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Old 01-25-2015, 08:15 AM   #21
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I like to think of the fees in terms of my withdrawal rate. For most of us, 2% would be 50% of our gross investment income.
Similarly, if a FA wants to charge 2% (or even 1%), and the client has a significant amount in an tIRA he can't touch right away because he is under ~59.5, the FA's fee would have to come solely from the non-IRA portion of the overall portfolio. This would raise the fee as a percentage of available funds to pay the FA.

I have told this story a few times but I mention it again (in a shortened form). Back in 2010, I was approached (poached, actually) by a pushy FIDO rep who was not authorized to try to take over as my Account Executive from another AE. Mr. Pushy wanted 1% of my portfolio (at the time about $1M) as a fee to manage it, or $10,000 a year. His fee would by far become my biggest expense and become at least 25% of my investment income. And having to pay for it from only my non-IRA portion (about $700k) would raise the effective fee to 1.4%.

I had no interest in Mr. Pushy's offer and wrote a letter to the FIDO office manager complaining about him. I got switched to another AE who is much more laid back and doesn't try to take over my account.
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Old 01-25-2015, 08:15 AM   #22
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Oh well, all the back and forth drove me to watch the video. Not much there. The guy seemed reasonable enough and I suspect that he is basically a 1%er for sizable accounts. But how the heck can anyone decide if this guy or any other FA will actually help you avoid screwing up your financial life? It seems to me that doing the due diligence needed to pick an FA is more difficult than learning the basics needed to DIY.
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Old 01-25-2015, 08:34 AM   #23
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Oh well, all the back and forth drove me to watch the video. Not much there. The guy seemed reasonable enough and I suspect that he is basically a 1%er for sizable accounts. But how the heck can anyone decide if this guy or any other FA will actually help you avoid screwing up your financial life? It seems to me that doing the due diligence needed to pick an FA is more difficult than learning the basics needed to DIY.
+1 Very well said!
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Old 01-25-2015, 08:35 AM   #24
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But how the heck can anyone decide if this guy or any other FA will actually help you avoid screwing up your financial life? It seems to me that doing the due diligence needed to pick an FA is more difficult than learning the basics needed to DIY.
The question is what are they saying they can do for you. If they are saying they can put you in assets that can beat the market, you know that is nothing but a sales pitch. If any FA could reliably beat the market, why would they waste their time with tiny $2MM or less accounts? CALPERS and the Harvard Trust would have hired him long ago. If it's market timing, you know where that usually leads. Are they going to hold your hand so you don't sell out when the market drops 50%?

I can't see what a FA that works on a percentage of portfolio fee can do to be superior to a fee-only FA or a CPA. The %FA is basically making their fee by finding people willing to be put into a cookie cutter plan while the FA calls other people to try to have them do the same.

For ~$10 buy Millionaire Teacher. Open an account at Vanguard. Put money into an asset allocation you are happy with. If still concerned or unsure, get the low cost or free Vanguard CFP financial plan. Think of all the savings. Everybody can do it.
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Old 01-25-2015, 08:51 AM   #25
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OK, let's multiply. 2% of $100.000 is $2000. Would you prepare an investment plan and take on the associated obligations and underwrite your responsibilities for less?

Ha

Maybe 2% to set-up an allocation, describing why and what. It's that ongoing 2% that gets you...


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Old 01-25-2015, 09:19 AM   #26
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Originally Posted by donheff View Post
Oh well, all the back and forth drove me to watch the video. Not much there. The guy seemed reasonable enough and I suspect that he is basically a 1%er for sizable accounts. But how the heck can anyone decide if this guy or any other FA will actually help you avoid screwing up your financial life? It seems to me that doing the due diligence needed to pick an FA is more difficult than learning the basics needed to DIY.
I am sure you remember the adage 'by the time you know enough to choose a financial advisor, you don't need one.'
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Old 01-25-2015, 12:02 PM   #27
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Similarly, if a FA wants to charge 2% (or even 1%), and the client has a significant amount in an tIRA he can't touch right away because he is under ~59.5, the FA's fee would have to come solely from the non-IRA portion of the overall portfolio.
While this is a popular thing to say in these forums, it is absolutely incorrect!

Sometimes it is amazing how much people think they know about things with which they have never dealt.

Can we at least be objective about this stuff?
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Old 01-25-2015, 01:06 PM   #28
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Maybe 2% to set-up an allocation, describing why and what. It's that ongoing 2% that gets you...


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Can they Shanghai you into staying? I've no experience, but I would doubt it.

Ha
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Old 01-25-2015, 01:14 PM   #29
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Can they Shanghai you into staying? I've no experience, but I would doubt it.

Ha

I'm the only FA that I've used, so no experience either, though I'd venture a guess that psychological "Shanghai-ing" is practiced.


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Old 01-25-2015, 04:12 PM   #30
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Very good points. I have never spent even 10 cents for financial advice, other than accounting and legal. However frequently people show up right here at this DIY site who have an FA, or are planning to consult one. So somebody wants this service. All I am saying, is that if I were in this business, I would want at least $2000 to think about this client. I think a lot of people here have never been close to the sales function in their careers. And many have never been close to any profit driven position at all. I think we once had a survey that showed that somewhere around 20-25% of members are or were public sector workers.


Ha
I guess I don't understand why financial adviser pay model should be any different than lawyers. I've meet probably 1/2 dozen times with my mom lawyer in the last decade or so. She charges about $200 hour and the issues always involve money, a house agreement between her and SO, changes to the trust, structuring a house loan for my niece. I don't think it was until a few years ago when talked about estate taxes that she realize that mom's estate was a million dollars or so. I think she charged $700 or $800 for the initial trust and I doubt we've spent more than $2,000 since then.

Independent lawyers (and CPA) also spend a lot of their finding new clients, and give away a lot 30 minute free consultation sessions also.

I am sure there are FA out there who are worth more than $200/hour I just don't believe there virtually any who are worth $2,000/hour. If they are getting 1+% on $1-$5 million and spending 1-2 hours meeting with a client once or twice a year, and twice that in prep work they easily can get away with spending less than 10 hours a year on client, and generating more than $10,000 in fees.
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Old 01-25-2015, 04:25 PM   #31
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I'm the only FA that I've used, so no experience either, though I'd venture a guess that psychological "Shanghai-ing" is practiced.


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Or put you in something with a 6% deffered sales fee, it goes down 1% per year. Personally I've never seen one that high, but it's legal.

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Old 01-25-2015, 04:28 PM   #32
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I watched the video. There is not much substance there. I can't help but notice whenever a good question is asked it is never answered directly. It is always responded with some drivel that is unrelated to the original question. The interviewer never calls him on it. Makes me wonder who is working for whom.
Gee, I just thought he learned that from some of our past and present politicians!
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Old 01-25-2015, 04:38 PM   #33
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While this is a popular thing to say in these forums, it is absolutely incorrect!

Sometimes it is amazing how much people think they know about things with which they have never dealt.

Can we at least be objective about this stuff?
Were you referring to the 72t option for an IRA? I know about that. If not, what is incorrect about what I wrote? I'm not going to simply accept what you wrote because "you said so." No source or link? Your tone was a little insulting.
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Old 01-25-2015, 05:22 PM   #34
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I believe fees can be deducted from IRAs without tax consequences. Although I have no ideas about the rules, and of course doing so you lose the benefits of tax deferred compounding. A do agree with scrabbler a link showing why he is wrong, is way better than just saying you are wrong.
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Old 01-25-2015, 05:32 PM   #35
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Are they going to hold your hand so you don't sell out when the market drops 50%?
.
I'm reminded of the reasoning DFA gives for only offering their funds through financial advisors. They don't want people buying and selling too often so make you buy through an FA who will presumably stop you from doing stupid stuff. I'm sure DFA doesn't want massive redemptions, but I've always suspected that it's a nice cozy deal between the FAs and DFA that ends up inflating the overall expense to own the funds. Vanguard's lock out period is a far more honest (and cheaper) mechanism to limit selling.
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Old 01-25-2015, 06:58 PM   #36
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I'm reminded of the reasoning DFA gives for only offering their funds through financial advisors. They don't want people buying and selling too often so make you buy through an FA who will presumably stop you from doing stupid stuff. I'm sure DFA doesn't want massive redemptions, but I've always suspected that it's a nice cozy deal between the FAs and DFA that ends up inflating the overall expense to own the funds. Vanguard's lock out period is a far more honest (and cheaper) mechanism to limit selling.
I agree. If DFA were as transparent as Vanguard they would tempt me. I have seen them adjust their funds' composition and then include that reconstituted performance in their historical performance. The biggest incident was their inclusion of precious metals but there are others. The biggest negative is that their funds are only available through a FA that load fees on their not as low as Vanguard fees.
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Old 01-26-2015, 04:37 PM   #37
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Were you referring to the 72t option for an IRA? I know about that. If not, what is incorrect about what I wrote? I'm not going to simply accept what you wrote because "you said so." No source or link? Your tone was a little insulting.
I am telling you from experience, because I have some managed accounts. All fees are taken out of my accounts, even the tax deferred ones. It's pretax money in the tax deferred accounts. It is not considered a distribution.

I don't know if all brokerages are required to offer it, but some brokerages will bill fees separately. I imagine some brokerages don't want to add billing and collection activities that don't produce any revenue.

And no, I am not talking about 72T.

You asked for a reference, so here is one: The Rap On Wrap Fees For Retirement Accounts

Just beneath Table 1:
"If you nevertheless decide to pay wrap fees from your account balance, remember these payments are not treated as distributions and are therefore not added to your income. As such, be sure not to include these payments on your tax return."

There are lots of other references available but I won't bother with them.

You don't have to take my word for it, though, and you don't have to believe the internet or these forums. I would encourage you to call a brokerage that hosts managed accounts and ask them.

Are there some really bad money managers and wrap plans? There sure are. Our portfolio returned 8.9% net last year -- over five years of withdrawals for us at our current rate. Did it beat the S&P? No, and it is not supposed to, but it is working for us. Are they right for everybody? No. Could I do it all myself? Yes, I could. But it's my money and I get to choose. Everybody else gets to choose, also. Isn't that great?

Now I'm not picking on you individually, Scrabbler. Many posters here will take every opportunity to poo-poo managed accounts and money managers. Sometimes those posters are not so well informed.

I simply do not know why this topic becomes so heated so fast. There are a lot of people in the world doing things much worse than financial people managing other people's money for a fee.

From: http://www.early-retirement.org/foru...ork&page=rules

"Excessive sarcasm, extreme belligerence, insults, profanity, extreme anger, offensive comments about race, gender, sexual orientation, religion, and national origin, are not acceptable."

This question is not directed toward you, Scrabbler, but perhaps someone will answer it, or we can just file it under rhetoric: Where are these rules when there is a "Let's All Flame The FA" thread?
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Old 01-26-2015, 05:12 PM   #38
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I can see someone paying $2000 on $100k for a plan and monitoring. That seems reasonable.

It's the $20,000+ on $1M+ that seems like highway robbery.
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Old 01-26-2015, 05:32 PM   #39
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I can see someone paying $2000 on $100k for a plan and monitoring. That seems reasonable.

It's the $20,000+ on $1M+ that seems like highway robbery.
For the record I think anything remotely close to even 1% is way too much. But people pay these fees voluntarily. I'm not going to criticize anyone too badly for this.

Sometimes what is a waste to one is a necessity to another.

I see people using the $450 service at Best Buy to reload Windows on their computers after they bugger it up. A teenager can do that in an hour. In fact it is usually teenagers that do it at Best Buy.

Some also waste money on other stuff. SIL eats out often and insists on appetizers, entree, drink, and desert. Less than half of it gets eaten and the rest is usually taken home. Once home she makes room in the fridge for the leftovers by throwing out the oldest leftovers. That stuff never gets eaten.

One thing I place a high value on is getting to make my own choices.
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Old 01-26-2015, 05:41 PM   #40
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........
From: http://www.early-retirement.org/foru...ork&page=rules

"Excessive sarcasm, extreme belligerence, insults, profanity, extreme anger, offensive comments about race, gender, sexual orientation, religion, and national origin, are not acceptable."...........
I think that you may be taking this too personally. Criticism of excessive fees on the part of some FAs does not quite fall into the hate speech arena.
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