plan I had in place.

I'm comfortable selecting my own portfolio (a few diversified, no-load, low expense ratio funds). Technically this is easy to do. However, I have to continually fight the urge to fiddle and fine tune things.

There's a lot of research that shows that a large group of individual investors do significantly worse than the market. They tend to act on emotion, buy the fund of the moment when it is high, and then panic when it drops and sell low. If you're someone who can't keep hands off or is likely to panic when times are bad, a good, low cost, fee only planner can help you from making the wrong moves when the markets are in an uproar. I you can't remain unemotional when things turn sour, then you need to hire someone who can. That is the only reason that I'd consider hiring a planner.
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Old 04-25-2013, 03:40 PM   #20
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You guys are all of the advisors that I will ever need. In addition to myself.
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