Financial Advisor / Wealth Management

[donheff]

I used an FA to go over my financial plan and AA a decade ago. I paid a flat rate and was happy with the confirmation that my plan and AA looked OK. The FA suggested that I sign on for the long term at a percentage of assets but that whole concept made no sense to me. Two reasons stood out for me:

1) Once your plan and AA are in place, why couldn't you easily take over and DYI?
2) Why should clients pay thousands of dollars more to tweak a $12M portfolio than say a $2M portfolio. It just doesn't make sense.

Just as an aside I have always suspected that a lot of FAs use Dimensional to ensure that they have a handle on the client's full portfolio to extract as much money as possible. If OP was in Vanguard, for example, he could easily report his portfolio by 1/4, 1/6, or even 1/10 and ask the FA to advise him on how to allocate it. Send in the same pestering questions and apply the same generic advice back to the larger portfolio.

[EastWest Gal]

Quote:

Originally Posted by medved What does the FA do for me? In no particular order: (1) helps me avoid making emotional or "reactive" financial or investment decisions -- which in a perfect world I would not have to pay someone to do, because it is within my own control, but alas we humans are imperfect; (2) gives me access to Dimension funds; (3) does more diversification than I would do on my own and rebalances often; (4) does some tax lost harvesting, which has been valuable with the market volatility; (5) interacts with my accountant, saving me the time of doing so; (6) provides advice about asset allocation, insurance, investment questions, and other issues that come up from time to time -- and helps me think through how to balance competing goals (eg, minimizing risk versus achieving acceptable returns); (7) runs various projections and retirement scenarios that show me how much money I would have to live on, and with what degree of confidence, based on various assumptions (running monte carlo simulations, essentially); and (8) once I retire, will formulate and help me to implement a tax efficient withdrawal strategy. I feel more comfortable retiring early knowing that I have some guidance and advice, and a professional who tells me that I can do it at a certain level and that he will guide me through to make sure I don't screw it up... Obviously I am not 100% certain that this is worthwhile -- otherwise I suppose I would not have raised the question on this forum. But it feels like it is worthwhile.

I agree with you.

I was afraid to invest 25 years ago, and a FA got me over that hurdle. For that it was worthwhile. I also had access to DFA funds. Also worthwhile. But during the past 5 years, when my assets skyrocketed, they started getting cocky, younger, less experienced, and forgot MY goals as they got bigger. They also started recommending stupid stuff and hyping more. In the last 2 years, thanks to this forum and Bogleheads, I learned a lot and debated FA vs no FA. 9 months ago I jumped from one to another, dropping the fee from 89 BPS to 37 BPS, still with access to DFA funds, which we have on a limited basis. Now mostly Vanguard.

I could do without a FA at this point but I'm not comfortable with it yet. I'm not sure I ever will be.


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[frayne]

My two cents, FAs are great for people who don't mind paying for the service they are receiving, especially those who lack the desire to learn a little about the workings of the market and feel uncomfortable managing their own finances. That is exactly why there is an industry built around it. Personally I take pride in managing the money I have made over a lifetime and wouldn't trust it to anyone else.

[medved]

Quote:

Originally Posted by donheff Just as an aside I have always suspected that a lot of FAs use Dimensional to ensure that they have a handle on the client's full portfolio to extract as much money as possible. If OP was in Vanguard, for example, he could easily report his portfolio by 1/4, 1/6, or even 1/10 and ask the FA to advise him on how to allocate it. Send in the same pestering questions and apply the same generic advice back to the larger portfolio.

I have suspected something similar: that a part of DFA's business plan is helping FAs retain clients by restricting their business to FAs only, and that some FAs use DFA for the same reason -- helps with client retention. Of course, if all you want is access to DFA funds, there are a few advisors out there who will provide that, and essentially nothing else, at a very low cost.

[RunningBum]

I don't know if it's really a good analogy, but I kind of look at it like car care. I could save money and change my own oil, but I don't like doing it and I don't really know what I'm doing under the hood, so I don't mind spending money to have someone else do it. Hopefully they'll do it right but that doesn't always happen.

But, if it costs $40 for someone to go to Jiffy Lube with a 98 Subaru to have it done, I expect to pay the same $40 there for my newer Subaru. I shouldn't pay $400 just because my car is worth 10x more than another car, because they are doing the same thing. If my car requires some better oil or actually takes a bit more work to do for some reason, I'll pay more for actual extra work done, but not just because my car is worth more.

That's my issue with FAs working on % of assets. There may be a little extra work to do on $10M over $1M, but not 10x, so why would I pay 10x the fee? Or even a sliding scale, unless it's a pretty miniscule increase for more assets.

But, as far as paying for an FA, that's your business. If it's not something you really want to do or feel you aren't knowledgeable enough and don't have interest in educating yourself, go ahead. I question whether you are getting $75K of value over sticking to a simple domestic stock/international stock/bond mix, but if you can't help deviating from a plan, maybe you are getting value.

[gerntz]

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Originally Posted by youbet I started to comment on each of the FA benefits you listed, but after thinking about it, if you have an issue where emotions or a reactive nature puts you at risk and you trust your FA enough that you listen to him/her, then the fee is probably worthwhile. Most of the other FA benefits you list could be purchased from a fee only planner, CPA or attorney; done yourself; or done for free by one of the robo-advisors. Except, that is, for the proprietary funds. And I'd have to take a long look at those to see if they are really so hot....... ... It sounds like you know what you're paying for and what you're getting. And your FA reduces the risk that you'll make an emotional or reactive move, which you say you have a tendency to do. If you're happy, that's what life is all about....... I'm sorry I can't comment on your "sliding scale" question as I've never used an FA other than a few instances on a fee for service basis.

Very good.

[gerntz]

Quote:

Originally Posted by medved What does the FA do for me? In no particular order: (1) helps me avoid making emotional or "reactive" financial or investment decisions -- which in a perfect world I would not have to pay someone to do, because it is within my own control, but alas we humans are imperfect; (2) gives me access to Dimension funds; (3) does more diversification than I would do on my own and rebalances often; (4) does some tax lost harvesting, which has been valuable with the market volatility; (5) interacts with my accountant, saving me the time of doing so; (6) provides advice about asset allocation, insurance, investment questions, and other issues that come up from time to time -- and helps me think through how to balance competing goals (eg, minimizing risk versus achieving acceptable returns); (7) runs various projections and retirement scenarios that show me how much money I would have to live on, and with what degree of confidence, based on various assumptions (running monte carlo simulations, essentially); and (8) once I retire, will formulate and help me to implement a tax efficient withdrawal strategy. I feel more comfortable retiring early knowing that I have some guidance and advice, and a professional who tells me that I can do it at a certain level and that he will guide me through to make sure I don't screw it up... Obviously I am not 100% certain that this is worthwhile -- otherwise I suppose I would not have raised the question on this forum. But it feels like it is worthwhile.

There are flat-fee advisors with DFA access that charge in the $3000-5000/yr range even for $12M. They may not do or even offer everything you get today, but I'd bet you can get everything you list from them & third parties, as youbet suggested, for the rest of those things for way less, say $20,000. Have you looked into any flat fee advisor firms?

[gerntz]

Quote:

Originally Posted by donheff Just as an aside I have always suspected that a lot of FAs use Dimensional to ensure that they have a handle on the client's full portfolio to extract as much money as possible. If OP was in Vanguard, for example, he could easily report his portfolio by 1/4, 1/6, or even 1/10 and ask the FA to advise him on how to allocate it. Send in the same pestering questions and apply the same generic advice back to the larger portfolio.

The 10-20 FA's with DFA access that I investigated didn't invest exclusively in DFA, but primarily, yes. Net, DFA access & extracting as much money as possible aren't a 1:1 correlation. I mean every advisor I think is trying to extract as much as possible for their business model, DFA access or not. It's their livelihood. Not at all sinister. And I'd hope my advisor has a handle on my entire portfolio whether I invest it all thru him/her or not. Not knowing works to defeat the diversification concept imo.

[Spanky]

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There are flat-fee advisors with DFA access that charge in the $3000-5000/yr range ...

Sounds like a good business to get into.

[Whisper66]

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Originally Posted by medved .... I personally do use a financial advisor and I have found it to be worthwhile. (I negotiated the price and I paid last year around 60 bps -- cheaper than many FAs, though still a good amount of money). My questions is this: Do any of you use a financial advisor who, like mine, charges fees based on a sliding scale percentage of assets under management....Or am I the only one around here who does this, and everyone else thinks it is nuts?

Before I retired I talked to 4 different FA's (three companies) to get their thoughts on my situation and understand their fees for managing my funds if I chose to go that way. All four had sliding scales based on amount of assets they would manage. Two of the four companies offered ~60 bps as their standard fee to manage simply due to the amount of assets they would be managing.

I ended up choosing not to use a FA because the cost was high relative to the value I felt we would personally gain. Since we've been managing our own money for several decades, we are very comfortable doing it and the plans they offered on how to manage the money didn't appear to be anything special relative to what we planned to do anyway.

Lots of folks use a FA for the basic reasons you outlined as yours. You are not nuts... just not as comfortable in this area of your life as many on this board are. Most of us have areas we prefer to hire others to do things for us even though it may be expensive vrs doing it ourselves.

You can certainly afford a FA so use one if you are more comfortable but be knowledgeable and happy with the costs vrs benefits. At your asset level, good chance that in retirement the FA fees will replace income taxes as the largest expense you have. They may also end up being 25% or more of the actual expenses you have each year (assuming $250k/yr expenses as a WAG and 0.006 x $12M = 72k FA fees). Given that your assets saved will almost certainly outlast you ($12M assets / $250k/yr expenses = 48 yrs = gross simplification but close enough for this effort), you really don't need to worry too much about financial issues.

Good luck to you and congratulations on an excellent position you have put yourself and your family in.

[gerntz]

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Originally Posted by Spanky Sounds like a good business to get into.

Depends on how many people think you're advice choices are worth that. 1-10? Not so much.

[medved]

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Originally Posted by Whisper66 At your asset level, good chance that in retirement the FA fees will replace income taxes as the largest expense you have. They may also end up being 25% or more of the actual expenses you have each year.

Yes, it has occurred to me that, in retirement, my FA fees could be a high percentage of my annual spend. And that sort of bothers me. (The fees are actually somewhat less than the 60 bps x total invested assets because around 20% of what we have is currently outside of the advisor -- but the point is the same).

I may renegotiate the fee arrangement with the advisor when I retire. Or perhaps before. We'll see...

I may also buy a fixed annuity (or several in an effort to manage counterparty risk and stay below the state guaranty limits), which would reduce AUM and management fees (though that is not why I would do it). I don't have to annuitize, of course, but I have somewhat of a "safety first" orientation, and I might sleep better knowing that I have X dollars per year "guaranteed" even in a melt down scenario.

It was my FA who suggested I at least consider an annuity as part of the picture (although one might think an FA would not make that suggestion, since it reduces AUM and therefore management fees...)

[Whisper66]

Quote:

Originally Posted by medved .... I may renegotiate the fee arrangement with the advisor when I retire. Or perhaps before. We'll see... I may also buy a fixed annuity (or several in an effort to manage counterparty risk and stay below the state guaranty limits), which would reduce AUM and management fees (though that is not why I would do it). I don't have to annuitize, of course, but I have somewhat of a "safety first" orientation, and I might sleep better knowing that I have X dollars per year "guaranteed" even in a melt down scenario.

Two thoughts:
(1) When trying to renegotiate, may be worth mentioning you could get 0.3% at Vangaurd as a bargaining point. (https://investor.vanguard.com/financ...l-advisor-fees)

(2) I'm not up on annuities but have heard many on this board discuss them. When you consider them, consider them against an alternative of just investing a portion of your assets in extremely low risk things like a ladder of direct Treasury Bonds or CD's. May take more assets to get the income you'd like in bonds or cds but risk would be extremely low and your assets would then be available to be passed on to your family in the event of your death (maybe you can do this with some annuities??). Others on this board can provide much better advise than I can on Treasure Bonds or CDs or similar things, I'm still relatively aggressive so don't invest much in Treasury bonds or CDs but have seen others on this board that take this path. So sure you can get excellent feedback if you wish.

[Flyfish1]

I had an FA , who now calls himself a " Wealth Manager", for several years. As I educated myself over time, I realized I can absolutely do this myself. Sites like this and many others gave me the impetus to fire my FA. It was not an easy thing to do as we had become friends, ( didn't talk to me for over a year after that). However, no one will look after my money better than myself. I was paying 75 bps, for a boiler plate smattering of expensive funds. There was no tax loss harvesting, no adjustment or rebalancing, rather pathetic overall, and this was with a huge well known firm. I have shifted all of those funds to Vanguard and am extremely happy I did so.

Medved, you can absolutely manage your own money, just take the time to educate yourself and take the plunge. Fees Matter!

[donheff]

Quote:

Originally Posted by medved I don't have to annuitize, of course, but I have somewhat of a "safety first" orientation, and I might sleep better knowing that I have X dollars per year "guaranteed" even in a melt down scenario.

The fact that you are citing things like a safety first orientation indicates that you are reading the literature (Wade Pfau, et al). Sounds like you are half way to becoming a DYIer already. By the way, even with $12M and no pension I would sock away a portion in an SPIA or three just to provide some close to guaranteed income for essentials. Like a good pension, that might let you stop being safety first with the remainder of your portfolio.

[travelover]

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Originally Posted by Flyfish1 ..........It was not an easy thing to do as we had become friends, ( didn't talk to me for over a year after that). .......

That is all part of the game - knows your spouse's and kids names, birthday and Christmas cards- your buddy with one hand in your pocket until you realize how much you are paying and how little you are getting.

[DrRoy]

I had such a FA for about 10 years, but a couple years ago I took the accounts back to manage myself. He offered all the type of services that you listed above, but I did not find that what he did was worth the fee. At the same time I also had self managed investments at Fidelity, and my results were better than his, especially including the fee.

[harley]

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Originally Posted by medved It was my FA who suggested I at least consider an annuity as part of the picture (although one might think an FA would not make that suggestion, since it reduces AUM and therefore management fees...)

Unless, of course, he's the one to sell it to you. Even a fixed immediate annuity can have some significant up front costs, most of which would go to the seller (FA). And if he starts talking about variable annuities, or tax advantaged, or anything like that, run for the hills. You can buy an SPIA from an insurance agent at a highly rated company, although you have to watch out for those guys too. Upselling is everywhere.

[Travelwanted]

Quote:

Originally Posted by medved Yes, it has occurred to me that, in retirement, my FA fees could be a high percentage of my annual spend. And that sort of bothers me. (The fees are actually somewhat less than the 60 bps x total invested assets because around 20% of what we have is currently outside of the advisor -- but the point is the same).

That is exactly what made me become a DIY investor.

I used to use FAs in the past because I believed I had to as it was too complicated. And, yes, they used a sliding scale. In fact, when I decided to leave they offered to continue with me at 50 bps. My assets are also on the high side, albeit a bit lower than yours.

I started reading more and more and realized it is not that complicated. Take some time, if interested, and read The Bogleheads' Guide to Investing: Taylor Larimore, Mel Lindauer, Michael LeBoeuf, John C. Bogle: 9781118921289: Amazon.com: Books.

Also, spend some time over at Bogleheads.org. The fact is your were smart enough to earn the money, you are smart enough to manage it.

Another consideration is that if you really have >10m in investable assets, Vanguard manages those accounts for free. Look into Flagship Select Services.

But, it is a personal decision. The biggest and most important thing your FA is doing is providing you peace of mind and keeping you from emotional decisions. Until you obtain enough knowledge to overcome the fear, stick with the FA for now. My 2 cents.

[Markola]

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Originally Posted by medved Yes, it has occurred to me that, in retirement, my FA fees could be a high percentage of my annual spend. And that sort of bothers me.

It would bother me too. As others have said, 60 BPs on $12 million ($72,000) doesn't sound like much but a $72,000 "voluntary tax" out of, say, a 3% SWR of $360,000 gross even before taxes, each and every year, definitely catches one's attention. There is an excellent middle ground between DIY and paying 60 BPs, which I don't think has been discussed here yet. Check out the Vanguard web site and see how they (and Schwab) provide advice and help to high net worth clients for 0 BPs. I think Vanguard has a category for $10M+ net worth families that is quite comprehensive and, I would think, worth a simple phone call. You might even read them your list above of qualities you like in your FA and see how they compare. Congrats on your achievements playing great "offense" in your career, and best wishes as you now learn to play some basic "defense" so that you protect what you have earned.