Financial advisor fee

[urn2bfree]

These forums have been wonderful for educating me. We have a fee only financial advisor and have about $2.5M under management... All in passive investments -DFA stock funds and Vanguard bond funds.
Reading the various posts and links found here I am concerned that our advisor may be overpaid. The fee structure is 0.5% of assets plus $2000 "planning fee" every year.
This seems excessive to me as I have learned of other alternatives, alas all out of my state but available nonetheless.
With passive investing the whole notion of charging more just for a bigger portfolio seems dubious to me. How much more work is needed to manage $2 million vs $1 million? $5000 more work? HOW?
Today -in anticipation of our portfolio review next month my advisor called to let me know they are looking to RAISE my planning fee! "Funny," I said, "because I intended to ask why it should not be lower." They hemmed and hawed claimed more money creates more liability. but come on, that still cannot justify these levels of fees. How much could liability cost for them? They are by statute protected by arbitration requirements and Fidelity is my custodian carrying liability as well.
Is it worth thousands of dollars to have an in town, face to face advisor rather than a similarly passive. FAM FRENCHmodel/philosophy advisor with low fees but out of state like Portfolio Solutions,or Evanson or Cardiff? Seems for a fraction of those thousands I could fly to those advisors if I really wanted to. they all seemed to do DFA fund mixes, tax leveraged and rebalanced regularly to maintain AA.
Any thoughts or experience working with out of state passive advisors?

 

[growing_older]

So you are paying $14,500 a year for someone to maintain an asset allocation and rebalance periodically? That seems like a lot. Is there a reason you do not do it yourself and save the fee entirely? What would your portfolio look like with an extra $14,500 investment every year?

 

[MichaelB]

could liability cost for them? They are by statute protected by arbitration requirements and Fidelity is my custodian carrying liability as well.
Is it worth thousands of dollars to have an in town, face to face advisor rather than a similarly passive. FAM FRENCHmodel/philosophy advisor with low fees but out of state like Portfolio Solutions,or Evanson or Cardiff? Seems for a fraction of those thousands I could fly to those advisors if I really wanted to. they all seemed to do DFA fund mixes, tax leveraged and rebalanced regularly to maintain AA.
Any thoughts or experience working with out of state passive advisors?

If you are asking, then what you are paying probably isn't worth it. The other advisors you name can probably do just as well, especially if you want passive management. Out of state? Travel? With Skype you can have all the face to face contact you need, even of you are vacationing. Your money, your rules. Sounds like time for a change.

 

[travelover]

OK, I'll say it. You are overpaying, especially given your investment choices.

 

[panacea]

So you're paying .58% for investment mgt and financial planning. That wouldn't be too bad for active mgt with planning included but not for passive. As you can see, most of us on the forum (or many of us) are do-it-yourself-ers but if you like the basic structure you have but don't like the cost, I suggest talking to Vanguard about their passive management option. I believe they will maintain your asset allocation using some kind of systematic rebalancing for .35% or so. If you feel you need additional planning, consider hiring a fee-only planner for a couple of hours each year (maybe $400) to make sure everything remains on track. Annual savings: about $5,000. Also, keep all cash out of the equation- no need to pay anyone to manage cash passively or actively.

 

[pb4uski]

Agree with others. Seems like too much for what you are getting.

You could easily DIY and your investment earnings rate would have a .6% head start each year.

If you VG their free annual financial planning service and Financial Engines will provide AA advice for you.

 

[brewer12345]

I am in the wrong business.

 

[Midpack]

The good news is, 1% of assets per year is not that uncommon.

The bad news, 0.58% is still way to much IMHO, especially for passive investing. That would motivate me to learn to DIY, the mechanics are pretty easy, it's the discipline to stick to a plan that most people struggle with. There are some good suggestions in the posts above.

Has your long term performance with the advisor beaten benchmarks, or most of the published lazy portfolios after advisor management fees & expenses?

I suspect most people here pay little if any advisor fees, self included. I'd rather know my porfolio inside and out, I sleep better that way...

 

[urn2bfree]

the reason I am not a do it myselfer are two fold-
but primarily so I can have access to DFA funds which have been shown to be better than Vanguard by enough to justify SOME advisor fees but once they rise the advantage of course is cancelled out.
The other reason I do not do myself is I don't have the time to acquire the knowledge to leverage things from the tax advantage standpoint...I am in the top bracket and taxes can take a considerable toll if I dont put my money into the right things in the right mix...
I keep almost all of my cash separate- not managed.

The low cost guys do not advertise (hence they keep their costs low) so the only way I found about the ones I know was thru this forum and links found here...none have mentioned any low cost passive managers in my town - but I agree that in this technological age the need to have an in town manager is dubious....(there is a side story: I moved to this advisor a few years ago after being with a BROKER for years who was out of town but happened to be my little brother...I finally realized that I did not need or want a broker - just a brother- but he did not take too kindly to my pulling such a big portfolio out of his place --but it was a little easier for him to accept in that I moved to an in town advisor)

 

[travelover]

the reason I am not a do it myselfer are two fold-
but primarily so I can have access to DFA funds which have been shown to be better than Vanguard by enough to justify SOME advisor fees but once they rise the advantage of course is cancelled out.
The other reason I do not do myself is I don't have the time to acquire the knowledge to leverage things from the tax advantage standpoint...I am in the top bracket and taxes can take a considerable toll if I dont put my money into the right things in the right mix...
I keep almost all of my cash separate- not managed.

..........

If the DFA investments are that much better and you don't have any time, keep doing what you are doing.

 

[73ss454]

Like any other salesperson, they will take as much as you let them. Buyer Beware!

 

[FinanceDude]

There are DFA advisors who charge .50 but do not require a $2000 or whatever "financial planning fee" every year. They may not be in your town but so what? is the $2000 fee a requirement? I would ask them for an contract that says you are waiving the annual planning fee.

Charging someone $2000 a year just to do AA and meet with you is ludicrous. If they hem and haw, tell them you're going to move the account unless they drop the fee. That line about "more money causes more liability" is pure BS. It doesn't cost them any more to manage $250,000 than it does to manage 10 times that much. They are already getting $12,500 a year from you in management fees, that should include ANY financial planning help you would possibly need........

 

[nun]

If the DFA investments are that much better and you don't have any time, keep doing what you are doing.

Yes he's paying for access to DFA. It gets me that DFA push low costs and passive investing and then make you pay an advisor to get access to them. They say it's to limit turnover, but you could limit that like Vanguard does by having trading rules. I think the advisor thing is more of a marketing gimmick to keep DFA a bit exclusive and maybe to limit the number of clients and only have to deal with the advisors rather than the pesky public.

If the advisor fee and the usually higher fees of DFA over Vanguard are covered by better performance stick with it. I'm assuming you are with Vanguard for bonds because their net return (after accounting for fees) is better than DFA....which then leads to the question "why pay the advisor to passively manage you bonds". Sounds like for the bond you're just paying for asset allocation and rebalancing.

I don't think much of advisors at all. But passive advisors are just ridiculous. You're paying then them to be passive, what a fantastic job! Active advisors may not perform better than passive ones, but at least the do some work moving stuff around, reading Barrons and looking of opportunities. You probably won't end up any better off, but the active advisor will have earned that no better performance.

 

[FinanceDude]

Yes he's paying for access to DFA. It gets me that DFA push low costs and passive investing and then make you pay an advisor to get access to them. They say it's to limit turnover, but you could limit that like Vanguard does by having trading rules. I think the advisor thing is more of a marketing gimmick to keep DFA a bit exclusive and maybe to limit the number of clients and only have to deal with the advisors rather than the pesky public.

If the advisor fee and the usually higher fees of DFA over Vanguard are covered by better performance stick with it. I'm assuming you are with Vanguard for bonds because their net return (after accounting for fees) is better than DFA....which then leads to the question "why pay the advisor to passively manage you bonds". Sounds like for the bond you're just paying for asset allocation and rebalancing.

Still on the "mad at DFA" kick?

 

[nun]

Still on the "mad at DFA" kick?

Yep, I hate a con job, but I did say if you are doing better with them stick there

 

[Texas Proud]

Is there someplace that shows DFA funds are better than Vanguard

I just do not see that in a passive investment.... if they are supposed to follow an index, then you follow the index... anything outside that index is not passive...

 

[FinanceDude]

Yep, I hate a con job, but I did say if you are doing better with them stick there

It is a not a con job. A private company can set up any business model they want. Just because they decided to offer their investments only throught the advisor channel, how are they cons?

American Funds has over a trillion in AUM, and they don't sell direct, you have to have an advisor. Are they a con job too? Sounds like everyone except direct companies are con artists? Interesting......

 

[nun]

Sounds like everyone except direct companies are con artists? Interesting......

Pretty much nailed it in my opinion.

 

[FinanceDude]

DFA Vs. Vanguard: Another Take - CBS News

Here is a link I found about DFA and Vangaurd...........

 

[FinanceDude]

Pretty much nailed it in my opinion.

Well, it is your opinion. However, I doubt DFA is going to change their business model anytime soon........

I think Fidelity are a bunch of con artists. They tell you they are a direct company on TV, but inundate my mail with propaganda telling me to use their "advisor funds" which underperform and have double the expense ratio of the direct funds, now THAT is a con!

If DFA is a con, I can think of about 1000 others........

 

[brewer12345]

I don't think I could ever invest with DFA since all those letters mean to me these days is Dodd Frank Act.

 

[Gotadimple]

In reality there are many people who are not able or willing to self-manage their money. In that case, a financial planner is probably their best option. In that situation, what they need to be looking for is a financial firm that will manage their money for the lowest cost to the portfolio.

There are many out there who charge far less than the OP's case. In the OP's case there are other circumstances that need to be considered. That's when a good financial planner and tax accountant can be very useful.

-- Rita

 

[nun]

Is there someplace that shows DFA funds are better than Vanguard

I just do not see that in a passive investment.... if they are supposed to follow an index, then you follow the index... anything outside that index is not passive...

I think it comes down to whether DFA's asset mix and when it chooses to ignore indexing and be a bit active produces better returns. We are in to comparing apples and oranges again. I stick with "lower fees better, higher fees worse" and DFA has the advisor fee and slightly higher expense ratios than Vanguard so it's not for me.

 

[nun]

Well, it is your opinion. However, I doubt DFA is going to change their business model anytime soon........

I think Fidelity are a bunch of con artists. They tell you they are a direct company on TV, but inundate my mail with propaganda telling me to use their "advisor funds" which underperform and have double the expense ratio of the direct funds, now THAT is a con!

Yep you have to be careful whatever the firm. None are altruistic, but I prefer the direct companies because there'e one less level of management between me and their [-]cons[/-] services and promotions.

 

[Texas Proud]

DFA Vs. Vanguard: Another Take - CBS News

Here is a link I found about DFA and Vangaurd...........

Thanks for the link....

I then went to the one mentioned in the article and it had more info from a study.

"The findings from the study
Tower and Zhang looked at equity returns of DFA and Vanguard funds from the end of 1982, when DFA data became available, until August 31, 2009. The findings surprised me.

The DFA equity portfolio has not consistently outperformed the Vanguard equity portfolio. Over the entire life of the DFA equity portfolio, its return is less than that of the Vanguard equity portfolio, even without adding in adviser and transaction fees for the DFA portfolio. However, for the period of the start of the growth stock bubble (end of 1995) through August 31, 2009, DFA, even with an adviser and transaction fee of up to 1%/year, out-returned the Vanguard portfolio.​

Thus, according to the study, the answer is dependent upon which period of time is being studied. Ed Tower noted to me that the DFA portfolio showed less volatility, which is one measure of risk. The question of which is better remains unanswered, especially going forward."


So, from a fund perspective they seem to be a wash... or close enough... but the DFA also has an advisor fee tacked on top which to me makes it worse over time... However, if you feel like you need an advisor, these funds do appear to be better than all the high fee and even load funds that a number of advisors push...