Financial Advisor / Wealth Management

[medved]

I know that many people on this forum do not use a financial advisor or wealth management firm, and believe that doing so is a waste of money.

While I respect that view and understand that it has some merit, 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? If so, do you think you are getting your money's worth? Why?

Or am I the only one around here who does this, and everyone else thinks it is nuts?

 

[braumeister]

I think there are quite a few FAs who use a sliding scale, and even more who are willing to negotiate if your net worth is large enough.

I have a friend who has used one for years (and has often recommended them to me). Their published fee schedule starts at 80 bp for the first $2M and goes down to 55 bp for amounts over $5M.

I don't think anyone would consider it "nuts" to use an FA if it meets your needs and your mindset. The bigger issue is whether you're comfortable with a DIY approach. Many of us are not only comfortable with DIY, we actually rather enjoy it.

 

[youbet]

What braumeister said.........

And not all FA's or FA firms are the same. I'm aware of one situation where the FA is part of a firm which includes CPA's and attorneys. They handle complicated situations involving estate/legacy planning, taxes, non-traditional assets, complicated business situations, etc.

OTOH, I'm also aware of FA's that want 0.5% to 1.0% to simply determine an AA for the client via a discussion and questionnaire and then plug his/her assets into a program that spits out amounts of funds to buy to meet the AA. Then rebalancing is done. Schwab now does this for free. If I recall correctly, the general term for this is something like "robo-advising" and we discussed it in another thread not too long ago.

OP - what is your FA doing for you? You said you have found using an FA to be worthwhile. Specifically why? Any complicated situations being handled? Any tax or estate planning? Or were you simply put into some funds and you get rebalancing and minor changes from time to time?

I don't use an FA. My investments are rather straight forward. I have this forum and some knowledgeable confidants to bounce my (likely stooopid) ideas off of before I act on anything major. My Schwab rep handles administrative and execution questions. I readily go to a CPA or attorney if needed.

I have absolutely no issue with others using general purpose FA's but I do recommend making an effort to understand exactly what you're getting for your money. Your 60 bps price may be a bargain or a rip-off depending on what you're getting.

 

[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.

 

[travelover]

....... (I negotiated the price and I paid last year around 60 bps -- cheaper than many FAs, though still a good amount of money)...........

I know that you are happy with the FA, but he makes $75,000 off your 12 million every year, at 60 bp, for what seems like a couple of hours work.

 

[jabbahop]

When working I was happy to have a FA because I was too busy to do my homework. Once I knew I was going to retire, I felt that managing our money was going to be essential and not something I could afford to delegate. As people have said, it was not as complex as I had thought.


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[medved]

I know that you are happy with the FA, but he makes $75,000 off your 12 million every year, at 60 bp, for what seems like a couple of hours work.

Definitely not a few hours work. I use these guys a lot. I talk with them pretty much every week, email questions, have them run various scenarios, etc. Whether it is all necessary or not is a different question, but they are certainly spending time.

For years, I did my own investing. I was not good at it. I could not devote the time. And I was prone to emotional or reactive decisions. I was also afraid of making big errors and as a result I had FAR too much money in cash. (That turned out to be really good in 2008, but it was luck not skill, for sure).

 

[ERD50]

What does the FA do for me? In no particular order: .. ...

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 know that you are happy with the FA, but he makes $75,000 off your 12 million every year, at 60 bp, for what seems like a couple of hours work.

Yes, $75,000 year in and year out is a considerable amount! As far as the 'needs', my opinion:

(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;

A little education should fix this. Once you understand that markets go up and markets go down, and that your FA is unlikely to have any 'secret sauce' to help with that, it should be easy to just do it.

(2) gives me access to Dimension funds;
And what does that do for you?


(3) does more diversification than I would do on my own and rebalances often;
Why can't you easily diversify on your own? And how much diversification is needed? Rebalancing is EZ, and studies show- unnecessary.

(4) does some tax lost harvesting, which has been valuable with the market volatility;
OK, but that sure isn't rocket science , esp if you keep your portfolio simple.

(5) interacts with my accountant, saving me the time of doing so;
For what purpose?

(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);
That is discussed all the time here, from people with no possible financial interest/conflict, Again, not rocket science.

(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
Again, we do that here, and probably better than any Monte-Carlo analysis.

(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...
OK, but if this is needed, why pay every year for it? Pay someone by the hour to do the specific analysis you need/want.

How does one evaluate an FA to know if they are giving good advice? At the minimum, I'd want to have a reference plan for comparison (so I'd need to do the 'work' to develop that plan). Otherwise, it just seems to me that you are taking all theses unknowns, and putting them onto another unknown, and now feeling better about it. But I wouldn't, I'd worry about the FA instead of worrying about my investments! It's just shifting the unknown.

Perhaps at your high wealth stage, some help makes sense, but I would not pay an FA year in year out for it. Hire the help you need, when you need it.

-ERD50

 

[youbet]

(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;

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.......

Don't take the anti-FA comments on this board to heart. We're dominated by DIYers who particularly detest the occasional "shark attack" that a few FA's are known for. 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.

 

[ERD50]

Definitely not a few hours work. I use these guys a lot. I talk with them pretty much every week, email questions, have them run various scenarios, etc. Whether it is all necessary or not is a different question, but they are certainly spending time.

...

And a very important question. For $75,000, these guys will want to be doing 'something', or you won't feel you are getting your money's worth. But is what they are doing really helping you?

Plenty of people here do very well by setting an AA, and forgetting about it. Period.

For years, I did my own investing. I was not good at it. I was prone to emotional or reactive decisions. I was also afraid of making big errors and as a result I had FAR too much money in cash. (That turned out to be really good in 2008, but it was luck not skill, for sure).

And now you know better! So don't do that!


-ERD50

 

[travelover]

Definitely not a few hours work. I use these guys a lot. I talk with them pretty much every week, email questions, have them run various scenarios, etc. Whether it is all necessary or not is a different question, but they are certainly spending time.

For years, I did my own investing. I was not good at it. I could not devote the time. And I was prone to emotional or reactive decisions. I was also afraid of making big errors and as a result I had FAR too much money in cash. (That turned out to be really good in 2008, but it was luck not skill, for sure).

OK, sounds like everyone is happy.

 

[jabbahop]

In case you are interested. Here is a thread about DFA vs Vanguard from the Boggleheads forum. The general tone is they are pretty good (given Boggleheads is very pro Vanguard).

https://www.bogleheads.org/forum/viewtopic.php?t=113380

Nice to have you as part of the forum.


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[tmm99]

If I had 12.5 million, I would be using an advisor too.

 

[Midpack]

It's not unusual for FA's to use a sliding scale. If yours doesn't, I'd ask about it.

And if you value your FA's guidance for what he/she charges, you needn't worry about what anyone here says. This crowd doesn't begin to represent investors/retirees at large...

 

[racy]

Sounds like you're happy with your FA. Also, (beg my pardon), it seems you're poking the forum to stir things up...

 

[harley]

In case you are interested. Here is a thread about DFA vs Vanguard from the Boggleheads forum. The general tone is they are pretty good (given Boggleheads is very pro Vanguard).

https://www.bogleheads.org/forum/viewtopic.php?t=113380

Nice to have you as part of the forum.


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I sure wish the phone apps would learn how to spell Bogle. Every time I read "Boggleheads" it makes me think of bobble heads.

 

[RobbieB]

I use one and am happy as a clam. He makes me dough and I don't have to think about it. He knows my style and is not always calling me and pitching. I don't own any mutual funds except for 1 muni bond fund but that's not with his Co. So I have a long list of stocks that are mostly large cap dividend paying stuff and he keeps track of it all so I don't have to.

I'd rather be eating, drinking, cooking and riding motorcycles -

 

[rodi]

Even the low cost folks offer sliding scale for managed accounts. (Schwab offers this.)

Now for a pet peeve of mine. The term "Wealth Management". That's 100% marketing. For you it applies - no one says 12.5 Mil isn't truly wealthy. But that term is used to entice a lot of folks who are not super wealthy... folks with a few hundred thousand. I have a former coworker who kept bragging about her "wealth manager"... she felt wealthy because of this... she's still working and paying almost 1.5% of AUM (on top of expense ratios of the funds the 'wealth manager' put her in) - even though our salaries were similar (mine was actually lower since I worked 80%). She acted like he was so much better than a FA because he called himself a wealth manager. The title struck me as pure ego enticement.... You felt better if you didn't use a FA - but used a "wealth manager" instead.

Ok... off my soapbox.

 

[medved]

Sounds like you're happy with your FA. Also, (beg my pardon), it seems you're poking the forum to stir things up...

Yes, I am happy with my FA and for me I think it has been the right choice. But I very much respect the views of those who do not see value in paying an FA.

I should add that no part of my reason for posting this question was to "stir things up" on a forum. (I have better things to do with my time).

Instead, my sole purpose was to hear the reasoning from people who do, and do not, use a financial advisor -- so that I can make sure I have thought about this issue from all perspectives. It seems there are some very smart people on this forum, and I can learn from them.

 

[harley]

Well, there are probably more threads on why not to have a financial advisor than any other single topic in this board, so if you are truly interested, head to the search option. The basic reason is that you can do it yourself far cheaper, and probably far better (or at least as well) than any FA can do. Your list of reasons for having a FA is not very convincing to me, but if that's what makes you happy, go for it. I think that's the general trend of this thread, that you've got your mind made up and we're not going to change your mind, so drive on.

 

[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]

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]

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.