Financial Advisor / Wealth Management

[Danmar]

Quote:

Originally Posted by tmm99 Yeah, really. I said I would hire an advisor if I had 12.5 million is because I don't need that much money and I have no heir to want to leave money to so I'd rather pay 1% or whatever fee and spend my time doing other fun things than spending time DIYing my finance FOR SURE. I will definitely review what the FA is doing but I will definitely not spending as much time as I am now. Sent from my iPhone using Early Retirement Forum

So you don't want the money and would rather give it to an FA? I could think of better charitable uses, but to each their own. I think managing my own portfolio is sort of fun. Still leaves plenty of time for doing all the fun stuff that a large portfolio enables.

[Bestwifeever]

When I am gone and assuming our kids do not want to oversee our passive Vanguard accounts (they won't), I am 100 percent positive DH will turn everything over to an FA. I plan to name Sarah in SC as the designated FA in my will because otherwise he will use Edward Jones and I know Sarah will send much funnier birthday cards not to mention calm and handholding in times of financial turmoil. But even EJ is fine by me if it makes DH happy.

[medved]

Quote:

Originally Posted by phil1ben I also have never used a FA but apparently you have a great deal of comfort with this one. The issue seems to be the amount charged and your prior DIY performance in a volatile market. What would really concern me is paying 0.6% on the fixed income part of the portfolio because of existing low interest rates. Assuming this portion of your assets is focused primarily on tax free muni bond funds (or even taxable bond funds), would it be possible to negotiate a lower rate on this part of your portfolio. If such funds are paying 2-3% then his/her fee is 20-30% of your return. Perhaps you stay at 0.6% for equities but lower substantially the fee on your fixed rate portion. I understand that this can be done by splitting your account into separate accounts each having a different fee ratio. Not a perfect answer but their is justification for the reduction.

I did this part way -- a portion of my investment portfolio consists of a treasury bond ladder, and I did negotiate that the FA would not charge any AUM or other fee for the treasuries. When I say "negotiate" what I mean is I asked them to please not charge me fees for the treasury ladder and they said "OK fine." The yield is pretty low on treasuries and I could have easily bought them on my own (though I didn't). Beyond the treasury ladder, I have not attempted to reduce or eliminate the AUM percentage for fixed income investments, and they have not tried to increase it for investments that have generated a high return. I think the rate takes all that into account. (I did negotiate the entire scale, though -- I paid rack rate for a year and then concluded that I liked the service but not the price, so I negotiated a reduced rate scale). I also have some assets outside of their management, and I obviously do not pay them fees relating to those investments (though they do take those investments into account in building an asset allocation model, doing retirement withdrawal projections, etc.).

By the way, I really do respect those who think DIY is a better approach. (Although those who think all FAs are crooked or useless or that it is impossible to find a good one -- I don't agree with that, and I think one could just as easily say the same of a minister or a professor or a doctor or an electrician).

[nash031]

Quote:

Originally Posted by Chuckanut I suspect that what people mean when they say such things is" "He/she does better than I can do, since I don't want to do it." It's a bad idea to try and force a square peg into a round hole. The results are almost always disappointing.

That's why I let it go. My wife suggested that I offer to manage her accounts for her for free. I declined as I thought there would be issues from mom and sisters with that arrangement.

I did suggest fee only (hourly) but she likes this guy...

[tmm99]

Quote:

Originally Posted by Danmar I think managing my own portfolio is sort of fun.

I just looked at your profile. You probably enjoy managing money much more than I do
And I must add that I am not much of a DIYer to start with. My knowledge is limited, so FA could possibly end up making more money that I could.

[CaliforniaMan]

Quote:

Originally Posted by target2019 In many years of systems consulting, I belonged to an organization that did not permit recommendations for something you had an interest in. IOW, you were truly a consultant and affirmed that you did not benefit from what the client purchased.

+1
Yes, exactly, you hit the nail on the head!

In over 30 years working as a software consultant I followed the same idea, expenses were always at cost, and never recommended something I profited from. It may sound corny, but I always felt I had to act as a fiduciary for my clients, even if it meant less work for me. I had to put my client's interests above my own.

I was not part of any organization, I just felt it was good business practice, and it indeed paid off well over the long term, I worked for many clients over many years and over multiple projects.

Now my clients were sophisticated people. I suspect with most FAs their clients are not sophisticated enough to appreciate or even know whether their FA is acting in their best interests or not. Therein lies the problem. It may be better for their business to act in their own short term interests rather than their clients long term interests.

And with these unsophisticated clients, I doubt that even the new regulations will help much.

So it gets me to what I really wanted to contribute (boy I have a windy way of approaching it). You (the general not specific you) have worked over 20 or 30 years, many long hours and have managed to accumulate over those many hours, say a million or more.

It took a lot of hard work to get there. Why would you (again the general you) not spend the small amount of additional time to gain the knowledge to be able to keep and grow that hard earned stash.

Whether you are seeking to hire an FA or DIY, you have to spend the time to educate yourself. And as many have pointed out before, once you get educated enough to be able to choose an FA, you won't need one.

[REWahoo]

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Originally Posted by Bestwifeever I know Sarah will send much funnier birthday cards not to mention calm and handholding in times of financial turmoil.

And on really special occasions she'll send you a photo of herself wearing a large snake.

[RobbieB]

We (nobody specific, just the general us) who use financial advisors do so because we (nobody specific) are happy with our advisors and think we get good value from their services.

We (the millions of us) don't want to learn financial stuff because it's confusing and scary and makes our brains hurt.

[braumeister]

Quote:

Originally Posted by CaliforniaMan In over 30 years working as a software consultant I followed the same idea, expenses were always at cost, and never recommended something I profited from. It may sound corny, but I always felt I had to act as a fiduciary for my clients, even if it meant less work for me. I had to put my client's interests above my own.

I did that for a number of years in my second career. I had some Fortune 50 clients so I expected they would be in sync with that, but I learned otherwise.

My favorite example:
I had provided some custom software that had a small bug (Horrors!). The client called to tell me about it, and I quickly figured out what happened. Called them back and offered to walk them through the fix over the phone.

No way would they agree to that, despite it being only about a five minute process. Insisted I get out there the next day and do it myself.

So I took a 2,000 mile flight at last minute prices, rented a car and drove to the client site. Fixed the problem as I had described (in five minutes), left and checked into a hotel. Next day, flew home. Many thousands of dollars in expenses, plus my ridiculous hourly rate, but they were happy because they got to exercise power over a mere consultant.

I wonder if maybe some clients insist on using an FA because it puts them in the driver's seat (in other words, they feel they can always fire the FA so they expect great results).

Or maybe I'm just too cynical.

[Danmar]

Quote:

Originally Posted by tmm99 I just looked at your profile. You probably enjoy managing money much more than I do And I must add that I am not much of a DIYer to start with. My knowledge is limited, so FA could possibly end up making more money that I could.

I sometimes forget that I have a little more relevant experience and qualifications than most people when it comes to DIY investing. I would have a problem paying an FA to tell me things I already know.

But still, a basic three ETF portfolio is very easy to manage. I think for most people though the bigger issue is lack of confidence. That has never been my problem as I am "often wrong but never in doubt"

[frayne]

Quote:

Originally Posted by RobbieB We (nobody specific, just the general us) who use financial advisors do so because we (nobody specific) are happy with our advisors and think we get good value from their services. We (the millions of us) don't want to learn financial stuff because it's confusing and scary and makes our brains hurt.

Dude, lay off the reefer and it's much less confusing.

I can say that as a former reefer smoker and current motorcycle rider too !

[youbet]

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Originally Posted by nash031 . All of that, and he has underperformed the S&P 500 Index in every year they've been using him.

NOT defending you mom's FA here......

But I am curious because I'm a DIYer (although I do own some actively managed funds within the mix) and sometimes my total portfolio performance fails to meet or beat the S&P 500 too. I'm at about 55-45 and when equities are soaring, the 45% tends to hold down my overall performance. Of course, when equities are swooning, the 45% sometimes allows me to beat the S&P 500.

I wonder what you mom's AA is that the S&P 500 is the appropriate index to use for comparison? I'm assuming she's at or near 100% domestic large cap equities or you'd be using some blended benchmark.

[RobbieB]

No problem, thanks for the smiley so's I know you were joking.

I'm back as this thread has gotten a little more 2 sided and friendly.

I know I'm paying more than I have to. But not that much more. Funds and ETF's that do large cap dividend paying equities seem to charge ~ .35% to .7 %. The stuff in my bag is paying about 3% now, pretty good and the price is pretty stable. I'm pretty pleased.

And if I become "not pleased" I can leave. I'm pretty new to this game, I didn't even know what my income picture was (2015 was my first full year of retirement) and I'm still in the process of balancing out my AA and I'm also going to do about a 50% IRA to Roth conversion as well as increasing my muni bond bag too. It gives me comfort to have some help with this stuff now. After I get it sorted some more and feel more comfortable I may decide to DIY, but for now no.

For now I'm more than happy as my FA did stuff that I never would have thought of that made me way more dough than I would have made by myself 1% fee included.

[nash031]

Quote:

Originally Posted by youbet NOT defending you mom's FA here...... But I am curious because I'm a DIYer (although I do own some actively managed funds within the mix) and sometimes my total portfolio performance fails to meet or beat the S&P 500 too. I'm at about 55-45 and when equities are soaring, the 45% tends to hold down my overall performance. Of course, when equities are swooning, the 45% sometimes allows me to beat the S&P 500. I wonder what you mom's AA is that the S&P 500 is the appropriate index to use for comparison? I'm assuming she's at or near 100% domestic large cap equities or you'd be using some blended benchmark.

She is bulk equities, higher than I would expect at her age, but largely because of what I consider a modest sum at their age (i.e. DW and I have 35% more saved at 38/35 (and a pension on the way) than my parents at 81/74. Mom has plenty, as it's just her now and she's got lifetime medical, good SS, and low enough expenses to make it past 100 with no issues.

Is it a perfect comparison? It is not. But her performance is worse than my 85/15, which is a more adequate comparison. I don't believe his choices in a lot of ways are bad in terms of what they're invested in, but I absolutely believe that there are far less expensive ways to achieve what the FA is able to achieve with similar risk.

Now, I would have to do some more in depth analysis to truly answer your question, but there is no doubt in my mind that with her expenses coupled with her performance vs. S&P vs. my 85/15 "three-fund-ish" portfolio that she's getting, in my previous word, "fleeced".

[tmm99]

Quote:

Originally Posted by Danmar I sometimes forget that I have a little more relevant experience and qualifications than most people when it comes to DIY investing. I would have a problem paying an FA to tell me things I already know. But still, a basic three ETF portfolio is very easy to manage. I think for most people though the bigger issue is lack of confidence. That has never been my problem as I am "often wrong but never in doubt"

Yeah a three ETF portfolio is easy to manage, but now that I am over 2 countries (a US citizen who is a Canadian resident), things have become much more complicated. I just found out I shouldn't buy Canadian ETF's in my non-registered account (which is the only account I have) due to major US related tax complications (tax disadvantages), so my plan to hold Canadian bond ETF's just went out the door. (I already knew not to open a TFSA as a US citizen, but I didn't know about Canadian ETF's also.) I am not sure what I am going to do with the money I don't need for another year or two that I was planning to convert to CAD now (while CAD is still low) to invest in the Canadian market. Any suggestions? In a time like this, I wish I had so much money that I could afford an FA and a good tax advisor. My problem is more like "I am often wrong and always in doubt".

[youbet]

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Originally Posted by nash031 She is bulk equities, higher than I would expect at her age,

If you're really concerned about your mom's finances, you might want to take a breath, put your emotions about the FA aside, and think about whether she's undergoing a shark attack or serious malfeasance. First, consider her AA. You say she's higher in equities than you would expect at her age (and I assume given her other financial and life circumstances). That's serious. If the FA has you mom in an inappropriate AA for her age and circumstances, action needs to be taken. This could include reporting the FA to the appropriate gov't agencies.

Quote:

there is no doubt in my mind that with her expenses coupled with her performance vs. S&P vs. my 85/15 "three-fund-ish" portfolio that she's getting, in my previous word, "fleeced".

It's obvious the situation has your adrenaline flowing. But there is a difference between the FA marginally missing benchmarks (if the ones you're picking are appropriate) and your mom swimming with the sharks or going to work for Enron. I'd first focus on making sure this FA is legit, appropriately licensed, that your mom's account is intact (it isn't half gone, etc.) that he delivers money whenever your mom requests it and he has no complaints on file.

If it turns out that your mom's AA is OK for her age and circumstances and there is no suspicious or criminal activity taking place, then I'd do a deep dive and determine the level of "fleecing" using an appropriate guage, say her performance vs. a blended index benchmark that reflects her AA.

I completely understand your frustration.

[nash031]

Quote:

Originally Posted by youbet If you're really concerned about your mom's finances, you might want to take a breath, put your emotions about the FA aside, and think about whether she's undergoing a shark attack or serious malfeasance. First, consider her AA. You say she's higher in equities than you would expect at her age (and I assume given her other financial and life circumstances). That's serious. If the FA has you mom in an inappropriate AA for her age and circumstances, action needs to be taken. This could include reporting the FA to the appropriate gov't agencies. It's obvious the situation has your adrenaline flowing. But there is a difference between the FA marginally missing benchmarks (if the ones you're picking are appropriate) and your mom swimming with the sharks or going to work for Enron. I'd first focus on making sure this FA is legit, appropriately licensed, that your mom's account is intact (it isn't half gone, etc.) that he delivers money whenever your mom requests it and he has no complaints on file. If it turns out that your mom's AA is OK for her age and circumstances and there is no suspicious or criminal activity taking place, then I'd do a deep dive and determine the level of "fleecing" using an appropriate guage, say her performance vs. a blended index benchmark that reflects her AA. I completely understand your frustration.

No, I don't think her allocation is inappropriate, it just doesn't match the more conservative approaches many on here and other places use once they've won the game. I think it's OK given her assets.

I am not terribly concerned about her finances. She has money to live the lifestyle she wants until she's 99. She'll be fine. If it were otherwise, I would take action. She could probably have about $10K / year more to spend if she so desired, but the human capital of feeling comfortable with her situation is important. The FA apparently gives her that, so I let it be.

[papadad111]

Two thoughts

1. It's easier when things don't go well in investing and generally in life to just blame someone else, in this case, your financial advisor, for doing a lousy job. People like to pass the blame and pass the buck. It's human nature

2. It's comforting to have someone hold your hand when a situation gets tough. - be it mom when you skin your knee or a financial advisor when the market falls from 1575 to 666 - some people like to hear "it will be ok".

I contend the financial advisory industry is 80 percent psychology and behavioral science and just 20 percent math and tax laws and portfolio analysis and drawdown strategy - it's just not that complex - most investment advice can be written on a 3x5 note card, after all ..

https://www.youtube.com/watch?v=JdUKhgW1gOo

[kcowan]

I use a portfolio manager for a small portion of our combined portfolio. This is insurance because DW has zero interest/aptitude for doing it. So if something happens to me, she has a guy she trusts with a known track record of performance.

(After I am gone, she will have another $500k from key man insurance to spend as she pleases.)

[mpeirce]

Quote:

Originally Posted by papadad111 I contend the financial advisory industry is 80 percent psychology and behavioral science and just 20 percent math and tax laws and portfolio analysis and drawdown strategy - it's just not that complex - most investment advice can be written on a 3x5 note card, after all ..

+1

And 80 might be conservative.

We had a moderate family tussle over a FA for an older member of the family. The faction backing the FA won simply because the FA was a "friend" and the family member pushing the FA had so much (emotional) investment in that FA that getting her to change her mind would have cause a major rift in the family.

I quietly review the statements when I get the chance to make sure that there are no major ripoffs taking place. I don't approve of the investments the FA recommends, but they aren't criminal, so I keep my mouth shut.